You may find your perfect piece of land hidden under overgrown brush and get a great deal. However, land purchases can also spring any number of unpleasant, and often costly, surprises on the inexperienced. Before bidding on land, you need a rough budget for major development costs.
Developers buying large tracts of land to subdivide often budget more for development costs and fees than for purchasing the land itself. The ratio will be different for a buyer of a single lot at retail pricing, but it’s critical that you get a realistic estimate of development costs before purchasing a piece of land.
Site development or “site improvement” costs can vary dramatically depending on site and soil conditions, your development plans, and local fees and permitting costs. Fees and permits, alone, can cost well over $10,000 in high cost areas and often exceed $20,000 in high cost states such as Colorado and California.
If the house site is a long distance from existing utility lines, you may have to pay a fee of $25 to $100 or more per foot to extend the utilities to your house, in addition to the “tap fee” to actually hook up.
Since many site development costs are not readily apparent to the inexperienced, they have the potential to eat up dollars intended for house construction or to derail a project altogether. So it’s important to get a realistic estimate of site improvement costs as you evaluate a piece of vacant land.
Even when buying a “developed” lot, make sure you know what exactly in included in the package as it can vary a great deal from one development to another and you may still need to pay for additional site work, permitting, and fees including costly impact fees. In addition to purchase price of the land, make sure you budget for:
- A survey, if required
- Hookup to utilities: phone, electric, cable, gas, and sewer and water (municipal or community systems). Include both the cost to extend lines to your house and the “tap fee” to hook up.
- Septic system design and installation (conventional or alternative, if required)
- Well drilling, pump, and hookup to house
- Earthwork: excavation, cut-and-fill, and blasting, if required.
- Paving: road, driveway, patios
- Permits and fees: The number and size of fees vary widely. Ask for a list of all permits and fees required in your jurisdiction
- Legal costs: title search and other closing costs. Also may include variance requests, addressing challenges from abutters, resolving conflicts over rights-of-way issues, boundaries, etc.
- Impact fees – varies by state and municipality. Also called development fees, mitigation fees, service availability charges, facility fees, and other creative names
Impact fees are now assessed by many towns to help them pay for schools, infrastructure, and other public costs associated with adding new homes to their community. Depending on the state, they may be called development fees, mitigation fees, service availability charges, facility fees, and other creative names. According to a recent survey, about 60 percent of all towns and cities with over 25,000 residents have impact fees and the number is growing. The number is over 80% in Florida and 90% in California.
Impact fees are rarely under $1,000 and may exceed $20,000 in some areas. Some communities in California impose fees of over $100,000 as a way to discourage development. The average impact fee for single-family homes is just under $12,000, according to a 2010 impact-fee study of 275 jurisdictions in states with impact fees. Even if you a purchasing a design/build package with the lot, you a likely to be hit with this fee, separate from the price you pay to the developer.
Before making an offer, you’ll want at least a rough estimate of what it will cost you to develop the lot. These costs are often underestimated and can make or break project. Like going to the hospital, one procedure may generate bills from a number of vendors who all charge a la carte.
For example, getting electricity to the site might involve paying the utility company to install a transformer, an excavator to dig a trench and run underground conduit, an electrician to pull cable through the conduit from the transformer to the house and install the “socket” and service panel, and then the utility company again to install a meter and tie the cable to the transformer.
Key items to include are listed below. Also you can view and download sample budgets at these links:
SITE DEVELOPMENT COSTS
Cost of land: plus any brokerage fees
Permitting: Septic, well, driveway, building, other (varies with jurisdiction)
Other regulatory fees: Plan review, inspections, land clearing, monitoring wells, curb cuts, etc. (varies with jurisdiction)
Impact fee: Charged in over half of municipalities over 25,000 population – can be costly
Tap fees: Connection fees for municipal water, sewer, electric, and gas if available
Utility connections: Costs to bring all utilities to the house, including electrical power, natural gas, water, sewer, phone, cable TV, Internet. May include trenching costs for underground utilities; transformer (the big green box by the road), meter installation for electric and gas, and tank purchase for propane or oil. Some utilities charge $50 to $100 or more per foot to extend existing lines, so long runs to the nearest utility line can be very expensive.
Survey: If needed; required by many lenders and building departments
Engineering inspection: If needed, for steep sites, wet sites, problem soils, excess ledge, or other site problems
Water well: Well drilling, casing, pump and wiring, pressure tank, trenching, and plumbing to house. May also include water treatment if needed.
Soil testing: If required – deep hole test, perc test
Septic System: Design and installation; more expensive “alternative systems” may be needed for poorly drained soils, waterfront property, or other environmentally sensitive areas.
Clearing: Costs more to cut carefully and preserve trees; may include removal of stumps and cut timber
Rough and Finish Grading: May include purchase of soil, sand, gravel, or crushed stone
Blasting: If required for the foundation or when trenching for utilities; include cost of removal of blast rock
Excavation and Backfill: May require purchase of granular fill
Site Drainage: As needed: foundation perimeter drains, swales, culverts, subsurface drains, curtain drains, sand, gravel, and stone
Steep Sites: Cut and fill, retaining walls, terracing
Landscaping: Finish grading and plantings
Driveway: Rough driveway, top layer or gravel/stone, paving
Other Paving: Walkways, sidewalks, patios