Land Development Procedures for New Construction

Instructor: Eileen Cappelloni

Eileen worked for the Orange County Asssociation of Realtors for 31 years. She has written real estate courses and exams for other publishing companies

This lesson will discuss factors to consider when working with land development for new construction: highest and best use, public/private utilities, planning, zoning, permitting, hazardous waste, sinkholes, wetlands, and development plans.

Finding the Right Property

Michael Harris wants to purchase some land. He is looking around to find a favorable site to develop into a major planned community. He has found several properties within his price range. He hires Carl Cornelius, an experienced commercial real estate agent, to be his broker to help him find the perfect site for development.

Carl meets with Michael and explains to him that several professionals will have to be hired to help determine if a particular property will be advantageous for Michael to invest in. Carl states that developing raw land requires extensive work and preparation before construction can even be considered. Formal plans must be submitted and several approvals must be applied for with extensive testing and other steps taken before it can be determined whether a particular piece of property can be successfully developed.

Necessary Steps of Development

  • Select a potential site for development. Before purchasing land, the broker or the builder should research and investigate a site's possibilities for development. Financing should already be arranged so that the developer and the broker are aware of what they are willing and able to pay for a site. They should have development specialists ready to provide their assessment of the site's value and the product's marketability. Also, the research must consider how the neighborhood might be affected by construction. The development plans must conform to current municipal or state zoning requirements in order to proceed any further.
  • Determine highest and best use. The definition of highest and best use for a property is to decide the most reasonable, probable and legal use of vacant land or property and then use that to determine if the use is physically possible and financially feasible and that the proposed use will result in the highest value of the property.

Determining Additional Costs

Utilities

Depending on the distance from existing utility lines to the structure site, the developer may have to pay a fee of $25 to $100 or more per foot to extend utilities to any structure in addition to hookup charges. There are also additional service and utility charges. Telephone, internet, electric, cable, gas, sewer and water charges must all be considered and are all high-cost factors.

Costs for other expenses may include septic system design and installation, well-drilling, pump, excavation costs and possibly blasting, as well as the cost for paving roads, landscaping, other permits and fees, and legal costs for title searches and closing costs.

Impact Fees

These fees are now charged by many towns to help them pay for schools, infrastructure, and other public costs associated with adding new homes to their community. These costs are also called development fees, mitigation fees, or service availability fees.

Other Issues to Consider

Michael is beginning to realize that developing this land is going to take more time and money than he originally thought, but with good planning, he feels that he and Carl can successfully work together to develop this property. Carl advises Michael of other potential problems to consider.

Environmental Assessments

If an investor is interested in purchasing vacant land, paying for an environmental assessment before making a decision to purchase can help ensure they don't end up having a serious environmental or clean-up problem. Around 50 years ago, underground oil tanks were a great selling feature for a home. Today, underground oil tanks are not legally permitted to be installed and are considered hazardous.

Toxic wastes were often dumped in or near raw undeveloped land, and some of those wastes remain hazardous forever. Once an investor owns a property, they become responsible for cleaning up any contamination. An environmental assessment determines whether the land has any environmental issues such as contaminated soil or polluted water sources. A professional environmental assessment is typically performed by an environmental engineering company and must meet the standards set by the U.S. Environmental Protection Agency (EPA).

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