Seller wants an answer Friday and I have no idea what entitlement costs

A broker sent me an 11 acre piece on the edge of a town of about 40,000. Currently zoned agricultural, the comprehensive plan shows it as low density residential, and there's a sewer trunk line running along the road frontage according to the utility map I pulled. Asking is $310,000. Seller wants a response by Friday because someone else looked at it last week.

What I have: the plat, the county GIS layers, a rough sketch a friend drew showing maybe 34 to 38 lots at 7,000 square feet if the town lets me go that dense.

What I don't have: any idea what it costs to get from agricultural zoning to recorded lots. I've read that roads and water and sewer run somewhere between $25,000 and $60,000 a finished lot depending on the market, which is such a wide range it tells me nothing. I also don't know how long rezoning takes here or whether the planning commission is friendly.

The decision in front of me is whether to make an offer at all, or whether to offer with a long contingency period and expect the seller to laugh. If lots sell to builders at $85,000 and I'm all in at $70,000 there's a deal. If entitlement takes two years and I'm carrying $310,000 of dirt at current rates the whole time, I don't know that there is.

I have not called the planning department. That's probably the answer and I'm embarrassed it isn't done.

Answer

1carlos_nunezActive

Don't buy it Friday. Tie it up.

What you want is a purchase agreement with a feasibility period long enough to get through the rezone, or at least long enough to get a preliminary opinion from the town plus a civil engineer's rough grading and utility estimate. On raw land going through entitlement that period is often measured in months, not the 14 days you'd get on a house. You pay for that with earnest money, sometimes with option payments that go non-refundable in stages. That's the trade: the seller gets paid for waiting, you don't get to carry the dirt with your own cash while the planning commission thinks about it.

Your sketch is the part I'd throw out. 34 to 38 lots at 7,000 square feet is 238,000 to 266,000 square feet of lot area on a parcel of 479,160, so the sketch is putting only about 50 to 55 percent of the gross land into lots, which actually fits inside a normal net yield. What moves the count is the minimum lot size the town will approve. Real yield after right of way, stormwater detention, and any setbacks or buffers is usually 60 to 75 percent of gross acreage in a suburban single family layout. Call it 7 usable acres, and if the town's minimum lot ends up at 8,500 feet you're closer to 30 lots, maybe fewer. That changes your per lot dirt basis from about $8,500 to about $10,300 before you've spent a dollar on improvements.

Also, a sewer line at the frontage is not the same as capacity in that line or the right to connect. Ask the utility for a capacity letter in writing. I've watched a deal die on that exact point after the zoning went through.

Spend $2,500 on an engineer for a yield study before you spend $310,000 on dirt.

4 replies

1tashaford30PB2APRO7

Call the planner Monday morning. They will usually tell you on the phone whether a rezone to that density has a chance, and they may tell you about the last three applications on that road. It's free and it's the highest value hour you'll spend this week.

4Rena Expert

The number your whole deal depends on is finished lot price to builders in that specific submarket, and you're treating it as an assumption when it's the one thing you can actually verify. Call the land acquisition person at two or three builders active within 10 miles and ask what they're paying per lot and what lot width they want. They will usually talk to you, because a supply of buildable lots is what they're short of. If they say $70,000 instead of $85,000, the deal is over and you learned it for the cost of a phone call.

On the improvement side, the $25,000 to $60,000 range you found is wide because it is driven by things you can measure on this site. Depth of the sewer and whether you can gravity flow to it or need a lift station. How much dirt has to move to get buildable pads. Whether the town requires curb and gutter and sidewalks on both sides. Whether stormwater can be handled in a dry pond or needs underground storage. An engineer's opinion of probable cost after a site visit will narrow that to a real band.

Carry cost is the second thing. If you're borrowing against raw, unentitled land, expect the shortest terms and highest rates in the residential world, and confirm the actual terms in writing with a lender before you underwrite them. Every additional month of entitlement adds interest to a basis that isn't generating income.

Entitlement outcome is never guaranteed. Structure the contract so a denial hands you back your money instead of a piece of farmland you can't subdivide.

3megan_doyle15 Get yours

I didn't know a sewer line being there and being usable were two different things. Filing that away, thanks quarry.

Seller wants an answer Friday and I have no idea what entitlement costs

4 replies