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Mark Twain once famously said, "Buy land, they're not making it anymore." And it seems like everyone is taking his advice. Over the past few decades, the price of land in desirable areas has skyrocketed, with some regions experiencing double-digit year-on-year growth. But fear not, as a future homeowner, finding the right piece of land at the right price is not an insurmountable task. In this article, we will delve into everything you need to know about residential land costs.
Understanding Land Cost Terminology
To start, let's familiarize ourselves with some relevant land cost terminologies:
Land Costs: Definition
Land costs encompass all expenses associated with acquiring a piece of property and readying it for construction.
Purchase Price: Definition
The purchase price is the amount the buyer pays to acquire the land in question.
Encumbrances: Definition
Encumbrances refer to potential liabilities attached to a property, such as liens, mortgages, or unpaid costs like property taxes.
Preparation Costs: Definition
Preparation costs include any expenses associated with readying the land for construction. This can include soils tests, site surveys, engineering plans, shoring, grading, and clearing trees or debris from the property.
Improvements: Definition
Improvements to the land include installing utility lines, lighting systems, landscaping, and drainage.
Now that we have a grasp of the terminology, let's dive into how land is valued and the appraisal process.
Land Value vs. Land Cost
It's vital to understand the difference between land value and land cost. Value refers to the subjective worth a buyer or seller assigns to a piece of land, while cost refers to the actual expenditure paid for the land. In practical terms, a buyer may see a difference between the perceived value and the eventual sale price.
Understanding the Appraisal Process
In most real estate transactions, a professional appraiser is hired to determine and verify the value of the property. The appraiser considers three primary valuation approaches: the income approach, the cost approach, and the sales comparison approach. For residential land buyers, the sales comparison approach is most relevant. This approach involves using comparable sales data to determine the value of a piece of land. However, finding relevant sales comparisons for custom-home/luxury residential lots can be challenging.
When purchasing residential land, there can be some ambiguity regarding the actual amount buyers end up paying. To mitigate this, working with a custom home builder or developer can provide more stability and access to actual sales data from comparable properties.
Finding the Perfect Lot
If you're not a real estate professional, finding open land to build your dream home can be overwhelming. Here are a few options to consider:
Online Platforms
Online real estate platforms like Zillow, Redfin, and Trulia allow custom home searchers to browse open lots based on location and other attributes. However, it's important to exercise caution when relying solely on valuations provided by these platforms, as they may be inaccurate for undeveloped land.
Work With an Agent
While studies may suggest that real estate agents don't always improve financial outcomes, their market knowledge and relationships can be valuable, especially in niche markets like residential custom home construction. Agents can guide you in situations where your market knowledge is limited or when online searches have hit a dead end.
Seek Out a Custom Home Builder
Working with a custom home builder offers the added benefit of cost savings and market expertise. Builders can provide comprehensive market-related insights and offer customization options at a lower price compared to the open market. They can also guide you towards off-market home sites and handle the heavy lifting, freeing up your time.
Conclusion: Worth the Wait
Finding and acquiring land for your dream home can be both exciting and nerve-wracking. To ensure you're making the right decision, it's essential to work with a savvy custom home builder who can estimate the total project cost before you make any commitments. Building your dream home is a marathon, not a sprint, but the results are well worth the wait.
Found the perfect lot or already own land? Schedule your free feasibility estimate with us today! At Thomas Sattler Homes, we prioritize your needs and pride ourselves on delivering a customer-oriented experience. Reach out to our Sales Team at (720) 449-3562 or visit our website at ThomasSattlerHomes.com.
