THE FIVE THINGS YOU MUST KNOW ABOUT BUYING RAW LAND
The housing market, like all markets, is cyclical. Although there have been a few bumps in the road over the past few years, the cycles have climbed to red-hot levels and dropped the ice cold depths, we know that it will eventually return to neutral. The American dream is still alive and well and will be so into the foreseeable future. The epitome of that American dream is to buy parcel of raw land, select the exact spot on that parcel to place their home, choose the floor plan that best meets their desires and make the hundreds of decisions that will turn that dream into reality. Unfortunately, not everyone can live this dream.
For those who do pursue the dream, the first step is to select and purchase the parcel of land. Buying raw land is not the same as buying an existing home. A buyer should consider many more factors to ensure the desirable outcome. In this post, we will discuss five factors that any buyer considering a land purchase should know about. Forewarned is forearmed. Making an informed purchase decision will smooth the road to your goal and eliminate many headaches and expensive problems.
Many buyers may not be aware of the fact that a significant number of land parcels on the market today are land locked. Access to them is available only by trespassing on a neighbor’s property or by helicopter. Although it may be possible to obtain an easement from a neighbor, that neighbor is likely to charge for the privilege. Many neighbors have no wish to grant an easement and do not have to do so. Even if you obtain an easement, you will also have to incur the cost of putting in a road and meeting that property owner’s requirement, whatever they may be. Selecting a property to which access is easily available illuminates these headaches. Most of these roads are dirt and can be in poor condition. Some require four-wheel-drive for passage. Parcels with paved road access are rare and usually price a little higher. However, in the long run the real cost is much lower.
Potable water is essential no matter the size of the home. Parcels with access to local utility water are rare and usually much smaller and closer to towns. The most practical alternative is a well. Some properties on the market have existing wells, most do not. Putting in a well can be a speculative process. When you start drilling, you never know for sure if you’re going to hit water. There is also the cost of drilling a well. The deeper you have to go to drill the higher the expense. It can easily cost $5,000-$10,000 to drill the well. In addition, when you do hit water there is no guarantee that well productivity will be sufficient. Obviously, the safest bet is to purchase a property with an existing tested well that produces an acceptable level of supply.
Electrical power is another essential ingredient in the equation. Although solar alternatives are becoming more viable, connection with the grid is the safest, tried and true, solution. PG&E, like any other utility, charges to bring in power to your building site from the closest access. The closer that access, the lower the costs. There is also a consideration about putting the power lines underground or on poles overhead. Finding a parcel with power at your desired building site is ideal. It is also extremely rare. Finding a parcel with power access at the property line is your second best choice. That is not the usual case with most parcels on the market but they do exist. It is far more common for most parcels to have power 200 to 500 feet, or more, from your desired building site. Bringing power in on those parcels can be very expensive.
SEPTIC – PERCOLATION TEST
No County will issue a building permit unless the applicant can produce a Perk Test report indicating that the soils at the selected location will absorb and filter waste materials. If the property passed a perk test, that assures the owner that the septic system they install will function properly. A good buyers agent will include a clause in the purchase offer document stipulating that the buyer can cancel the agreement of the property does not pass the perk test.
Land parcels with access to local sewer systems are rare indeed. A vast majority of properties will require a septic system and passing a perk test is essential. A few properties on the market have already passed the perk test and the listing agents are usually happy to provide a copy of the test report.
Financing the purchase of raw land is very different from financing the purchase of an existing home. There is no such thing as a 30-year fixed-rate mortgage for land. The majority of land sellers will accept only cash offers. There are rare occasions where a seller will finance a portion of the purchase for short term (one to two years). Most will require 30% to 50% down. The third financing alternative is the hard moneylender. Some will finance the purchase with as little as 20% to 25% down for a period of two to three years. However, their rates and fees are much higher than you will find when financing an existing home.
For those who qualify, there are construction loans available where the lender makes payments for each phase of construction. For example, they fund for the foundation, inspect the completed work and then fund for the framing. Inspections are made after each phase prior to founding the next. When construction is complete, the loan converts to a standard home mortgage loan. In almost all cases, construction must be completed within 12 months.
Finally, prudence dictates that prospective buyers consult the local County building Department to ascertain the costs for permits and fees. Much will depend on the location of the parcel selected in the size of the home you wish to build. It is always a good idea to have a ballpark estimate of your total costs before pursuing your dream.
Feel free to contact us, at 916-337-0658 or e-mail Mike@BuyYourVilla.com, if you have any questions or wish more information about a parcel in which you have an interest. Our goal is to help buyers successfully navigate this process and make their dream a reality.