Chapter Ten

Building Site

In the first place, you need a lot upon which to build. Most people think immediately in terms of a real estate agent. The agent is to be your representative in the purchase of the property.

He will give you a list of vacant lots, along with the prices. If and when you decide on one, he will carry your offer to the owner. He may go back and forth, between the owner and you two or three times before a purchase agreement is reached. He will then ask you to designate a real estate lawyer or a title company to handle the papers. At this point, he has concluded his work and has earned his commission, which will probably amount to somewhere between 5% and 10% of the purchase price, according to the local rate.

However, you cannot afford the luxury of spending 5% to 10% to secure a lot. After all, in the paragraph above, even though you engaged a real estate agent, you made all of the decisions yourself. The only thing he did by himself was to furnish the address of the vacant lot, which you bought.

You must learn how to locate a building site and deal directly with the owner. There are several ways, all of them simple.

In the first place the name, address and telephone number of any property owner may be ascertained at your City Hall, usually at the assessors office. All you need is the location of the lot.

A good procedure is to cruise around in the general area in which you would like to build. You may see a sign "For Sale by Owner", along with a telephone number. That is the ideal situation.

In another case you may see a desirable vacant lot with a Realtors sign on it or no sign at all. In either situation you can find the owner's name at the City Hall. In no case should you call the Realtor, since you immediately put the seller in the position of owing a commission. If you buy the lot, the net result would be that the commission would become a part of the price which you paid.

It is a good policy to call the owner of the desirable lot, even if there is a Realtor's sign on it. In many cases, you will find that the Realtor's listing has expired and the owner is free to deal with you directly.

Sometimes the owner has not listed the lot and is unaware that a Realtor has placed a sign on it.

Many times an owner will list a property, with the proviso that he reserves the right, as owner, to make a sale himself, in which case no commission will be paid.

Another uncomplicated method is to place an advertisement in a newspaper. It should simply state that you wish to buy a single family residential lot from the owner. If you wish, you may narrow the location of the lot to a certain area.

Regardless of the method which you use to secure a building site, remember that the more of your money which you share with others, the less will be your equity. That is the reason for eliminating the real estate commission.

Another consideration is the price which you pay. Most offers for lot purchases consist of a small down payment and the balance over a period of three to five years or more. You have heard the expression that "cash talks." If you are in a position to pay cash, you may find that it talks louder than you ever anticipated. After all, the land has sat there since it was deposited during the glacier age and has produced nothing but a long string of taxes.

It is reasonable to expect that a lot may be purchased for at least 20% less than the asking price, if the seller is to receive all cash. It is a practice among Realtors to attempt to list a lot for sale by telling the owner that it should bring considerably more money than it is actually worth. As a result, sometimes the Realtor succeeds in listing the lot. In any case, the value quoted is music to the owner's ears. Secretly he had no idea his land is so valuable. He decides to handle the sale himself, and the Realtor’s quotation becomes the asking price.

As time passes without results, he begins to wonder if he has over-priced his lot. He could use some cash, but the best offer he has to date is 10% down payment. Then along comes your offer of immediate cash in full, but at a discounted price. It is often accepted.

The location of the lot is important. It is best not to build a spec house in a neighborhood that is beginning to show signs of age.

In any community, there are developed areas where one may find a desirable lot which for some reason has remained vacant. Before buying, it is wise to check with the applicable Engineering Department or Building Department to ascertain if there are any flaws, such as slide areas or springs, which have precluded building there.

If you live in the area in which you wish to acquire land, you are probably aware of the most desirable residential sections. However, the local banks and savings and loans have them classified for loan purposes and will usually cooperate with you.

The most usable lots are those that are fully developed. They start out as a vacant field. To be "fully developed", they should have paved roads, curbs, gutters and sidewalks, if sidewalks are required by your locality. There should be a storm sewer to carry off excess surface water.

All of the above are called "off-site improvements." The lot itself should be supplied with sewer, water, electricity and natural gas and TV cable, if available. In today's operations, the above utilities are usually underground. They are called "on-site improvements."

In some cases, sewage will not be available and septic tanks must be used. The cost will be in addition to that of the land. You should ascertain, before purchase, if the soil will pass a "perk" test. That indicates that the soil is absorbent enough to accommodate a leaching field. This information may be obtained at the Building Department, as is true of most needed help. At least they will steer you to the proper source, if necessary.

Although a subdivision is a desirably place in which to build, some caution should be exercised. Successful subdivisions are an asset to any community. They usually have easy access to shopping, schools, churches, police and fire protection and recreational facilities, while within themselves they are characteristically residential in nature.

Developments, such as described above, are easily discernible, since lots sell quickly and houses follow soon after. There is also the project where lots sell slowly and development even more so. It is best to avoid a situation of this kind, even though lots are priced below the general market.

Copyright ©1995 Robert A. MacDonald, All Rights Reserved.
Last revised: May 10, 1998.