Finding your dream home isn\u2019t easy. You’ll spend a lot of time to scouring online listings, attending open houses and scoping out neighborhoods \u2013 and you may still come up empty-handed.<\/p>\n
Maybe your dream home just doesn\u2019t exist yet. In this case, building a home on a vacant piece of land may be the perfect option.<\/p>\n
But before you get serious about laying a foundation, be aware that a land purchase may yield more surprises than buying a home \u2013 from easements and zoning restrictions to environmental conditions that could easily turn your dream build into a headache the size of a McMansion.<\/p>\n
Whether you\u2019re buying vacant land to build a home for your family or you hope to sell the plot for a profit in the future, follow these rules to avoid buyer\u2019s remorse.<\/p>\n
Do work with a pro who knows land.<\/strong> Working with a real estate agent when you purchase a home is important to help you navigate the finer details, especially when you\u2019re unfamiliar with negotiations, due diligence and closing the deal. But when you\u2019re purchasing land, hire an agent who has extensive experience negotiating land deals.<\/p>\n A common mistake many land sellers and real estate agents make is to advertise a plot of land as having the potential to be subdivided, says Neville Graham, a Realtor specializing in land sales and associate partner for Partners Trust in Beverly Hills, California. Buyers may be left with a plot of land that will yield less profit than expected, while sellers could easily face a lawsuit for false advertising.<\/p>\n Don\u2019t expect to get a loan.<\/strong> A land purchase can\u2019t be leveraged with a bank the same way a home purchase can, so you\u2019ll likely have to pay cash if there\u2019s no structure on the property yet.<\/p>\n An investor purchasing an apartment building, for example, \u201cmight be able to put down 20 percent and get 80 percent from a bank, putting up the land and the building for a mortgage,\u201d says Larry Link, principal broker and president of Level Group in New York City. \u201cBut if you have a piece of land, you might be lucky if [a lender] gives you 40 percent or 50 percent of the value \u2013 and that\u2019s typically if you have a good bank relationship or other collateral. You\u2019re more likely to get zero.\u201d<\/p>\n You’ll have a much better chance of being approved for a construction loan on the building you want to put on the land, since the house you’ll build serves as collateral on the loan.<\/p>\n Do consider the value of homes in the neighborhood.<\/strong> One of the biggest draws of building your home is the ability to customize it, but be sure you\u2019re building your dream home in a neighborhood with similar taste.<\/p>\n Graham recalls working with a client who purchased land and designed a home only to be turned down for a construction loan because the cost of the land combined with the cost to build was about $2.2 million, significantly more than home values in the neighborhood, which were closer to $1.5 million.<\/p>\n \u201cIf it\u2019s overpriced, then you\u2019re not getting your [construction] loan,\u201d Graham says.<\/p>\n Don\u2019t skip the survey or environmental tests.<\/strong> Similar to a home inspection and background research on a house, a plot of land needs to be subjected to tests and checks to ensure you know what you\u2019re buying and that you\u2019ll be able to build on it.<\/p>\n Environmental tests check the soil for contamination from previous use. The site of a former gas station or auto body shop is more likely to have contaminated soil, for example, and residential homes can\u2019t be built there. The land’s potential for flooding or poor soil conditions for building are also of concern.<\/p>\n You\u2019ll also want to have a surveyor take a look at your property to identify the boundaries. Especially if the land is in a neighborhood and has been vacant for years, neighbors may have encroached beyond the property lines, intentionally or not.<\/p>\n \u201cYou may be shocked that part of the garden and part of the birdbath that these people [next door] have been attending to for the last eight years is on your property,\u201d Graham says.<\/p>\n Do take utilities and road access into account.<\/strong> It\u2019s easy to take access to running water, electricity and sewers for granted when you\u2019re buying an existing house, but with vacant land these are not always a given.<\/p>\n \u201cDepending on how developed the area is around the land, you want to know if it\u2019s going to cost money for infrastructure to be run to that land or if it\u2019s already serviced,\u201d says Michelle Farber Ross, real estate broker and managing partner of MMD Realty in Fort Lauderdale, Florida.<\/p>\n Don\u2019t talk to the neighbors.<\/strong> While speaking to neighbors when you\u2019re looking at a house may be a great idea to get a feel for the area, discussing your plans to build on a vacant lot with can easily lead to organized opposition to your future dream home.<\/p>\n Graham says it\u2019s common for neighbors who are used to having raw land near their home to get upset when the status quo is about change and seek to keep you from building. \u201cAll they\u2019re doing is gathering information to use against you,\u201d he says.<\/p>\n Hold off on making friends with the neighbors until any home is built and you\u2019re moved in. Otherwise, discussing plans could lead to a neighbor dispute before you\u2019ve even broken ground.<\/p>\n Don\u2019t assume you can have property rezoned.<\/strong> Your local governing body will have zones, codes and ordinances that limit what can be built on any property or require certain steps to build a sound structure.<\/p>\n For example, there may be required setbacks from the edge of the property, mandates to build a sea wall if you\u2019re on the waterfront, or a percentage of the land may be restricted from development. Getting an exception to the rule isn\u2019t easy, and there\u2019s a good chance it will be denied, Link says.<\/p>\n Rather than trying to rezone property, it\u2019s best to keep your vision within existing limits. Seek land that will allow you to build the home you want, but know your plot\u2019s restrictions before finalizing the plans.<\/p>\n \u201cYou can start with a conceptual idea of what you want to build with your architect, but to get real specific you\u2019d almost need to identify what piece of land it is,\u201d Farber Ross says.<\/p>\n