Dear Real Estate Adviser,
I’d like to buy a home in a nearby town but I can’t find what I want in my price range. So I’m exploring the idea of building a home, though I’m told the community is “built out” as far as subdivisions go. I see random lots for sale, but I hesitate to buy without knowing more. Realtors only want to sell existing homes, it seems. Who can help me find a fair deal on vacant land?
— D. Adams
First off, you should know it’s very unlikely you can buy a vacant lot and build a home on it for what you’d pay for an existing home. But if price isn’t a big issue, by all means proceed. As you’ll see, though, the process might be a bit more involved than you think.
As you’ve discovered, not all agents have the desire or background to help you locate and negotiate the purchase of a vacant lot for a “build-to-suit.” Contact the main real estate agencies in the area and ask if they employ any experienced land/lot agents. You’ll want one who’s done at least a half-dozen or so such deals in recent years and is familiar with local land issues. Since the seller is probably going to pay the commission, there’s typically no reason you shouldn’t use an agent, though some will ask for a flat fee because they’d net so little compensation otherwise.
In the meantime, you can do a little homework by checking websites for available area lots (select “land” and then “past sales”). Local builders, both conventional and custom, should have their own lot availability information, too. Such efforts should at least give you a ballpark idea of pricing. Then, the following tasks await you.
Match the home design and footprint to the existing neighborhood as best as possible. A 3,000-square-foot home in a neighborhood of mostly 1,200-square-foot homes will have diminished resale potential. Realize, too, that there may be a good reason no one has bought a specific lot, such as flooding, title or legal issues, or an odd shape. The best way to get the most thorough background on a lot is to employ a reputable title insurance company.
Determine the utility status of the lot. Ideally, it will have such an infrastructure installed. Otherwise, you’ll be dealing with the power company, water company, gas company and phone company for expensive work.
Pay cash, if you can. Major banks are a little shy about handing out small land loans because there’s no house to serve as collateral. A credit union or savings and loan might be a better option. You might also try talking with a mortgage broker because brokers aren’t tied to one particular lender. Ask about builder mortgages, land loans and combined land construction loans. If you do want to finance through a conventional lender, you’ll likely have to pay for a lender appraisal.
Get your new property surveyed. This is another good idea so you (and your neighbors) will be clear on boundary lines. The longer a property sits vacant, the greater the tendency for neighbors to appropriate little slices of it for their own uses such as gardens and swingsets. Besides, a previous survey may have been inaccurate.
Check with the city and any homeowners association that governs the subdivision. This is to ensure the home you want to build is permissible. If it’s in an existing subdivision, ask for a copy of any restrictive covenants placed on the land by original owners.
Negotiate. If the lot is still owned by the subdivision’s original developer, there will probably be less negotiating room. Some developers will only sell lots on which they’re contracted to build. The most motivated sellers are typically those who’ve had the property on the market for a considerable time and are facing economic pressures.
Sound complicated and expensive? If so, it might behoove you to take another look at the available housing and tour a few more homes that are relatively close to your desired profile. Good luck with your decision!
Ask the adviser
To ask a question of the Real Estate Adviser, go to the “Ask the Experts” page and select “Buying, selling a home” as the topic. Read more Real Estate Adviser columns and more stories about mortgages.