How Builders Evaluate Land

Some builders search for property strictly by geographic area. Others search for parcels that would enable them to reach particular buyer sub-markets (housing type, price range, lifestyle, age group). Either way, builders begin the investigation by casting the net into their areas of markets of choice and sifting through potential acquisition candidates. They have to pick through dozens of properties before they find one they think they can develop profitably. Sometimes they can tell quickly if a property is worth pursuing further. More often, however, they don't know this until they spend varying amounts of time, effort and money collecting information about a site. In either case, their investigation focuses on obtaining answers to five fundamental but critical questions: What can I build? How many can I build? What can I sell them for? How long will it take to sell them? What are the costs?

How to Subdivide Land

Zoning governs the uses that are permitted on your property, but it doesn't deal with how and to what extent you can subdivide it to create two or more parcels. For these issues, you would need to consult the municipality's subdivision and land development ordinance. These ordinances that are amended periodically spell out: construction and design standards for site improvements such as curbs, sidewalks and streets; safety issues (grades, street widths, angles at intersecting streets); other issues like street lighting, grading and landscaping; and procedural requirements dealing with submission deadlines, size or paper and types of data to be shown on the plans.

What the Land is Worth

Many factors determine what a parcel of land is worth, including location, uses allowed by the zoning, the projected sale price of the end product, the number of lots, and the costs of development. Basically, the value of land for residential development is calculated on a per-lot basis, not a per-acre basis. The reason for this is simple. A 10-acre property may produce 5, 6 or 8 lots, but it won't produce 10 lots. Some part of the property will be "wasted" because of physical and other conditions. Consequently, the ultimate value of the land depends on what the parcel will yield.

Why Location is Important

We've all heard about location, location, location. But why is it so important? The answer is very simple: location is the only thing about a property that you can't change. Wait a minute, you say. That's not correct because you can move the house. That's true. Maybe you can (although it's often not feasible and it's expensive to do). But even if you can move the house, you won't change the property's location because you can't pick the land up and move it. It's the land that gives the property its location, not the house. The house isn't permanent. Only the land is permanent. For better or worse, you're "stuck" with a property's location. Location determines many things, including the current zoning, the types and values of properties in the vicinity, and the presence of public utilities. And if you're thinking about developing a property, these issues can mean the difference between success and failure. learn

Land Features and Constraints

Your ability to develop a property hinges on several factors. The most obvious one consists of the man-made and natural physical conditions of the property. In addition to existing structures, man-made features could also include past or present land uses that have changed some physical aspect of the property, like regrading, creating a pond, or contaminating soils and groundwater. Natural features basically consist of everything that is not man-made, including topography, parcel size and shape, wetlands, rock and floodplain. Man-made and natural physical conditions are usually referred to as "features and constraints" because they have a tremendous impact on the ability to develop a property.

Not Just Price

Strange as it might seem, if you're thinking about buying or selling land and development property, price is the last thing you should be focusing on and not the first. Why? Because price is relative to just about everything else relating to the property. This "just about everything else" that's more important includes not only the suitability of the property for development, but the types of contingencies included in the purchase contract, such as a period of time to investigate the property and collect information. The wording of terms and conditions can make or break the deal and consequently, terms are often more important in the land transaction than price itself.

Some Terminology

As Is Where Is Sale: One in which the buyer is purchasing with no contingencies or fewer than the customary development contingencies.

Building Envelope: That area of a property remaining after marking off the front, rear and side yard setbacks being the portion of the property within which a structure can be built.
Conservation easement: voluntary limitation or prohibition of future development on property in exchange for owner receiving tax relief or other monetary benefit.

Deed Plot Plan: A "to-scale" plan generated from the legal description contained in the deed.

Impact Fees: One-time fees charged developers by local governments to fund the impact of the development on existing systems or facilities, such as fire protection, roads, schools and utilities.

Subdivision Plan: Collectively, a set of plans submitted by applicant for subdivision approval; first sheet in the set of plans that is recorded after all of the municipal requirements have been satisfied.