Recently I’ve had a handful of clients looking at buying land, a process which goes down a little differently than the typical home-buying process. It got me thinking that a blog post spelling out some of those differences might be in order. So on that note, let’s jump in!
First, let’s talk terminology since there can be some ambiguity here. Raw land (also commonly referred to as unimproved land) is pretty much what the name implies: no structures or other improvements exist on it. Improvements would be things like ready access to utilities, or paved streets.
That said, the terms do tend to take on slightly different meaning in different areas. For instance, we were looking at lots in the newest phase of a subdivision in Liberty Hill (which, if you’re unfamiliar, is pretty rural but not all that far out from Austin proper — less than 30 minutes up the road). The final plat map had been recorded (but only just) but no construction had yet taken place on any of the lots. These lots were considered unimproved; though clearly improvements existed in that the streets were in the process of being graded and paved and utility access was available in the form of water taps and electrical boxes, individual lots were not yet cleared or graded and had no structures on them.
Now in other scenarios raw/unimproved land for sale might have none of those things — no paved roads, no ready utility access — so a necessary question to ask before considering a purchase is: How far away are those things? If a piece of land is very remote and you plan to eventually do something other than camp on it (and go stump jumping in your 4-wheeler to get to it) you need to know what you’re signing up for. Or even if stump jumping and camping was your plan, you might be otherwise obligated anyway! Do read on…
In the state of Texas your Realtor would generally use the TREC Unimproved Property Contract to purchase either of the above raw/unimproved land types. One (of many) things to keep in mind is Paragraph E(6) which says the following:
“PROPERTY LOCATED IN A CERTIFICATED SERVICE AREA OF A UTILITY SERVICE PROVIDER: Notice required by §13.257, Water Code: The real property, described in Paragraph 2, that you are about to purchase may be located in a certificated water or sewer service area,which is authorized by law to provide water or sewer service to the properties in the certificated area. If your property is located in a certificated area there may be special costs or charges that you will be required to pay before you can receive water or sewer service. There may be a period required to construct lines or other facilities necessary to provide water or sewer service to your property. You are advised to determine if the property is in a certificated area and contact the utility service provider to determine the cost that you will be required to pay and the period, if any, that is required to provide water or sewer service to your property. The undersigned Buyer hereby acknowledges receipt of the foregoing notice at or before the execution of a binding contract for the purchase of the real property described in Paragraph 2 or at closing of purchase of the real property.”
I’m sure you can see where the part I’ve highlighted in blue above would be an important factor for you to research before signing on the dotted line. Now if you’re unsure who the public utility provider is for a specific piece of land, here is a link to the Public Utility Commission of Texas where you can click on their handy CCN viewer, or just reach out to them via their contact info on the same page.
But assuming you’ve already got the public utility question sorted out, what are some of the other differences you should anticipate when purchasing unimproved land? I’m glad you asked!
Financing will also be handled a bit differently. Whereas a mortgage on your residence will typically be for 30 years, land is usually financed for 10 – 15 years max, will usually require at least a 20% down payment, and will be at a higher interest rate than what you’d get on a standard home loan (likely 1.5 – 2 points higher, or more).
Appraisals can also take a little more time, especially on more remote lots where there aren’t many comparable sales, and they will usually be more expensive than on a typical residence. (For example: We were quoted an appraisal fee of $800 on a 1-acre piece of land, as opposed to the $400 appraisal cost for another client’s single family residence less than 5 miles away.)
Other than that, most other aspects of the buying process will be roughly the same as with a home: the time it takes, the players involved, etc. The Unimproved Property Contract is definitely a little different than the standard One to Four Family Residential Resale Contract, but it covers a lot of the same stuff — and, of course, a competent Realtor should be able to walk you through it for you to fully understand what it entails. (And I happen to know one, if you’re in need! 😉 )
As always, feel free to hit me up if you if you have any questions on this or any other real estate topics you’re curious about — I’m happy to help!