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Buying, New Home Construction

Questions to Ask Before Buying Land to Build Your Dream Home

As many dream of building a custom home, their excitement may overshadow stark differences between buying land and buying existing construction homes. If you’re wanting to build a home, there are several questions you need to ask before you buy land!

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If you have dreams of building your dream home this year, or at any point in the future, then you aren’t alone. According to the National Association of Realtors, land sales jumped 2% in 2019 with residential land prices increasing by 3%. As many dream of building a custom home, their excitement may overshadow stark differences between buying land and buying existing construction homes. If you’re wanting to build a home, there are several questions you need to ask before you buy land!

Are There Any Existing Structures or Homes On The Property?

This is a vital question because many lenders will not provide a construction loan on land if the first mortgage isn’t paid off. Unless you’re paying cash, the first mortgage is for the existing home and land. Many lenders will require that to be paid in full before providing a construction loan. Especially after the recession, banks do not want construction loans to be second mortgages on a property.

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Is the Land in a Flood Zone?

If the land is near running water, an ocean, or flood plain, the land could be in a flood zone. This is important to know prior to purchasing the land as it will increase insurance and building costs. Depending on the municipality or county, homes built in flood zones could have increased building standards that could dramatically increase construction costs.

Are Utilities Already Present On The Land?

In what some call “raw land,” there have been no improvements to the land— which includes utilities. If there are no utilities currently present on the land, there can be significant additional costs involved in adding them to the land. To check, call you local city or county planning commission, as well as the utility companies, to identify which utilities, if any, are present and any fees associated with moving or adding them.  Another thing to note, even if a utility, like water, is near, there can be additional costs in moving to the proper location on your parcel.

Has A Survey Been Completed?

The larger the parcel of land, the more important this question becomes. It’s important to know exactly where the boundary lines run before you purchase. If you plan to install a fence or driveway, you want to make sure those fall within your boundary lines in order to avoid boundary dispute litigation. If a survey has not been completed, this is another item that can be negotiated with the seller, and it’s advisable that the sale is contingent upon buyer’s satisfaction of the survey.

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Has A Percolation Test Been Completed?

Many parcels of land aren’t able to connect to city sewer. If that’s the case, a septic tank will be a necessary addition. In order to install a septic tank, the land will need a percolation test. A “perc test” is testing the soil on the land to insure it can sustain a septic system. This item can be hundreds of dollars, if not more- and doesn’t include the septic tank installation costs. This is also an item a buyer can negotiate with the seller when purchasing the land. If the perc test fails, it will not be a suitable site to build, so it’s critical the purchase is contingent upon a satisfactory perc test.

Does The Land Have Covenants?

Many parcels of land, especially those in subdivisions, may have restrictive covenants in place that run with the land. Covenants are rules that future homeowners must follow. They can dictate minimum (or maximum) square footage of homes, style of homes, usage of outbuildings, animals that can graze the property, specific builders required, etc. Prior to ever offering to purchase land, it’s crucial to not only know if covenants exist, but to also review the covenants in full. A Realtor, title company, or closing attorney can provide those covenants to you.

 

Mark Twain said, “Buy land. They aren’t making it anymore.” It was true then, and it still rings true today. Land is one of the best investments. The holding costs on land are typically much lower than existing homes, which is one of the benefits of buying and holding land until you’re ready to build. But not all parcels of land are created equally. Make sure you’re not buying land that can cost you more money. Before you write that check, ask numerous questions. Even if a home doesn’t already exist on the property, make sure you’re doing your due diligence in researching the property and inspecting the land.

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Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She's passionate about the power of real estate. She's also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

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