Not Just Price
by Nancy Chadwick
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 its
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.
Bio:
Nancy E. Chadwick, President and Broker of Chadwick Real Estate, Inc., is a PA
licensed real estate Broker and Instructor. She entered the real estate business
in 1982 following her career in the Philadelphia legal community as an
environmental and litigation paralegal. She has specialized in land development
for most of her real estate career, achieving top-producer status in several of
her past agency affiliations. Her services have been sought by a wide range of
clients, including builders and developers, non-profit organizations, estates,
REO departments of financial institutions, medical groups, consumers and other
real estate professionals.
Her book Land Buying & Selling is based on the state-of-the-art courses she
created that have been approved by the PA Real Estate Commission (for real
estate brokers and agents) and the PA Board of Certified Real Estate appraisers
(for certified appraisers and appraiser candidates). She also teaches courses
exclusively for consumers.