Happening NowLand Development / Subdivisions

Before answering a seller's Friday deadline on raw land, call the planning department first

Take an 11 acre parcel on the edge of a town of about 40,000, currently zoned agricultural, shown on the comprehensive plan as low density residential, with a sewer trunk line running along the road frontage on the utility map. Asking price $310,000, seller wanting an answer within days because another buyer looked at it recently. At that stage, a buyer typically has the plat, the county GIS layers, and a rough sketch suggesting maybe 34 to 38 lots at 7,000 square feet if the town allows that density. What is usually missing is the actual cost to get from agricultural zoning to recorded lots. Roads, water and sewer commonly run $25,000 to $60,000 a finished lot depending on the market, which is too wide a range to underwrite off alone. Rezoning timelines and how the planning commission tends to vote are the other unknowns. The decision is whether to offer at all, or offer with a long due diligence contingency and expect the seller to balk. If finished lots sell to builders at $85,000 and all-in cost lands near $70,000, there is a deal. If entitlement takes two years and $310,000 of dirt sits carrying at current rates the whole time, there may not be. The single highest value step before making any offer on unentitled land is a call to the planning department. It costs nothing, takes an afternoon, and replaces a wide guess with a real number for both timeline and density before any capital is at risk.

luis_carrera CS1CPRO 12

Answer

carlos_nunez AA4APRO 12

Don't buy it Friday. Tie it up. What's wanted 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 typical on a house. That gets paid for with earnest money, sometimes with option payments that go non-refundable in stages. That's the trade: the seller gets paid for waiting, the buyer doesn't carry the dirt with their own cash while the planning commission thinks about it. The sketch is the part worth throwing 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 puts 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, that's closer to 30 lots, maybe fewer. That changes the per lot dirt basis from about $8,500 to about $10,300 before a dollar is spent 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. Deals have died on exactly that point after the zoning went through. Spend $2,500 on an engineer for a yield study before spending $310,000 on dirt.

carlos_nunez AA4APRO 12

4 replies

tashaford30 SG2CPRO 16

Call the planner Monday morning. They will usually say on the phone whether a rezone to that density has a chance, and they may mention the last three applications on that road. It is free and it is the highest value hour available this week.

tashaford30 SG2CPRO 16

Rena 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.

Rena Expert

megan_doyle15PassivePRO

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

megan_doyle15PassivePRO

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