Guest Columnist: Evaluating Risks and Cost Before Buying Land
A beautiful lot in a perfect location at an appealing selling price can easily attract a custom homebuyer, but builders know the risks. That perfect lot could be filled with land mines in the form of zoning regulations, environmental factors, and land improvement costs—issues that can derail the entire process.
At Rotell(e) Studio(e), we’ve developed a land-focused Purchase Protection Program that educates and protects everyone involved in the land transaction—the seller, buyer, real estate agent, and builder. At its core is our proprietary Lot Scrub process.
Scrubbing the Property
For builders, scrubbing the lot provides buyers with a reliable estimate of what it will cost to build on a piece of property. When we set out to develop our business model, we created an algorithm that includes up to 40 variables and conditions related to the land under consideration.
Our engineers and construction experts analyze everything from environmental issues to land improvement factors. A Lot Scrub creates a clear picture of what will be required to build, or it can determine that a particular lot is not suitable.
A Lot Scrub analysis also helps determine fair market value. By adding the land improvement costs to the asking price, a true total cost of the land can be determined. This total cost is seldom reflected in the asking price, so it can be an eye-opener for the buyer and real estate agent, as well as a strong advantage in negotiating the sale price.
(See the men and women of Rotell(e) Studio(e) engage in an outbuilding throwdown with the He Shed vs She Shed Shindig design competition)
Landowners approach us often with interest in listing their properties with us. We use Lot Scrub in these cases, too, as it helps the property owner determine an accurate sale price.
Protecting the Investment
Our Purchase Protection Program (P3) guarantees that we will obtain all building permits prior to settlement. Before the land agreement is finalized, we include a due diligence addendum in the contract, stating that Rotell(e) will take charge of navigating the building permit process. This relieves the buyer of the headaches and complexities of doing this on their own. Once everything is in order and the permits have been issued, settlement goes forward. Building can begin immediately after settlement.
Building Your Own
Lot Scrub and P3 are integral components of our business model. Our buyers recognize the value, and they provide us with a real competitive advantage.
Sometimes land-related errors or surprises still come up. We absorb these, chalk them up to experience, and add them to our ever-evolving due diligence strategy.
Custom builders developing a business model that educates and protects all parties involved in a land transaction should determine all possible land risk factors. First, gather a team of building experts, including civil engineers, land surveyors, and soil scientists, to discuss the situations you may face in gaining building permit approval.
After thoroughly compiling a chart of the accounts for potential work needed, bid the work out and break those numbers down to the lowest common denominator to make it scalable, then create a Q & A sheet with “if-then” scenarios. After ample training, sales agents can complete the data entry and provide it to management for review and approval before releasing the required work needed to be done to your clients.
Our business model also includes working to be a strong partner with all parties involved in the custom home building process. That includes real estate agents, buyers, and property owners. A similar Lot Scrub and Purchase Protection Program can help custom builders forge those bonds and position themselves as experts in property valuation and improvement.
Peter Rotelle is the president of Rotell(e) Studio(e) and Rotell(e) Development Co., a home builder and environmentally responsible land developer in South Coventry, Pa.