Dreaming about purchasing land?
THIS PRO SAYS THINK TWICE Longtime real estate agent says buying an existing house is a better alternative for majority of people
People priced out of the California housing market often approach land real estate agent Danielle Davenport with their Plan B.
If they can't afford an existing house, they'll buy a piece of land and build, they tell her.
But Davenport, a Bay Area-based land director for Keller Williams California who leads a small team that focuses on commercial, agricultural and residential properties statewide, cautions buyers about investing in vacant parcels as an alternative to housing.
“Building is a great option if it's your forever home and you have the time, money and resources to make it happen, but it's not the cheaper option,” Davenport said.
In California, numerous hurdles stand in the way of construction, provided building a structure is even permitted on the site. It's a long process that takes about 90 days for due diligence and another 120 days for a purchase to go through. And if it's not allowed?
“You end up getting stuck with a piece of dirt, and it's usually because you haven't worked with an expert,” added Davenport, who has more than 30 years of experience in the field and is a member of the Realtors Land Institute.
The RLI is the leading land real estate organization for sales agents who focus entirely on land.
“We go through exhaustive training because buying land is a huge liability,” Davenport said. “It's not about square footage and if the bathroom's been updated, it's about diving into the nuts and bolts of land use and working with developers. It takes a lot to get through one of these things.”
Southern California News Group recently caught up with Davenport by phone to talk about what buyers should know about development land. The interview has been edited for space and clarity.
Q
How is the economy affecting the price of available land?
A
It really depends on the zoning, what it's used for and where it's at.
If it's zoned for transitional or high-density residential, it's still pretty decent. However, major builders have pulled out of purchasing right now and are working on entitlements — when a developer finds a piece of land zoned high-density residential and has to submit plans and reports and all that in order to get the city or country to approve. That can take two years or so. A lot of developers are holding off, but if there's a good parcel in an area they want to be in, they'll purchase it.
Industrial is hot right now.
During Covid, recreational land was flying off the shelf. Now, not so much. People don't want to pay the interest rates we have right now for a second property.
The Central Valley is struggling a bit more than major cities just because they're more price sensitive to interest rate hikes. I'm in the Bay Area where a lot of people can buy land with stock in cash.
Q
What's important for people to know before buying undeveloped land as the site of a future home?
A
First and foremost, is it buildable?
Buying an infill lot, which is a lot that's never been developed but has houses all around it with septic and water and everything hooked up at the street — that's a no-brainer. If something comes with plans already (a build site analysis as a kind of rubber stamp from the city or the county), then you're good.
But if you're buying a raw piece of land, there are probably obstacles to building on it.
Q
Like what?
A
It's hard to come up with a punch list, but you want to ask: Is it fairly flat and accessible? Can you put a septic tank in? Is there water nearby? Can you get a well in there?
Electricity isn't such an issue anymore because you can do solar, but many people end up buying parcels that are essentially unbuildable.
Q
Can you talk about some of the common misconception people have when it comes to buying land?
A
Land is probably 60% or 70% of the value of houses today. If you look at your lot, is it the house that's valuable or where
it's located and what it's sitting on? Most likely, it's that lot. So when people say to me, `I've been priced out the market, I'm going to go buy a piece of land and build,' I say, if you're priced out of the market, how are you going to buy buildable land and build at $600, $700, $800, $900 a square foot? Construction costs have skyrocketed because of supply shortages.
If you factor in, let's say, 60% of the value of the land you've been trying to buy and then build a 2,000-square-foot home, it's going to cost a minimum of $1.3, $1.4, $1.5 million. And that's not including the infrastructure.
Q
Are there factors that can get in the way of buildable land?
A
You might not get environmental approval to build.
California has somewhere in the neighborhood of 80 local serving agencies that could limit, prohibit or add costs. In Santa Clara County, we have something called the Habitat Agency. To pull a building permit, you must pay $70,000 as an impact fee. That goes to the Habitat Agency for buying open space land.
The Coastal Commission is another serving agency with some say in California about what you do and what you build.
Q
Would you build?
A
Hell no. Would I buy a house that's a teardown and use the existing infrastructure? Yeah! If it's been there a while, then it's weathered some of the issues we're seeing right now like flooding and landslide issues after all the fires. A site like that tends to be pretty rock solid.
Q
Does that go for vacant land that has been in the same family for decades coming to the market?
A
I would wonder. Another thing people don't realize is land is fraught with title issues. They're usually not clean titles and have been passed around. There could be easements on there that aren't understood. Don't even contemplate it until you pull a title and understand that there is so much due diligence that goes into it.
If I could stop people from using their hardearned money on the dream of buying land in California for cheaper than buying a home, then I'm more than happy to lose a few sales.