Without a doubt a book can be written on this subject and still there would be variables. Let’s start with the process as I advise my clients to do, to determine if building is the way to go. Some of this can be thrown out the window if cost and resale is no object. I am sure that goes for most of us, but let’s make believe we have a budget and care about the resale. Of course you know I will mention that you must check with your mortgage company before you start. Buying land requires a larger down payment, may be able to be combined with a building loan, may have payouts for the loan while building and may require payments immediately. You need to know what resources are necessary to do the project.

    Folks go about the process backwards in the fact they read an ad that they can build a home for $139,000 and then look for a $100,000 piece of land and figure they would have a prize at $239,900. Well if this were the case, most of us would be in brand new homes; however, it’s not that easy. Most of the teaser ads don’t include everything, including site work, (septic, well, grading, fill) some don’t include labor, and lets just say, they may be incomplete. The real way to go about it, is to sit down with a builder, work out the details of what you want to build, with allowances for the site work, as they vary from location to location. More on this in a moment. When you have an estimate, you can now determine, what is left over in your budget for the land. The other benefit of working it out with the builder first, is having another advocate on your side, when you are looking at land. A builder can read the test results and determine septic costs, which vary by thousands of dollars, and look at the land and determine what other problems, you may encounter, from ledge to driveway costs to running utilities. Wetlands setbacks and building envelope is also crucial. On this investment, it is crucial to have the experts look at it with you.

    The same rules apply to this as in anything anywhere. If it sounds too good to be true, it usually is. If the price is low, the possibility is that it is raw land, which means land that was not tested. Or the land was tested and the test holes were so bad, they are not going to provide them. Rear lots, also known as flag lots are also less expensive as the cost of pulling utilities and driveway are higher. Lets talk about the testing though as this is critical. The deep hole test determines what the soil is like. Without getting technical, certain types of soil lends itself to better drainage needed for the septic system. The soil types can also show how far down water may be. Mottling usually indicates that you are not far from water. If the seller has gone as far as to presenting the testing to the town and the lot is already approved, you may determine how many bedrooms can be built on the land. You can have 6,000 bathrooms in a home, but inevitably, the town sanitarian decides what type of septic system goes in and how many bedrooms, which boils down to occupants, the land will support. The deep hole test will also indicate if ledge is on the property which will be higher costs for blasting and can lead to having a raised septic system that can run into the 30k territory.  The perc test determines absorption of liquid and the rate it absorbs into the soil. Each town has their rate that is acceptable to them. Normally the town sanitarian is there for the test.

    The agents responsibility is to determine the value of your project after it is complete. You do not want to build a $500,000 home in a $350,000 neighborhood, unless paragraph 1, sentence 3 applies to you. The agent can also run comps in the area or in the project, to determine value of the land and if in a subdivision, if the sellers negotiated in the past. You also need to be aware of deed restrictions, such as minimum size of the house and rules and regulations of the neighborhood. But the agent is worth their weight in gold when it comes to writing the contract. Far too often I have seen contracts on land state that the land must be buildable. This is all fine and good if you are going to build a shed on it. Each case is different, however the typical wording should include:” Lot tests and building regulations from any and all regulating authorities should support the construction of a 2400 square ft. Colonial with 5 bedrooms and a 2 car garage with room for a 10x 40 in ground pool.” Further more the buyer should be given the chance to meet with the town hall or any other regulating authorities in that area to review their plans to insure their will be no problems. You don’t need to necessarily wait for project approval, but must have a warm and fuzzy feeling that you will not get turned down for the project.

    Even if you are not sure what builder you are going to use, use the one that you reviewed pricing with to go to the land and review the tests and site plan with you. It is amazing what a pair of trained eyes can do. You are not wasting their time. They want your business and it will help you in the long run. There are layouts of septic systems that on paper look great, but when the actual work has to be done, it is a much tougher task, due to everything from ledge to a huge drop off where the septic goes and I have seen many.

    The problem with raw land is structuring the deal. No tests were ever done (allegedly) and someone is going to have to pay for the deep hole test and perc test. That includes renting the backhoe to get the work done. If the land is priced cheap, as raw land should be, you may want to risk doing the test to get a deal, or split it with the seller or at least insure your deposit is safe if the land is not buildable. You or your agent can check the town hall records and talk with building department folks to see if there was any record of attempts to build on the property. It will probably surprise you that there was.

    I know this is one topic I will be adding to in the future as I could go on and on about it. I know some savvy investors who made a pile on land, but this is not always the case and unless you do your homework, you can end up with a pile of rocks with a nice view.