Your reasons for shopping property for sale will frame your steps for buying and help you determine which real estate professionals you need
There are many reasons you may be shopping for property. Buying land presents an opportunity to build your dream home, vacation cottage or retirement home. You might also be interested in property as a real estate investment
Why do you want property?
Your reasons for wanting land and your immediate plans for that land will frame your steps in the buying process. They can also help you determine which real estate professionals you might need: A real estate agent? A real estate attorney? A builder? Who else? These professionals will want to know your reasons for shopping for property, so they can help you find the ideal lot or acreage.
Here are some questions to consider before interviewing real estate agents or looking for land:
- Why do you want to buy land?
- Do you plan to build on it?
- Will you build immediately or in the future?
- Do you have money for expenses: legal, surveying, planning and building if applicable?
- Do you want land for commercial use?
- Do you plan to resell the property (before or after building)?
- Do you want to be an owner-builder or hire a contractor?
Choosing the right professionals is key
Finding the ideal property to fit your needs requires research and help from the right professionals. You can begin your search and investigation without a real estate broker, yet including one in the process from the start may save you considerable time and hassle. The key is to find a broker or agent who specializes in property for sale. The intricacies of buying acreage or a lot are much different than buying a home.
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Likewise, if you are interested in property for a business, you’ll want an agent or broker who specializes in commercial land and development. This person will understand the desired return on that type of investment and will evaluate the property from the perspective of a commercial property/business owner: Is it easy to access? Is neighboring property slated for development? Can you easily find tenants if you plan to lease out space in the development?
How a real estate lawyer will help
You may have enough experience in land purchases to do some of these steps on your own. If you don’t work with a real estate broker or agent, you will need a real estate attorney at some point in the process. Even seasoned professional real estate developers say they don’t close land deals without legal assistance.
“I’m a lawyer and I use a lawyer whenever I’m buying properties,” says Steve Sanders, president and founder of lotnetwork.com. “You need to make sure you have someone who has a finger on the pulse of the local rules and regulations.”
Sanders’ comment brings up an important point when it comes to hiring real estate professionals. It’s not enough to hire someone who specializes in property for sale. You’ll really need help from people who know the area in which you want to buy. For one, they’ll know the state and local laws. Additionally, they may be familiar with the specific land or development of interest.
Avoiding property nightmares
Sanders’ article, “Seven Land Buying Nightmares,” just skims the dozens of things that can go wrong or be accidentally overlooked when you buy property – especially if you are a rookie to the process. To avoid these nightmares, real estate brokers and agents get legal counsel from attorneys at various stages in the buying process, from researching the zoning to writing the deed correctly for closing. It would be a nightmare if you bought land for your dream home and then discovered the zoning won’t allow what you envisioned.
A few steps in your land-buying process will hinge on your intended use for the property, yet many are necessary regardless of why you want property.
Shopping and researching property for sale
First, you’ll need to decide where you want to live, build or invest. This step is somewhat intuitive. Does the location feel right? Can you visualize your dream home there? You’ll also want to know if the property has issues that will hinder its resale, but that discovery comes in the next phase, research.
Research includes investigating the zoning restrictions, ordinances and covenants, easements, road access and possibly local flood zones. You can do most of this yourself via public records. However, if you’re working with a real estate agent, an attorney and/or a builder, these professionals should be accustomed with this due diligence and able to do it more thoroughly.
“If you have a builder that you plan on working with, take them to the site,” adds Sanders. “There may be issues that they are aware of.”
You will also need to research the available utilities and the cost to bring them to the property. This includes water, sewer, electricity, septic tanks and communications (cable, phone, Internet and cell phone service). In undeveloped areas, including suburban areas, the city may not have extended the water yet, so you will need a well. Not all land can offer a viable well or support a septic tank or leach field. Plus, it may surprise you that some areas still use dial-up Internet service and many locations have no cell service.
Types of title insurance and reasons to have it
If the lot or land you’re considering passes this initial due diligence, at some point you will likely want or need title insurance. Title insurance is not required in all land purchases. But, if you use financing to buy the land, you will probably be required to buy title insurance before closing. Title insurance protects your investment. It provides a background of all of the legal owners of your property, a guarantee that the title is accurate (and you own the land you’re buying) and protection from the past owners’ issues. For example, the property may have been part of a divorce or inheritance in which the ownership was challenged legally. In such a case, title insurance protects your ownership without impact from the previous owners’ dispute(s).
There are two types of title insurance: lender’s title insurance and owner’s title insurance. While your mortgage lender will likely require lender’s title insurance, it may not require owner’s title insurance. Lender’s title insurance protects the lender’s interest in the property. Owner’s insurance protects your interest. It would cover the money you borrowed for a home loan and any legal fees if an issue from a past owner was to arise.
The title search for this insurance exposes title hazards such as:
- Liens
- Judgments
- Creditor’s claims
- Claims on a will
- Pending legal action
- Mineral and air rights
- Special tax assessment
- Street and sewer assessments
- Easements that allow later construction
Although many of these issues are public record and may be researched by a real estate attorney, some will not surface in the lawyer’s research. Plus, an attorney is only liable for negligence, not hidden title problems. While title insurance may cost $1,000, legal fees run hundreds of dollars an hour.
Your title insurance policy will also have a clause that protects you against legal issues that may be revealed during the survey of your land, such as structures on your property, easements and inaccurate boundaries.
Financing options for property
Financing land is more difficult than getting a home loan because lenders assume more risk on the deal. Banks incurred a lot of losses on raw land and developments during the real estate downturn, so those that still lend on land require larger down payments on the loans.
Additionally, you can expect higher interest rates than you’d get for a home loan. A community bank I talked to requires a 35 percent down payment on acreage and a 25 percent down payment on a lot in a development. The requirement is lower for developments because typically developments have utilities, water, sewer and possibly paved roads. Not all banks loan on land, so you will want to shop lenders.
If you buy property where you wish to retire and pay off the land beforehand, you will have more leverage to get a construction loan when you’re ready to build. If you are buying a lot in a development or are ready to build immediately, you will want a construction loan. Builder/developers frequently offer competitive financing packages.
Now is a great time to invest in property
The biggest allure of purchasing property for sale now is that while home prices are finally rising again since the 2008 real estate market crash, new home construction remains flat. The National Association of Home Builders (NAHB) reported at the end of 2013 that many U.S. metro housing markets are returning to normal levels.
On the contrary, NAHB also reported that the number of new single-family home starts in 2013 was still less than half of new home starts in 2007. People are buying homes and refinancing as the market values of their homes return, but they’re not rushing out to buy land and build new homes. The Urban Land Institute also predicts an upswing in commercial real estate investment in 2014, although it’s predicated on job growth and continued recovery in the housing market.
So, if you have money to buy land or make a considerable down payment, and you can meet stringent financing requirements, you stand to get a great deal on acreage or a lot. Get started with the help of our real estate professionals now.
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