Buying Land – The Minimum You Need To Know

Land…. Dirt… Acreage. The desire to build a home on an undeveloped piece of land can be incredibly enticing.  Perhaps you have searched for your ‘dream home’ and came up empty-handed. The idea of building a custom home on YOUR piece of land may seem like a great idea.  You’ll have control over the design, architect, builder, and every subsequent design/build decision.   

For many, this is a perfectly acceptable solution regardless of whether there are no ‘perfect’ homes available to buy.  But the process of buying a piece of land and then building on it can present its very own challenges if you are not extremely familiar with what can be an arduous process.  It’s important to work with a seasoned real estate professional who is very familiar with the area where you a contemplating buying and building. A good REALTOR will know the advantages and disadvantages of the various locations where you are considering buying and may be able to offer up alternative ideas you may not have known about or considered. He or she may already know many of the potential pitfalls in a certain area, or on a specific parcel, saving you both valuable time and money.

The minimum you need to know when contemplating a land purchase

Financing   Land loans are considered riskier investments than homes and if you require financing, you may need to put a substantial percentage down on the purchase, and usually at a higher interest rate than a typical home mortgage.  Work with a qualified, knowledgable, lender, preferably local to the area. Loan terms can vary widely between lenders on a land purchase, so you may want to talk to a few lenders so you can compare terms and rates.  Be sure to ask the lender about the timing of your potential build so you can look at a combined land/construction loan.

Environmental issues  Mountain land can have a host of unforeseen issues relating to the environment that may not be visible to the naked eye.  It’s important to undertake a thorough environmental analysis. Just a few of the issues that may be of concern are:

  • Water quality.  Be aware of the possibility of groundwater contamination, especially in mountain towns with heritage of mining. While this will likely not be an issue, it would be wise to investigate the possibility.
  • Wetlands.   If there are known wetlands somewhere on, or near the parcel, make sure you can safely, and legally build on the parcel.  Wetland regulations are complex, and will probably require consultation with a knowledgeable real estate attorney specifically well-versed in this area.
  • Flood zone.  It’s important that you know whether or not the property is in a flood zone, and what type of flood zone (none, 100 year, 500 year…).  If determined you are in a flood zone it could mean you may need to buy (or be required to buy if you will have a loan) flood insurance, which can be quite costly. FEMA has a good website where you can check whether or not the property is in a flood zone.  You can also check on www.FreeFlood.com .  With this information, you may also decide you do not want to be in flood zone at all, even if insurable.
  • Soils.  A building permit is generally conditioned on a soils test by a soil engineer.  Soil types (including wetland areas), the slope of the building site, and other factors (e.g., areas susceptible to flooding) may require additional design considerations. And there are parcels which may be deemed unbuildable due to the possibility that the underlying concerns can simply not be mitigated. A good soils engineer will be able to weigh in on a possible septic design (if not able to hook into a municipal waste system), drainage issues, possible foundation design, and the potential for additional site remediation.  Especially in areas where there are known issues with flooding, wetlands, landslides, and expansive soils, it is a good idea to consult with a qualified soils engineer to determine the feasibility of building on a parcel, especially on the location of the site where you wish to build your home.

There are certainly other potential environmental issues you will want to be aware of, depending on the location.  For all the concerns listed above, and other potential issues, consult knowledgeable professionals who are experts in these areas, typically engineers who can perform adequate testing of the land to ensure the safety and build-ability of the parcel. A good real estate professional can also advise you of potential environmental issues that may be specific to the area, and possibly to the specific parcel.  

Survey  A new survey is critical when considering a land purchase.  A survey may turn up issues that are once again not visible to the naked eye. A few of these issues are as follows:

  • Encroachments.   A seemingly small thing like a neighbor’s fence unknowingly crossing a property line can become a big problem down the road.  A client of mine was concerned that a driveway on the adjoining lot might pass through the corner of the lot he wanted to purchase. He had a survey done and found out that the driveway was encroaching. We talked with the owner of the encroaching driveway, and as my client felt that the encroachment did him no harm, they both agreed to allow the driveway to continue to pass through that corner. The split the cost for an attorney to draw up an easement which now legally allows the encroachment in perpetuity.  
  • Property boundaries.   A parcel must be properly surveyed with all corners marked to be certain of the exact boundaries. This is especially true for irregularly shaped mountain properties which may not use the customary ‘lot and block’ descriptions in a recorded plat.
  • Easements.   A survey will uncover any known easements on the property (nonpossessory property rights) that may not be obvious to the buyer. For example, a survey might uncover that the electric company has an easement on the parcel allowing access to their electric infrastructure which could eliminate your  ability to build on a large chunk of the land. I once bought a home with an old wood shed that was directly in the path of a utility easement.  This was uncovered by a new survey.  I ultimately decided to allow the structure to remain within the easement, and the local title company insured the parcel since we all agreed the shed could easily be dismantled if the electric company ever required access.   

If there are items on the survey that you do not entirely understand, it is highly advised to engage a knowledgeable real estate attorney.

HOA Covenants  When buying land in a subdivision in which there is a Homeowner’s Association (HOA) it is critical to read through all the governing documents.  Examples of things you will want to be aware of are as follows:

  • Pets.  HOA rules usually trump any governmental laws or rules.  For example, horses may not be allowed on the parcel even though the parcel meets the criteria at the city or county level.  Dogs (and cats) too.
  • Home Business.  HOA rules may prohibit any sort of commercial use on the parcel.
  • Size.  Many HOA’s limit the maximum (and often minimum) home size.
  • Building Envelope.  You may want to build on that ridgeline, but the building envelope (possibly uncovered on the survey, or as an additional governing document) may prohibit it due to several factors, including visibility from other sites in the subdivision.

Once again, read through the HOA governing documents carefully and when in doubt, consult a knowledgeable real estate attorney for advice and interpretation.

Access  Make sure the property is accessible. I once sold a nice parcel of land (at a good discount) to a client where the property was known to be surrounded/landlocked by other parcels (A new survey confirmed this). It had no current ‘legal’ access.  In most cases, a legal parcel in Colorado cannot be denied accessibility, but it may require negotiations of an easement with one more more bordering landowners, or at worst, if the landowner(s) are unwilling, you may need to sue for access.  With patience, my client was able to ultimately negotiate an easement across the property of one of the adjoining landowners with the help of an attorney.

This is in no way an exhaustive list of issues to consider when purchasing a parcel of land.  Your best course of action is to first consult a knowledgeable real estate professional, and be sure to have a thorough inspection, including engineers who specialize in any areas of concern.  Be prepared to engage a good real estate attorney when the legal issues begin to get at all muddy.  

Finally, do NOT underestimate the cost of building in the mountains.  You might think that buying the perfect piece of land and then building to your specifications may be the only route where you will get you what you want, but don’t forget the hidden or overlooked costs. Be sure to add in such ‘hidden’ costs such as furnishings, upgraded finishes, fences, driveways, landscaping, window coverings, and the many other extras that would make a house your home!  

At the end of the day, you may decide it makes sense to wait for that ‘perfect’ dream home to come on the market rather than start from scratch.  Last year, I decided to look for a piece of land on which I would build a small cabin; a little getaway with some privacy and solitude. I ultimately found exactly the piece of land I was looking for, but with the added bonus of a small rustic cabin already on the parcel. I’m currently in the process of renovating the cabin exactly how I want it to be my ‘home away from home’.  I found the best of both worlds! Whether you decide to look for that perfect piece of land, a new home or that renovation project, be sure to work with a local REALTOR you like and trust to help you through the sometimes confusing process of achieving your dream of living in the mountains.

by Rick Eisenberg, www.rickeisenberg.com

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