Land purchase due diligence is an essential part of buying land to build a house on. If you are considering building a custom home on your land, this guide is meant for you. Here we’ll cover the specifics of land purchase due diligence: what it is and why it’s important when buying land to build on. We’ve also included a land purchase due diligence checklist for you to use as you go through the process of finding and purchasing land for your new home.
What To Look For When Buying Land To Build A House On?
Before we jump into the details of land purchase due diligence. It’s important to consider what you should be looking for when you start searching for land to build a house on. First, your land purchase budget is vital to finding land to build on.
In our area of southwestern Idaho, the cost of land can be 25% or more of the total cost to build a custom home. If you aren’t purchasing with cash, you’ll need to factor in how you will finance a custom home build as this can impact your budget for land.
Another essential step when looking for land is finding a realtor who is experienced in land purchases. A local realtor can be an invaluable resource when looking for land to build on. Beyond the usual benefits of understanding the process and helping you find a parcel of land that fits your budget, a local realtor can also provide insight and be a knowledgeable resource for you during the land purchase due diligence process.
At Pathway Builders, we work closely with clients and their real estate agents to support the land due diligence process. A local agent can help you find land that meets your needs and budget, and we can help you understand what to look for from a build perspective. Contact Pathway Builders if you have questions as you search for land to build on.
For more tips and comprehensive information, see our guide on how to buy land to build a house on.
What Does Land Purchase Due Diligence Mean?
Land purchase due diligence is a comprehensive investigation into the land you are considering purchasing to ensure that you have the information needed to make an informed decision about your purchase.
Conducting due diligence on your land purchase helps you to understand restrictions, ensure the land can be built on, mitigate risk, and provide you with information about potential costs that may be required when developing the land to build your custom home.
Buying Raw Land vs Developed Land
When going through your land purchase due diligence, there will be some differences dependent on if you have purchased raw land or developed land.
With developed land, you’ll be buying land that has already undergone some site preparation, one of the hidden costs of building a custom home. In this case, the amount of land purchase due diligence should be reduced because the land developer will have gone through some of the due diligence work already. This is particularly relevant if you are buying developed land in a dedicated community, where the land has already been set up with utility connections, site preparation is complete, and you know the property is zoned to build a house.
When you purchase raw land, that is land in its undeveloped, natural state, there is more due diligence to be done to ensure that the land is buildable, zoned appropriately, and to understand any site work required, to name just a few things.
No matter whether you are buying raw land or developed land, you can still use this land purchase due diligence checklist to ensure you’ve covered all of these items
How To Conduct Land Purchase Due Diligence
Perform A Title Search
The title report that comes from a title search is essential in understanding the ownership of the property and any outstanding liens against the land. You’ll also uncover any easements that exist which can impact use of the land as well as any land leases that may exist. The title search and report are a critical component of any land purchase. Learn more about what a title search can uncover.
Review The Land Survey
When performing land purchase due diligence a land survey is particularly important in understanding the property lines and identifying any existing encroachments on the property. If there hasn’t been a recent land survey, you’ll want to hire a professional surveyor to perform a survey of the land during your due diligence.
Check Zoning Information
If your intention is to build on your land, it’s necessary to confirm that the property is zoned for residential use. If you are planning to build multiple residences or to divide the land into parcels, you also need to make sure that the land you are purchasing is zoned for these uses. Also consider any setbacks and other zoning regulations that may be in place such as a minimum residence or residence to lot ratio.
Get An Appraisal
Knowing what the land is worth before you purchase will inform the price you pay and should uncover any challenges that impact the value of the lot. Typically a land appraisal will include property details and a detailed description of the property along with a market analysis and the highest and best use analysis.
The highest and best use analysis covers factors such as the property’s current use and looks at the demand and potential to develop the property for other uses. The land appraisal will also impact financing of the land purchase.
Determine Property Taxes
Knowing what you’ll pay in property taxes is a natural part of any real estate purchase due diligence. Land purchase due diligence is no different.
To find out the property tax you can expect to pay once you own the land, you can check with the local tax assessor or municipality. You’ll find current property tax rates as well as any special assessment taxes. You can also view the property taxes history of the property.
Keep in mind that when you build on the land, your new home will increase the value of your property and therefore the subsequent property taxes you’ll be required to pay.
Understand Property Access
As part of your land purchase due diligence you’ll want to understand how the property can be accessed and the types of access available. For example, if the property is adjacent to a public road, this will likely be your main access. In a subdivision, the access can be via a private road, which will be privately maintained. This road may only be accessible by certain groups of people, such as those living within the subdivision.
In some cases, the land may be accessible via an easement, which means to access the property, you are granted access to property owned by another person. This is typically used in cases where land is not otherwise accessible.
Understanding how you can access your property is essential when looking for land you want to build on and will help you to budget for costs related to access to your property that you may have otherwise left out of your plans. In other cases you may find that there is no recorded property access and it may be necessary to pursue an easement, which would require additional legal work and is not guaranteed.
Know Your Rights
For many, one benefit of a land purchase, especially a purchase of raw land, is the potential uses and rights for the land. Even if your main use is residential, the rights that do or don’t come with your land purchase can impact future use of your land as well as add value to your property.
It’s possible that certain rights which typically come with land ownership have been sold to another party. Before you purchase land, it’s important to understand what rights are yours and if there are any rights that have been separated from the property purchase.
Common land ownership rights to review include Mineral Rights, Timber Rights, Crop Rights, Wind Rights, Water Rights, Grazing Rights, Air Rights, Riparian Rights, and Littoral Rights.
Knowing what rights are included and those that aren’t before you purchase will help you understand potential value of your land and how usage of rights may impact your experience living on the property.
Conduct Environmental Assessments
Environmental assessments include things like a soil study and an understanding of flood zones that impact your property. These assessments are crucial in determining the viability of building on the land you intend to buy.
A soil study will alert you to any potential stability issues or additional work or special engineering that may be required to build a solid foundation before you build your new custom home.
If the land you are interested in purchasing is in a flood plain, you’ll likely need a flood plain development permit. It will also help you determine flood risks and allow you to take steps to mitigate the risks and what that means for the construction of the home you want to build on your land.
Environmental assessments should also include looking into any restrictions for land use based on factors such as protected species or regulations around building in wetlands.
Learn About Land Use
Previous land use can be significant when determining whether a property is suitable for your new home. Past use of a property can indicate whether there may be contaminants to be aware of or test for, it can also provide you with context on what you might expect when preparing the land for development, and alert you to potential concerns.
Similarly, understanding how the property is currently used will reveal similar information for you to consider.
Looking into future land use should also be a part of your land purchase due diligence process. For your property this should be considered in the appraisal; however, taking into account future planned development in the area can provide you with more information about potential impact on the value of the property you intend to purchase.
Find Out What’s Required For Site Development
When planning to build a custom home on your land, understanding what’s required for site development should be included in your land purchase due diligence process. Site development includes any site prep work like tree removal or grading required before building. For more information, see our full guide on site development.
If you are buying a piece of developed land, additional site development required should be minimal; however, it’s still best to find out what’s needed before making your purchase decision.
Utility Access
As part of your land purchase due diligence before buying land to build on, you’ll need to understand how and if you can hook into local utilities. To do so, you can contact local utility suppliers to find out if your land can be connected and if so, the process to go about doing so. Connection to utilities is one of the most common hidden costs of building a custom home, so understanding what’s required during your land purchase due diligence gives you a better understanding of your total cost to build on the land.
In our area of Idaho, it’s common that a rural property may require a septic system. For these two systems you’ll typically need to undertake additional testing to make sure your land is suitable for the type of system before it is installed.
To install a septic system often requires an authorization prior to receiving a building permit. For authorization it’s common to conduct a perc test, which tests the soil and groundwater levels, factors that impact the type of septic system you can use on your land. For more information on septic systems in Idaho and the department to contact see the Septic Systems and Drainfields brochure from the state Department of Environmental Quality.
If you are purchasing a plot of developed land, your utility connections will likely be in place, limiting the additional cost, time, and testing required to determine utility connection feasibility. However, be sure to ask about utility hookups even when buying a developed piece of land so that you know what’s required when you are ready to build.
Review CC&Rs & HOA Information
CC&Rs and HOA information will most likely apply when buying land in a planned community. CC&Rs stands for Covenants, Conditions, and Restrictions. These are a set of regulations related to how a property can be used.
Many homeowner’s associations also have Architectural Control Committees (ACCs) or Architectural Review Committees (ARCs) which include requirements for the home’s build in the community. If the land you a purchasing is in an HOA be sure to determine if there is an ACC or ARC and understand how these requirements will impact your potential build.
ARC regulations can include square footage or setback requirements or specific exterior finishes. The requirements can have an impact on the cost to build your home if for example masonry is required or you need minimum square footage, so it’s important to understand this during your due diligence.
To get a copy of a property’s CC&Rs, ACC/ARC requirements, and any other related HOA information, you can contact the HOA. Any CC&Rs should also be available as part of your land purchase documents or can be found in the relevant county recorder’s office.
Land Purchase Due Diligence Checklist
- Perform A Title Search
- Review The Land Survey
- Check Zoning Information
- Get An Appraisal
- Determine Property Taxes
- Understand Property Access
- Know Your Rights
- Conduct Environmental Assessments
- Learn About Land Use
- Find Out What’s Required For Site Development
- Utility Access
- Review CC&Rs & HOA Information
Land Purchase Due Diligence FAQs
How to research land before buying?
Using this land due diligence checklist will help you understand what and how to research land before deciding to buy it. Working with qualified professionals such as a real estate agent, surveyor, and title company, can all be invaluable resources in helping you research the property you want to purchase.
How do you know if the land is buildable?
The only way to determine whether the land is buildable is to perform adequate due diligence and research before buying the land. Using the information we’ve included in this land purchase due diligence checklist is a helpful starting point.
How long after buying land do you have to build?
Unless you are building in a neighborhood with restrictions on when you need to build, there isn’t typically a timeline you need to follow before building a home on your land. Keep in mind, the longer you own your land, the longer you’ll be paying property taxes on the land even if you haven’t built your home yet.
What is the difference between buying a lot and buying land to build on?
Buying a lot and buying land can refer to the same thing; however, oftentimes a lot is used to refer to a developed piece of land in a planned neighborhood or subdivision. Whereas buying land can refer to the purchase of a parcel of undeveloped land.
Where to buy land to build a house?
Where you buy land to build a house depends primarily on your preferences and where you’d like to live. If you are looking for land in a highly developed area with less land available, you may need to expand your search to areas with less development in order to find land that works for your needs.
Another option for developed areas can be to look for infill opportunities or parcels that can be subdivided to allow you to build a home on land that is in the area where you’d like to live.
If you are interested in building a custom home on your land, we’d love to talk with you. You can contact us to talk about your new home build or use our instant quote tool to get a quote to build a home customized to your needs.
If you are still in the process of finding a land, we’d be happy to connect you with our in-house real estate team for assistance with your land purchase.
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