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Mar 26, 2011 Amy Haase
Zoning And Deed Restrictions And Land Developement - Photo by Sebastian Ballard
Undeveloped land on the surface may seem like the most simple form of real estate transactions, due to the lack of improvements and buildings to inspect and worry about hidden defects. Surprisingly, land is often considered by most in the real estate industry as the most complex and difficult form of purchase, for many reasons. A real estate agent versed in land transactions is a good idea to avoid the multitude of diverse and surprising pitfalls that can strike an unsuspecting future home owner or investor.
Why Land Is Considered The Most Complex Real Estate Transaction
An important concept in real estate and planning is "the highest and best use". A single property of land can have many different improvements that will greatly vary in the usefulness and value. Land is tricky as it can be categorized as residential, industrial, commercial, or retail. The best use is the most profitably economical, reasonable single use of the land that is legally permissible, physically possible, and economically feasible. Complex financial analysis protocols have been developed to help determine the best use based on a multitude of factors.
How Do Public Zoning Ordinances and Private Restrictions Affect The Future Use Of A Piece Of Property?
Land use restrictions fall under two classifications: private and public. The public restrictions include zoning ordinances regulated by the local commissioners and planned development. Zoning is considered a material fact that limits the use of the property, and should be normally listed with the property by the listing agent. If there are any questions about a specific use of land related to the current zoning ordinance, usually the county or city building inspector that enforces those regulations are a good source of information to decide if a specific use will be allowed. Also, extra-territorial jurisdictions (ETJ's) can impact zoning in unexpected ways, this is a situation where local ordinances of a town or city may extend into a 1-3 mile radius outside the official limits and impact projects. If a piece of property is enticing to a buyer, but is currently on the border of two types of zoning, or would need a rezoning consideration to allow a specific needed use of the land, often times a contingency clause is added into a contract to purchase. This clause will require the successful rezoning for a specifically listed usage of the property for the deal to go to completion.
Private restrictions include deed restrictions and restrictive covenants (for example, by home owner associations). If the local public zoning regulations differ from the private regulations in effect, the more restrictive private restrictions usually trump decisions. This can have a significant impact on particular details such as architectural and exterior decisions and project costs. Any listing agent should provide copies of the deed restrictions and restrictive covenants that impact a piece of property upon request, but careful title searches and surveys must be completed by the buyer ahead of time to avoid hidden sources of private restrictions that the current land owner may not be aware of.
Private restrictions are harder to find as they are not codified, but rather usually found in the registrar of deeds in what is called the "chain of title" for the property (the list of chronological owners and exchanges of a property over time). These private restrictions can often times be more restrictive and unpredictable, due to the fact that the purpose of the restrictions are not to protect and serve public health, safety and welfare as public zoning rules aim to accomplish. If a private limitation is discovered that seems a major hindrance and seems unreasonable, at times the rules can be changed by a public body action, but only by the private owners affected by the regulation (i.e. neighbors for instance).
Overall, a wise decision is to have a contingency clause in an offer to purchase that states the clear condition upon the specific land use desired by the owner being permissible under zoning ordinances AND private use restrictions.
Importance Of A Survey To A Potential Buyer Of Undeveloped Land For Sale
A property survey is an essential process for many reasons- to examine the deed and compare the true acreage and boundaries to what is listed will protect the future buyer. The presence of utility easements (land that cannot be developed on due to power lines/rights of way for other uses), topography, shape, legal or practical site access, presence of waterways, soil characteristics, and transitional setbacks (land along road frontage/ busy highways that cannot be developed on due to predicted future widening of the road) can all greatly impact the usability and "net acreage" that a buyer can actually build upon. Often times a purchase price is based on the "net acreage" as a more fair comparison tool for a buyer to calculate usable land compared to the upfront investment.
Environmental, Watershed, and Other Land-Use Regulations And Ordinances
In addition to zoning, private restrictions, best use, and survey concerns, here is a following miscellaneous list of items that impact land development:
- Subdivision Ordinances- county/municipal rules of the development of a neighborhood including lot size/density, access and street width, sidewalk and other transportation/utility improvements that are applied differently under various zoning classifications (not to be confused with home owner associations rules, these are public planning characteristics of the neighborhood by the controlling municipality)
- Sign ordinances- regulations regarding sign placement, type, size that can be important to transactions more of a commercial nature- to avoid a competitive lot covering a buyer's sign from viewing in the future
- Watershed regulations- state efforts to protect the drinking supply that affects the ratios of land that can be covered by buildings and parking lots to the overall lot size, a costly consideration when a large building on a smaller lot is considered (also known as "impervious surface area" ratios that affect absorption and runoff of water)
- Tree Ordinances- regulating the amount of planting, removal, and trimming of trees to avoid fines
- Wetland presence or existence on the land (doesn't have to be "wet" to possibly be classified)
- ADA regulations (Americans with Disabilities Act)- affects rules about accessibility in construction plans
- Presence of hazardous substances or underground storage tanks
- Status of sewer approval and accessibility (often a big hiccup in rapidly developing areas)
- Local Rules Such as the Mountain Ridge Protection Law and the NC Coastal Area Management Acts that impact various regions of North Carolina real estate transactions
- Phase I Environmental Assessment- usually performed by a buyer during due diligence period to determine if any future environmental issues with a property
Overall Strategy To Evaluating And Purchasing Land
The leading concern with buying undeveloped land is ensuring that a future owner will be able to use the property for a specifically intended use without substantial delay or financial hardship. Although the size or appearance of a lot may be initially enticing for a buyer, hidden problems with zoning limitations or private restrictions, or other environmental concerns can create a stopping point. A buyer would be prudent to enlist the help of an experienced real estate agent in land transactions, especially if the land is considered for commercial use. Even residential owners should be cautious, and carefully chose a good surveyor, complete a quality title search and obtain title insurance, and do a visible walking evaluation preferably with the surveyor and current owner. Land overall is the most complicated type of real estate product type and should not be taken lightly.
Sources:
- 2011-2012 North Carolina Real Estate Manual, published by the N.C Real Estate Commission, Chapter 19
- REX7109 Post-licensing Course in Selected Topics In Real Estate, Sandra Martin Instructor, CPCC, classroom commercial real estate topics
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