Buying

How to get access to a landlocked parcel: the basics

You notice a landlocked parcel for sale, and you think, “Gee, that’s a nice parcel at an amazing price”. But after reading the fine print you realize there’s no road to it, and it doesn’t have an easement. The parcel is “landlocked”. “How will I ever get access” you wonder?

This is an important question, because access is needed to build. Here I describe the steps you can go through to obtain legal access.

You notice a parcel of land for sale and think, “Gee, that’s a nice property at an amazing price.” But after reading the fine print, you realize there’s no road to it, and it doesn’t have an easement.

The parcel is “landlocked”.

“How will I ever get access?” you wonder. This is a good question because you will need access to build.

Here, I describe the steps you can take to get legal access.

This is an “Intro 101” examination of the basics, not an advanced discussion. I describe the process in a super simple manner to those buyers who have no idea how to arrange access to a landlocked parcel. If you have more advanced questions, you will want to discuss those with a real estate attorney.

Key things to be aware of first

A “landlocked” parcel does not have access to a road because it is surrounded by property owned by other people.
The existence of a physical “road” that you can see with your eyeballs does not necessarily mean you have legal access.
Your aim is to get an “easement for ingress and egress” (access to go in and out). Once you have an easement, you can cross over your neighbor’s private property to get to your property.
An easement is the right to use the real property (real estate) of another for a specific purpose. The owner of the underlying land keeps the legal title.
Easements “run with the land”. That means the easement stays in place when you sell your property. It also remains when your neighbor sells his property. Humans come and go. Land and easements stay where they are. So, any future owner of your land would also have access via the easement, and any future owner of your neighbor’s parcel would still have to provide access.

Step 1: Verify that the parcel is truly landlocked

It does not make sense to go to the trouble of trying to create an easement if you already have access. So, the first step is verifying that the parcel in question is genuinely landlocked.

If the land is on an official paved or dirt road, you probably have legal access and do not need an easement. If the property is on an unofficial road or path, you may or may not need an easement. You cannot tell with your eyes whether the existing road is official. You also cannot tell by looking whether there is a legally recorded easement. The “road” could be unofficial and not an easement.

Order a title report to learn whether you already have access. When title companies decide whether to insure the title, they also consider whether to insure for “marketable access.” In my experience, “marketable access” corresponds to what I will call “legal access” about 99% of the time.

If the title company says that they will insure the title and will also insure for access, you can be pretty sure you have legal access.
If the title company says they will insure for the title but will not insure for access, you can usually assume you have no legal access, and your parcel is landlocked.

So, the easiest way to determine whether a property is landlocked is to order a title report.

When the title company agrees to insure for the title but declines to insure for access, a phrase like “The lack of right of access to and from the land” will appear in the exceptions section of the title report. When this phrase does not appear, the title company is basically saying they will insure for both title and access.

Step 2: Gather information on the history of access

If the owner of a parcel for sale has already tried to get access from a neighbor and failed, you need to know this. Maybe the seller has been feuding with his neighbor over access for years. This scenario suggests that you, the future owner, may also find the neighbor challenging to work with.

On the other hand, the history might offer good news. Suppose the seller subdivided his 10 acres back in the day. He sold 5 acres next to the street to his best friend from high school and kept the 5 acres in the back for himself. He forgot to create an easement across his friend’s land to his land. That’s a different situation. Creating an easement in a case like this should be easy.

Understanding the history will help you, as a buyer, to understand the likelihood that your efforts to negotiate an easement will be successful.

About 90% of the time, you will discover no history. The seller has never attempted to arrange an easement. This is because people commonly buy land as an investment, not to build. They have no reason to visit the land, so they never tried to create access. They bought it “as is” and are selling it “as is.”

Ask about the seller’s history of trying to establish access. You never know when you might learn something helpful.

Step 3: Consider who will create the easement and when

Will the city create the easement? No. The county? No. The transportation authority? No. The broker? No. The title company? No. The neighbor? No. The seller? Usually no.

So, who will create the easement?

You, the buyer, that’s who.

About 97% of the time, buyers of landlocked parcels must buy the land the way it is, close escrow, own it, and then start working to create an easement after closing.

About 2% of the time, the seller will entertain an offer with a contingency on the easement. This means the buyer can try to arrange the easement during their contingency period (part of the escrow period). If the buyer is unsuccessful, they can cancel escrow, get their deposit back, and walk away. If the buyer is successful, the buyer will close escrow. I say this happens 2% of the time because it is rare for sellers to entertain such a contingency. It can take months, a year, or more to go through all the steps to create an easement, and sellers typically want to close escrow in 21–45 days.

In unusual instances, like 1% of the time, the seller will agree to create the easement for the buyer before closing. Sellers may entertain this option when creating the easement is super-duper easy for them. An example of this situation is when the seller happens to own the adjacent parcel. He can easily create an easement across his own land. Another example is when the neighbor is a family member or close friend of the seller. A final example is when the seller has already negotiated access with the neighbor and only needs to put it in writing, get it signed, and record the easement with the county.

In my experience, buyers commonly want an easement before closing, and sellers seldom agree. It’s just wishful thinking on the part of buyers. Generally, buyers must buy the land and roll up their sleeves — in that order.

Sometimes, buyers who have not even submitted an offer on a parcel ask me for contact information for the neighbor. They think I can give them the neighbor’s phone number or email, and they can contact the neighbor and say, “Hey man, can I have an easement?” They hope the neighbor will say, “Yeah, sure, no problem,” and it will be easy.

Dear buyers, that rarely works.

First, I don’t have the neighbor’s phone number or email, and the seller does not have their contact information either. I can access title records, but those show only the neighbor’s name and mailing address, not their phone number or email.

Second, negotiating an easement takes more effort than a simple phone call. It can take months. So, a “hey man…” conversation is unlikely to be fruitful.

Third, you don’t own the parcel yet and are not even in escrow. So you don’t have the authority to negotiate an easement.

Fourth, more than one buyer will generally have this same idea, and it’s not good for many buyers to call the same neighbor.

So, buyers, please put this idea out of your mind. Landlocked parcels are being offered at a low price precisely because they are landlocked. If it were simple and easy to create an easement, the seller would have done it already. Further, he would have priced that $20,000 parcel you are eyeing at $200,000.

You must buy the land “as is” and work through the steps in this blog post to seek an easement after closing. Or don’t buy it. That’s the other option.

Step 4: Figure out where you want the easement

To seek an easement from the neighbor(s), you must figure out which parcel(s) you wish to cross. Get a map that shows your property and the neighbors. This map might be a plat map or an aerial map.

Say neighbors B, C, and D surround your land. If you cross B, you will reach the road. Alternatively, if you cross C, you must also cross D, and then you will reach the road. In the first case, you will need one easement. In the second case, you will need two easements. So, figure out which direction makes the most sense.

Also, assess where you want the easement on the neighbor’s parcel(s). For example, is there a well-worn dirt path you will try to follow? Do you want to travel along the boundary of a property? Is your desired easement straight or curved? How wide will it be? Ask the city/county what width they require to grant a building permit. That will dictate the easement width you will try to arrange.

Step 5: Get contact information for the neighbor(s)

You will need the neighbor’s name and contact information. Their mailing address might differ from the address of the adjacent property you want to cross.

Vacant land sellers rarely have contact information for their neighbors. Remember, they’re selling land, not a house, so they don’t live there. But your Realtor can look up the neighbor’s contact information in title records. In California and some parts of Oregon, agents have access to title records in Realist through the MLS. To do this, you must give the Realtor the address or assessor’s parcel number (APN) for the neighbor’s parcel(s) you want to cross.

You can use the official plat map (not a Google map) to figure out the surrounding APNs. For example, if you are purchasing APN 1234–567–89, the plat map will have an 89 in a circle corresponding to the parcel you want to buy. If you plan to seek an easement across a lot with a 90 in a circle, the APN for that parcel will be 1234–567–90. Give your Realtor that APN. Then, she can look up the name and mailing address of the owner of that parcel.

Another way to find the neighbor’s contact information is to use a geographic information system (GIS). GIS systems are available free online. To find a GIS system for your area, Google “GIS <city name>” if the parcel is in the city. Or Google “GIS <county name>” if the land is in the county. Enter the neighbor’s APN into the GIS and see if their contact information pops up. Note that not all GIS systems have contact information for property owners — some do, and some don’t. Also, if there is contact information, it will be limited to names and addresses. There will be no phone number or email.

Armed with the neighbor’s name, you might be able to find the neighbor’s phone number and email just by using Google. This works best if the name is distinctive. Try it.

If that doesn’t work, skip-trace the neighbor. You can find skip-tracing services online.

Step 6: Ask the neighbor(s) for an easement

Now that you have the neighbor’s contact information, the next step is to contact them. You can send the neighbor a letter, call, email, or try going in person. Or, if you prefer, you can have your attorney do any of these things.

Explain to the neighbor that you are seeking an easement. Be prepared to explain to them what an easement is. Reassure the neighbor that they will still own the land under the easement. You just want to cross it. Let them know that the easement “runs with the land.” So, it remains in perpetuity and does not disappear if you sell or your neighbor sells. Describe where you want the easement to go. State how wide it will be. Discuss who will improve and maintain the easement.

If the neighbor objects, offer to pay them for it. How much should you offer? It depends on the value of the land…$500, $5000, $50,000. I don’t know. It’s negotiable.

When considering what you are willing to pay for an easement, factor these things into your thought process:

An easement will significantly improve the value of your land. This is because parcels with legal access sell for much more than those without access. Easements improve land value by 10–1000%. Ask your Realtor to estimate how much an easement might increase the value of your specific parcel.
The alternative to paying the neighbor for the easement is going to court to resolve the conflict. Attorney fees are expensive, $200-$500/hour. Compared to paying attorney fees, paying the neighbor for the easement might feel like a bargain.
By burdening your neighbor’s parcel with an easement, you might be reducing the value of their parcel. It’s only fair to pay him enough to compensate him for any loss in value that he might incur.

If the neighbor agrees to offer an easement, go to step 7 and consider skipping step 8. If the neighbor declines to provide an easement, go to step 8.

Step 7: Hire a surveyor

Easements should be recorded with the county. To record an easement, you and the neighbor must sign an agreement. That agreement must specify the precise location of the easement.

The description of the location of the easement cannot be casual like “along the existing path on the west side of John’s land at 1234 Main St”. A proper legal description is often complicated and looks more like this:

An easement and right of way for a road, sewer, water, gas, power, and telephone lines and appurtenances thereto under, along, and across a 60.00 foot strip of land lying within Section 10 and 11 all in Township 9 South, Range 2 West, San Bernardino Meridian, in the County of San Diego. State of California, according to United States Government Survey, the centerline of said 60.00 foot strip being described as follows: Beginning at the Northwest corner of the Northeast Quarter of said Section 11; thence along the Northerly line of said Northeast Quarter, South 86° 05’ 24” East 577.98 feet to the True Point of Beginning; leaving said Northerly line, South 5° 37’ 14” East 310.00 feet; thence South 04° 36’32’ East 164.03 feet to the beginning of a tangent 300.00 foot radius curve, concave Westerly; thence Southerly along the arc of said curve, through a central angle of 27° 07’ 51” a distance of 142.06 feet thence South 22° 31‘19” West 133.34 feet to the beginning of a tangent 100.00 foot radius curve, concave Northwesterly; thence Southwesterly along the arc of said curve through a central angle of 60° 02’ 43” a distance of 104.80 feet thence South 82° 34’ 02” West 174.36 feet to the beginning of a tangent 400.00 foot radius curve concave Southerly; thence Westerly along the arc of said curve, through a central angle of 13° 33’ 30” a distance of 94.66 feet; thence South 69° 00’ 32” West 115.77 feet to an intersection with the Westerly line of the Northeast Quarter of Section 11, Township 9 South, Range 2 West, distant thereon South 05°54’22” East 926.55 feet from the Northwest corner of the Northeast Quarter of said Section 11; thence along the Westerly line of said Northeast Quarter, South 05° 54’ 22” East 397.68 feet to the Southeast corner of the Northeast Quarter of the Northwest Quarter of said Section 11 South 05° 22’ 54” East 13.10 feet; thence South 30° 35’ 51” West 281.12 feet to the beginning of a tangent 180.00 foot radius curve, concave Easterly; thence Southerly along the arc of said curve, through a central angle of 29° 17’ 17” a distance of 92.01 feet thence South 01° 18’ 34” West 264.21 feet; thence North 88°41’26” West 30.00 feet; thence South 13°19’28” West 66.15 feet of the beginning of a tangent 100.00 foot radius curve, concave Northwesterly; thence Southwesterly along the arc of said curve, through a central angle of 70°31’28” a distance of 123.09 feet; thence South 83°50’56” West 43.41 feet to the beginning of a tangent 200.00 foot radius curve, concave Northeasterly, thence Northwesterly along the arc of said curve, through a central angle of 47° 02’ 06” a distance of 164.18 feet thence North 49° 06’ 58” West 117.28 feet to the beginning of a tangent 50.00 foot radius curve, concave Southerly thence Westerly along the arc of said curve, through a central angle of 77° 08’ 23” a distance of 67.32 feet; thence South 53° 44’39” West 59.15 feet to the beginning of a tangent 150.00 foot radius curve, concave Southeasterly; thence Southwesterly along the arc of said curve, through a central angle of 28°58’14” a distance of 75.85 feet; thence South 24° 46’ 25” West 609.78 feet to an intersection with the Southerly line of the Northwest Quarter of said Section 11; thence along said Southerly line, North 87° 41‘ 25” West 61.94 feet to the Southeast corner of the Southwest Quarter of the Northwest Quarter of said Section 11; thence along the Southerly line of said Southwest Quarter of the Northwest Quarter, North 87° 41’ 25” West 193.45 feet to the beginning of a tangent 50.00 foot radius curve, concave Southeasterly, thence Southwesterly along the arc of said curve, through a central angle of 57° 08’ l0” a distance of 49.86 feet; thence South 35° 10’ 25” West 169.73 feet to the beginning of a tangent 100.00 foot radius curve, concave Northwesterly; thence Southwesterly along the arc of said curve, through a central angle of 36° 19’ 10” a distance of 98.30 feet thence North 88° 30’ 25” West 31.23 feet to the beginning of a tangent 150.00 foot radius curve, concave Northeasterly; thence Northwesterly along the arc of said curve, through a central angle of 42°51 ‘10” a distance of 112.19 feet; thence North 45° 39’ l5” West 138.04 feet to the beginning of a tangent 189.53 foot radius curve, concave Northeasterly; thence Northwesterly along the arc of said curve, through a central angle of 29° 27’ 20” a distance of 97.44 feet to an intersection with the Southerly line of the Southwest Quarter of the Northwest Quarter of said Section 11; thence North 16° 11‘ 55” West 482.67 feet to the beginning of a tangent 500.00 foot radius curve, concave Southwesterly; thence Northwesterly along the arc of said curve, through a central angle of 12° 50’ 50” a distance of 112.11 feet; thence North 29°02’45” West 376.18 feet to the beginning of a tangent 300.00 foot radius curve, concave Southwesterly; thence Northwesterly along the arc of said curve, through a central angle of 22° 07’ 00” a distance of 115.80 feet; thence North 51° 09’ 45” West 168.16 feet to an intersection with the Westerly line of said Section 11 distant thereon South 03° 25’ 35” East 194.19 feet from the Southwest corner of the Northwest Quarter of the Northwest Quarter of said Section 11; thence continuing along the last described course North 51° 09’ 45” West 122.20 feet; thence North 14° 09’ 45” West to an intersection with the Southerly line of the Northeast Quarter of the Northeast Quarter of Section 10, Township 9 South, Range 2 West.

As you can see, it’s complicated. Do not try this home!

Hire a surveyor to write a proper legal description of the location of the easement. The surveyor will also prepare documents for you and your neighbor to sign. After you sign, go to the county and record the easement.

Step 8: Hire an attorney

If the neighbor refuses to allow an easement, hire an attorney. You might also consider hiring an attorney long before this stage to help you with steps 1–7.

Choose an attorney who specializes in real estate. To find one, Google the American Bar Association for the county where the land is located. Call and ask for a referral to a local real estate attorney.

Your attorney will help you negotiate with the neighbor. They can also draft your agreement with the neighbor about who is responsible for the maintenance and improvement of the easement.

If the neighbor is uncooperative, your lawyer can advise you on whether the specific circumstances of your situation mean that you have a legal right to an easement. Then, your attorney can make this case in court if necessary.

Alternative approaches

You might be wondering if there are things you can do to address the lack of access without seeking an easement and without the expense of hiring an attorney. Here are some possibilities:

Offer to buy the neighbor’s property outright. Once you own it, you will have control and can create an easement on your land!
Offer to buy part of the neighbor’s property, enough to get you to a road. This would require subdividing the parcel or a lot-line adjustment. Sometimes the city/county will allow this, and sometimes they won’t. Before suggesting this to the neighbor, check with the city or county planning office to see if it’s allowed.
Ask the neighbor’s family member to convince the neighbor to give you an easement. This has worked for me.
If you’re not vibing with the neighbor for personality reasons, ask your spouse, significant other, family member, friend, or attorney to negotiate. They may have better luck.
Offer something of value to the neighbor. Examples include a) more money than you initially offered, b) “first right of refusal” so that he can be first in line if you ever sell your land in the future, c) a gate/road that you will install at your expense, d) fencing between your properties that you will install at your expense or e) that chain saw he keeps borrowing, etc. You get the idea. This is the “carrot” approach.
Explain your next steps to the neighbor if he declines the easement. For example, you will hire an attorney, so he will have to hire one. This will cost him money, and there will be a long, drawn-out court fight, etc. This is the “stick” approach and is not recommended unless you’re ready to burn all other bridges.
Offer to pay for a professional mediator to assist both parties in negotiating the easement.
Offer to sell your property to the neighbor. This will not achieve your goal of getting an easement, but it will get you out of the situation.
Wait for the neighbor to sell their property or pass it on to their heirs. Statistically, houses turn over every seven years on average. The next owner might be more accommodating.
Wait for the neighbor to put their property on the market for sale. List your land at the same time with the same Realtor. Buyers won’t be too concerned about your lack of access if they purchase both properties. This is because they will own the neighboring property.
Ask the neighbor for “personal permission” to cross. This is different from an “easement”. It applies only to you (and your family, guests, etc.) and does not “run with the land.” This means that the permission will disappear when you transfer the property or the neighbor transfers his property. It will not allow you to build or increase your property’s value when you sell it. But it will enable you to put your feet on your land for now.
Sell your land on the open market in its current landlocked state for whatever price you can get. Be sure to disclose the lack of access to the next buyer. This disclosure is a legal requirement.
Try arranging an easement in a different direction across another neighbor’s property.

Conclusion

Buyers purchase landlocked parcels every day. It is very common because parcels that lack access are offered at a bargain price. By studying this basic outline of the steps needed to create an easement, buyers unfamiliar with the process can assess whether buying a landlocked parcel makes sense.

Due diligence when buying California land: Answers to frequently asked questions

by Tammy Tengs

What is Due Diligence?

Due diligence means doing your homework on the property before you buy.

Who Handles Due Diligence?

Vacant land buyers are responsible for conducting their own independent due diligence.

Won’t the Seller or Agent Tell Me Everything I Need to Know About Land?

The answer is no. The seller and agent do not have all the information that might interest you. Sellers and agents are legally responsible for disclosing facts they are aware of. But they can’t disclose facts they are unaware of.

So, what kind of information will you get?

The seller will complete disclosure forms. They will write down everything they know about the land they consider a “material fact.” The agent will give a copy to you. If the seller has relevant documents, such as an engineering report or survey, they will also provide those.

In California, the seller will also provide a natural hazard report. The report discloses things like whether the land is in an area prone to earthquakes, floods, or wildfires. Companies such as Property ID or PDQ generate these reports from publicly available information. They charge a small fee, usually under $100.

The agent will tell you what they know about the land. The title company will provide a report so that you will know if the title is clear. Upon request, the title company can also provide a map of plotted easements.

That’s it! That’s all you get!

The information provided by the seller, agent, and title company will not be enough.

The agent and seller will tell you what they know. But, beyond that, it is your responsibility as a buyer to research other matters on your own.

For example, the seller may not know the precise location of corners of the land. If it’s not in the agreement, it is not the seller’s responsibility to mark the corners for you. If you want to know where the corners are, it is your responsibility as a buyer to pay for a survey. It’s not the seller’s responsibility to provide a well report. If she has one, she will give it to you. But if she doesn’t, you must arrange and pay for it yourself.

It is not your Realtor’s responsibility to determine if you can build a second unit on the parcel. You must study the zoning description or speak to a city or county Planner to see if zoning allows a second unit. It is not your Realtor’s responsibility to research the cost of a water meter. You must call the water company if you want to know that.

Dear buyer, you must do your own independent due diligence.

Won’t My Agent Do All This Research For Me?

No. Your agent’s role is to help you by advising you on where to get the information you need as you conduct your independent due diligence.

A key point here is that your agent, who has your back, knows it is in your best interest for you to do your due diligence. Any information you receive will be more accurate and helpful if you get it straight from the information provider. Information filtered through your Realtor will be less reliable. In fact, information filtered through any human intermediary will be less reliable.

Did you ever play the telephone game as a child? Here’s how the game goes: One child whispers a sentence to another child. That kid whispers it to the next kid, and so on. The last child at the end of the chain says the sentence aloud. It’s funny to see how convoluted it becomes.

Don’t play the “telephone game” with your Realtor in the middle. Cut out the middleman. Go straight to the electric company, water company, planning department, etc. Let them put the information directly in your ear!

Another benefit of talking to information providers is that you can ask follow-up questions and have a complete conversation. You may even learn things “you didn’t know you didn’t know.” For example, when talking to the water company, they may tell you that district water is available, but sewer is not. Wow, you might think. You were assuming water and sewer always go together! Now you’re aware that’s not the case. Or, suppose you ask the city Planner whether the zoning would allow an accessory dwelling unit in addition to a house. The Planner says yes and mentions that the zoning will allow you to subdivide the land and build two homes. Wow, that’s awesome. You didn’t know that, and it would fit your family better! One question will lead to answers, more questions, and more insight. The entire conversation will be very helpful to you.

Your Realtor knows it is in your best interest to get information “straight from the horse’s mouth.” That’s why your Realtor encourages you to “go direct” to each information provider to ask questions.

What if I Don’t Want to Do My Own Due Diligence?

Um, then maybe now is not the right time to be buying land?

Of course, you do have the option of buying land without a thorough evaluation. In rare instances, this can make sense. For example, extensive research may be optional if the property is a $5,000 parcel in the middle of the desert.

But it’s especially unwise to skip due diligence when:

The parcel is expensive,
The price is so low it seems “too good to be true,”
You want to build on the land,
You have a particular use in mind for the land and don’t know if the city or county allows that use or
You’re not familiar with the area.

When Should I Do My Due Diligence?

Do as much research as you can before even submitting an offer. If you get deal-breaking bad news, you can walk away. This will save you the time and effort associated with submitting an offer and negotiating with the seller. Plus, you can avoid sending a deposit to escrow.

Another benefit of researching before submitting your offer is that you can use any negative information you discover to negotiate a better price. For example, you can say, “Hey seller, I see that the price on your land is $100,000, but I found out it is in a flood zone. Building will be more expensive, so will you take $80,000?” That kind of thing.

With houses, it is common for buyers to go into escrow, get an inspection, and then ask the seller to make repairs. If the seller declines, buyers often ask for a price reduction.

That tactic is rare with vacant land. It may work for due diligence items that the buyer could not have been aware of in advance. For example, if you paid for a perc test during escrow and learned that the land requires a more expensive engineered system, the seller might give you a price reduction. However, if you try to negotiate the price down during the escrow period based on negative information that was publicly available to you before submitting an offer, such as zoning or property taxes, that will not be well-received. I recommend that you not try it, or you might get kicked to the curb.

But it is common and acceptable to negotiate the price when you submit your offer. Use negative information that you find to your advantage up front.

Include a contingency period in your offer. This will give you a way out if you discover something bad during escrow. The contingency period is sometimes called the due diligence period. The clock on the contingency period starts ticking “upon acceptance”. The acceptance date is when the last signature appears on the contract.

For example, suppose you sign and submit your offer on June 1st, and the seller signs and accepts it on June 3rd. Your agreement states you have a 17-day contingency period inside a 30-day escrow. You should complete your research by June 20th. At the end of the contingency period, the Realtor will ask you to “remove your contingencies .” In California, after you remove your contingencies, your deposit is non-refundable. So, for this reason, you should finish all research before your due diligence period ends. The contingency period usually ends well before the escrow closing date. So don’t get those two dates confused.

Will I Have to Go Somewhere to Do My Due Diligence?

You can do a lot of research at home in your pajamas!

You can review zoning descriptions on the city/county Planning Department website. Most provide an online Geographic Information System (GIS) with tons of information. You can email the city/county Planner to ask questions (this works best when the city/county is small). You can study aerial maps to get a sense of boundaries. You can review the title report, seller’s disclosures, and the natural hazard report. You can learn about crime statistics and weather in the area. You can phone the electric company, water district, well drillers, and septic providers.

Certain things are best done in person. Obviously, it’s best to go see the land in person. If you can’t do that, e.g., because you’re in another state, hire a service like We Go Look to take photos or videos.

If the land is in a big city or county, it may be hard to reach someone in the Planning Department by phone or email. In that case, you must get in your car and go speak to the Planner in person. Usually, you won’t need an appointment. Walk in.

Will Due Diligence Cost Me Money?

Most of it is free. But, if you want to do any of the following, you will have to pay for it:

Arrange a perc test for septic.
Ask a well driller to inspect the well.
Have a surveyor mark the corners so that you can understand boundaries.
Order a phase I environmental review.
Hire an engineer to investigate developing the land.
Retain a contractor to tell you whether a parcel is buildable.

No, the seller is not responsible for paying for these items unless agreed to in the contract. Sometimes, you can negotiate with the seller to pay half. But most of the time, sellers decline.

Buyers, it’s your due diligence, not the seller’s, so you must pay for it yourself.

What Information Do I Need to Have at My Fingertips Before Starting My Research?

Get out a piece of paper. Write down the assessor’s parcel number (APN). The APN is sometimes called the tax ID number. If there is an actual address, write that down as well. If there is no address, common for vacant land, write down the street the parcel is on plus the nearest cross street. Find out if the property is inside or outside city limits in the county. If it’s in an incorporated city, write down the name of the city. If it’s outside of an incorporated city, write down the county. If there is a Homeowners Association (HOA), write down the name of the HOA. If you know the name(s) of the current legal owners, write those down as well. Now that you have identifying information ready, you can start making those calls!

How Do I Even Know If There are Building Restrictions on the Land?

That’s easy. If it’s dirt, there are building restrictions! In other words, every parcel of land in California has building restrictions.

Who Governs Building Restrictions on the Land?

Restrictions may come from the following:

City
County
Homeowner’s Association
Other entities, such as the Coastal Commission or Historic District

If the land is within the limits of an incorporated city, then building restrictions are set by the city. If it’s outside city limits or in an unincorporated area, then restrictions are set by the county.

To determine if a city is incorporated or unincorporated, search the city name and state in Wikipedia. If unincorporated, go to the county. If incorporated, search Google maps to see if the land is inside or outside city limits. Type the city name and state into Google maps, and Google will show you the city’s boundaries. If inside, go to the city. If outside, go to the county.

Are There Electric and Water Meters Already Installed?

The chance of finding installed meters on vacant land is close to zero. I have only seen installed meters when someone lived in an RV on the property.

Even when there is no installed water meter, it could be that a previous owner already paid for it. We refer to that as “on the shelf” at the water company. To find out, you can call the water company and ask if there is a paid meter.

Since the odds of a meter is less than 1%, what you should be researching is whether utilities are available. Note that “available” does not mean that utilities are on the land running to the building site. Usually, the best-case scenario is that you find utilities “in the street.”

How Can I Research Whether Electricity is In the Street?

Get in your car and drive to the land. Look for the nearest electric wires and poles. Plot their location on a map. Find out the name of the electric company that covers that area. To do that, Google this: electric company <city or county name>. Phone the electric company and give them the parcel number (APN), address, or whatever they ask for. Inquire about the availability and cost of electricity.

How Can I Research Water?

To determine if district water is available, look for fire hydrants. Also, look for water meter covers. These offer evidence that water may be in the street.

If you don’t see evidence of district water, start looking for evidence of wells. Is there a tiny storage unit on the land? It might house well equipment. Walk around the land and look for a large round pipe poking up from the ground. It could be a capped well. From the street, look at the neighbor’s properties to see if they have tiny buildings that could house a well. Ask a neighbor if they have a well. If the neighbor has a well, this area likely has no district water available.

Based on your in-person research, phone the water district to verify. To find out the name of the water company, Google this: water company <city or county name>. Phone the water company and give them the parcel number (APN) and/or address or whatever they ask for. Inquire about the availability of water and the cost of a water meter.

If neighbors use wells and there is no well on the land, you must drill a well when you are ready to build. Phone a local well driller. Ask about the cost of drilling a well. To find a local well driller, Google this: well driller <city or county name>. If they express reluctance to offer estimates over the phone, ask for a range or a general sense.

How Can I Research Sewer/Septic?

Even though water is available, this does not mean that sewer is also available. So, when talking to the water company, ask if public sewer is in that area. If sewer is unavailable, you will need a septic system for waste. Like water and electric meters, a septic system on vacant land is rare. The only time I have seen that is when a house was there before, demolished or burned down. If there is a septic, you will want to get it inspected by a septic professional.

Not all land can support a septic system. To determine if a septic system is viable on your land, you can order a percolation test or “perc test .” Sometimes, you will see “perc” spelled “perk.”

If you want to do a perc test during the escrow period, write this intent into your offer to get the seller’s approval. It involves digging big holes in the ground, so you will need the seller’s permission to do that.

Before submitting an offer, ask a septic professional how long the perc test will take. Also, ask what their schedule is. Then, include the time you need for the perc test in your original offer. You want to avoid writing a 20-day contingency period into your offer only to discover later that it will take 60 days to get a perc test. Make your offer contingent on a successful perc test.

Perc tests cost money. To get a rough sense of septic viability without performing a perc test, talk to the neighbors. Ask if they had any trouble getting a successful perc test. You can contact a local septic installer to ask if he has ever had a home in this area fail a perc test. Finally, you can visit the county and find out if a historic perc test result is already on file. If the county has a record of a successful perc test, ask the county if the test would need updating due to age. If it’s a failed perc test, that’s important to know.

How Can I Research Zoning?

The first step in researching zoning is determining whether a parcel is in the city or the county. The location will dictate which planning office you go to for zoning information. Start your zoning research online. Instead of going to the city or county website and spending precious time poking around to find the correct department, it is faster to search Google like this: zoning <city or county name>. The zoning section of the official city or county website should pop up.

If the land is in a city or county with a common name, specify the state in your Google search. You don’t want to spend an hour looking for zoning on the Portland, Maine, website when the land is in Portland, Oregon!

Also, specify in your search whether you want the planning department for the city or county. This is to help Google distinguish between:

· Los Angeles city and Los Angeles county,

· Riverside city and Riverside county, or

· Fresno city and Fresno county.

To find a zoning map fast, go to Google and enter: zoning map <city or county name>. Sometimes, searching Google Images is a more direct way to find a map because a map, after all, is an image. Another good way to research zoning is to use the free Geographic Information Systems (GIS) provided by most counties and cities. You can search the GIS system using the parcel number or address and uncover a wealth of information. This information will include helpful maps and zoning. To find a GIS system for your land, search Google like this: GIS zoning <city or county name>. Include “zoning” in this search string because the city or county might have many GIS systems. Some will have zoning information. Some won’t.

When searching a GIS system using the assessor’s parcel number (APN), a helpful tip is to omit the dashes. For example, do not enter APN 1234–567–89. Instead, enter 123456789. If that doesn’t work, add zeros at the end, e.g., 1234567890000. Try one zero at the end, then two zeros, then three, then four. If that doesn’t work, add a zero to the beginning, e.g., 0123456789. If that doesn’t work, enter the address for the parcel. If none, enter the neighbor’s address.

A final way to figure out the zoning is to ask the planning office. Email, call, or go in person. Give them the APN. They will usually respond to email requests for information when it’s a small office. If it’s a large, busy office, it will be almost impossible to get an answer by email or phone. In that case, you will have to go in person. Before going in person, be sure you’re going to the correct office. If the land is in the city, go to the city. If the land is outside city limits, go to the county.

Buyers often make certain assumptions about the relevance of zoning. For example, they might assume that if zoning is residential, and allows a house, then some trusted entity has verified that a house is definitely buildable on that property. Not true. Building requires many things not covered by zoning. These include acceptable slope, water, and access for ingress and egress. Zoning does not take these factors into account. A parcel can have residential zoning and yet a building a house is not practical.

One last tip is to research both “zoning” and “land use.” They might conflict, and it’s good to know both.

How Can I Research Building Requirements?

If you’re interested in building, the first step is to research zoning. The zoning will tell you what kind of structure the zoning permits, if any. For example, if the zoning allows only homes, you cannot build a commercial office. If the zoning allows only one home, you cannot build two. Then, get in your car and drive to the city or county offices to learn what you can about building restrictions. If applicable, also check with other entities that have rules about what you can build. Examples include the HOA, Coastal Commission, etc. If you still have questions, pay a licensed contractor a consulting fee to advise you.

Remember, your Realtor is an expert in real estate sales, not building. Realtors will sell you the dirt, but building on the dirt is a whole separate thing.

How Can I Research the Homeowner’s Association?

If there are conditions, covenants, and restrictions (CC&Rs), the title company will provide them. Bear in mind that there could be CC&Rs even if there is no HOA.

The agent, or the escrow officer, will also order HOA financials, architectural standards, bylaws, etc. You will receive these during the escrow period.

For some reason, these documents are rarely available online. Maybe that’s because HOAs like to charge for them.

How Can I Research Property Boundaries?

Walk around the land near where you think the corners might be. Look in the dirt for markers. Markers might be anything:

vertical white PVC pipes
wood sticks poking up out of the ground
unusual piles of rocks
florescent pink tape hanging from a tree or
remnants of fence or old wood post.

Search for something unnatural that looks like a human put it there. But remember that humans make mistakes, so any markers you find may not be accurate. If you want the corners marked accurately, the only option is to hire a surveyor. To find one, go to Google and enter: surveyor <city or county name>.

Free GIS systems will also show you boundaries layered over aerial maps. I use paid software from LandId. Note that all computer-generated maps are inaccurate. The boundary lines can be off by 1, 10, or 30 feet. This is why you may see lines going through roofs and swimming pools. Don’t fret that the neighbor is encroaching on your land. It’s likely a computer error. Use these maps as an approximation only.

How Can I Research Easements on the Land?

Easements recorded on the land you are buying will restrict how you can use it. One example is a utility easement (no, you can’t build your garage under those tall utility wires).

If there are easements on the land, they will almost always appear in the title report you will receive during the escrow period. But, in the title report, the location of the easement will appear in some gobbledygook way. So, if you see easements mentioned, ask the title company for a map of plotted easements. That way, you can see their location and judge how they might impact your building plans.

Occasionally, there is a conservation easement blanketing the whole parcel, preventing building anywhere on the land (yikes!). There is a National Conservation Easement Database where you can look up them up online.

How Can I Research Access?

In California, it’s not uncommon for parcels to lack access. The property is landlocked. Also, physical access and legal access are different. A parcel might have one, both, or neither.

To research physical access, study aerial maps or get in your car and see if you can drive to the land.

The easiest way to evaluate legal access is to order a title report. If the title company says they will insure for title and access, then it’s likely the parcel has legal access. But what if the title company says they will insure the title but will not insure the access? That is usually because there is no legal access. There, you have your answer!

When there is no road going to the land, there may be an easement for access. Note also that easements on the land differ from easements used to access the land. The former are recorded on the property you are buying, while the latter will be recorded on the neighbor’s parcel. Easements recorded on land you are buying will not help you get from the road to the land. Easements recorded on the neighbor’s property for ingress/egress to your parcel may not appear in the title report because the report is specific to the property you are buying. So, you may want to ask the title company to research easements for access recorded on the neighboring property. If the title company discovers an easement for ingress/egress, ask them for a map of plotted easements showing the route.

How Can I Research Environmental Problems or Endangered Species?

If you have concerns about possible environmental pollution, you can pay for a Phase I Environmental Site Assessment. Generally, this is only needed when the land hosted something like an abandoned gas station, junk yard, auto repair site, or if you see evidence of pollution, such as leaking oil drums. To find a local firm, Google: Phase I Environmental <city or county name>.

And while we’re on the topic of nature, did you know that there are rules about removing certain trees in California? If there are oak trees or joshua trees on the land, look into that. If they are right where you want to build, that could be an issue.

How Can I Research Neighbors?

Get a crime statistics report for the City or County. To do this, Google: crime statistics <city or county name>. You can also research predators living near the land at the Sex Offender Registry.

But don’t freak out and conclude that the land is in a sketchy area just because you find a certain number of burglaries and pedophiles. Sorry to be the bearer of bad news, but almost every neighborhood has crime. The best way to realize that is to research the community you live in now, and you will see what I mean. Evil-doers are everywhere! Bleh!

Another way to learn more about the neighbors is to stop and talk to them. Say “hi” to the guy bringing in his groceries or the lady working on her car in the driveway. See if they’re the kind of people you want to have as neighbors.

How Can I Research Local Amenities?

In Google Maps, search for the property you are buying. If there is no address, because it’s vacant land, enter the address of a home down the street. Then click on “nearby”. Several options will pop up, such as Restaurants nearby, Hotels nearby, Bars and pubs nearby, etc. Choose one or enter what interests you, e.g., grocery stores, hospitals, schools, etc. Google will map them for you.

How Can I Research Climate?

One of my favorite places to research climate is BestPlaces. I like to compare two cities. The site offers helpful information for two cities on weather, crime, economy, housing, health, education, people, transportation, religion, voting, jobs, etc.

How Can I Research Real Estate or Rental Prices?

Search Zillow or ApartmentList. There are no Zillow-generated Zestimates for vacant land (thankfully). So, search for similar properties for sale and properties that have sold. When checking prices, remember that the most important reason a property is for sale, and not sold, is that it is over-priced.

How Can I Research Whether the Title is Clean?

As a buyer, you do not need to research the title. Leave it to the professionals, the title officer.

During the escrow period, the title company will investigate the chain of title. They will produce a title report. You can review that. The title company will not insure the title unless it is “clean .” So, if they say they will insure the title, that’s your best indicator that it is in good shape.

If there are blemishes on the title report, the seller can often correct those during the escrow period. So, if the preliminary title report says the title is not clean, don’t assume that’s the end. Wait for the final title report after the seller and escrow officer have worked to address questionable items. For example, if there is a judgment or lien, the seller can arrange to pay that off. Then, it will disappear from the title report, and you will not be responsible for the lien.

How Can I Avoid Making Mistakes on My Due Diligence?

One way to avoid errors is to get with your Realtor and create a list. The list will include all items you, the buyer, must research. Also, put on the list where you can go to research each item. By creating a list, you will be less likely to forget something,

Another way to minimize error is to get all critical information directly from various information providers, not second-hand from Realtors or sellers.

A final way to reduce error is by practicing redundancy: Get the same question answered in multiple ways or by several different people. For example, if you are trying to figure out if the land is likely to perc for septic, you can:

Ask a neighbor if they had any trouble with their perc test,
Check with the county to see if a historic perc test is already a matter of public record,
Call a local septic installer to ask about the viability of septic in that area and/or
Pay for an actual perc test.

That is, do several of these things, not just one.

Storytime: I once phoned a county planning office to ask about the zoning for a parcel I was selling. The Planner I spoke to said the zoning was commercial. A few days later, I called again to get some clarification on what commercial uses were allowed, e.g., office, restaurant, or what? I talked to a different planner. That Planner said it was actually zoned residential. So, I went to the planning office in person. The third Planner walked me over to a large zoning map on the wall. That map showed commercial zoning along the street and residential zoning in the back. I could see from the map that it was the correct answer. Finally! Making several phone calls, and going in person, and looking at maps was the key to getting accurate information at the end of the day. Redundancy rules!

What if I Mess Up on My Due Diligence?

Once, I was selling a piece of land, and the buyer received all seller and agent disclosures but did zero additional due diligence before buying. He then asked to “rescind” the sale after closing escrow.

Um, that’s a “no”.

There is no way to rescind a sale after escrow has closed and a change of ownership is recorded with the county.

Buying real estate is different from shopping in a retail store. You can’t walk up the return counter with a copy of your receipt and get your money back. With that said, if, after purchasing land, you decide that you don’t want to own it for any reason, you can always resell it. But be sure to disclose all material facts to the next buyer, especially any adverse ones you discover. The law requires this.

It’s All Very Overwhelming. What Strategies Will Make it Easier?

Remember, all you’re trying to do now is decide if you want to buy the land. You won’t be building a house next week — that’s in the future. So, focus on the mission-critical items, i.e., the things that affect whether you want to buy it. If you think about it, you will realize that some things are not critical right now.

For example, do you really need a surveyor to mark the exact-exact-exact corners on those 40 acres? Or will studying boundaries in an aerial map do for now? If you discovered that the property line is 10 feet from where you thought it was, would that affect your buying decision? If so, hire a surveyor. If not, it can wait until after you buy the land.

Or, suppose you’re buying a lot in a densely populated urban neighborhood. You observe a fire hydrant at the nearest intersection. The house on the left of the lot has water, and the one on the right has water. In this situation, do you need to research the cost of a water meter right now? After verifying that there is no moratorium on issuing new water meters in that area, you might put that item on the back burner until you’re ready to build. All you’re trying to do right now is trying to figure out if there are any bad-news-deal-breakers. You can put off the rest ‘till later.

If you think along these lines, you can cross some things off your immediate To-do list. Resolve to tackle them after you buy the land. For now, focus on those key items that affect your buying decision.

Summary

When purchasing land, yes, you do have to do your independent due diligence. Further, there is no “one-stop shopping” for all the information you need. No single person will provide all the answers for you.

Not the seller.

Not the Realtor.

Not the escrow officer.

Not the title company.

Savvy buyers will want to make a list, roll up their sleeves, and do their own research before buying land.

How to ask if seller financing is available

by Tammy Tengs

A buyer texts me and says: “will the seller carry the loan?” As a land broker, buyers ask me this all the time. It’s totally reasonable to ask about the availability of seller financing because there are very few conventional loans for vacant land.

The thing is, when a buyer asks the question in this simplistic way, I cannot give them an answer. And, there’s no point in me contacting the seller, my client, with a simple “hey man, will you carry the loan?” Because I already know what the answer will be. The answer from the seller will be “no”. Or, if it’s not a flat out “no”, it will be a bunch of questions:

How much will the buyer put down?
What interest rate?
How many years?
What price?
What are the monthly payments?
Who’s paying the closing costs?

Then, since the buyer has not stated the terms they are proposing, what happens is a lot of back and forth between buyer, agent and seller. It’s a big ‘ole unnecessary time-sink for all involved.

So, my friends and valued buyers, I offer you my advice on the best way to approach a listing agent to ask if the seller will carry the loan. I will show you how to save time and get positive results.

Let’s get started.

Sample Ideal Email Inquiry From a Buyer

Below is an example of an email that you might send to the listing agent.

“Hi Some Broker,

I’m interested in that parcel APN 987-654-321 at 1234 Some Street in Some City in Some County. I was wondering if the seller would consider carrying the loan with the following terms:

Price $80,000
Down payment $20,000
Principal $60,000
Interest rate 6%
Term 15 years
Monthly payments $506.31
No pre-payment penalty
Closing costs (escrow/title) shared 50-50
Closing in 21 days

Please let me know if the seller would consider these terms. If yes, I am prepared to submit a written signed offer.

Thank you,

Some Buyer”

Notice the specificity? Notice how the email includes everything that is needed and nothing that is not needed? See how the inquiry clearly spells out the terms including the price, down payment, interest rate, length of the loan, and monthly payment? Do that. Please.

How to Calculate Monthly Payments

It’s easy to calculate the monthly payment so that you can include it in your email. However, it’s not as simple as just dividing the amount owed by the number of months that you plan to make payments. That only works if your interest rate is 0.

To get the monthly payment for a fully amortized loan, use an online calculator:

http://www.moneychimp.com/calculator/mortgage_calculator.htm

http://bretwhissel.net/amortization/amortize.html

What Terms Should You Offer?

Buyers, in order to draft the email above, you will need to decide up front, before even asking the Realtor if seller-financing is available, what terms you are proposing. This will require a little advance thought on your part. So, spend a few minutes running some numbers. It will be worth it when you get a positive reply. Below are some customary seller-financing terms to help you out.

Down payments typically range from 20% to 50%. Please do not offer less than 20% for reasons spelled out here.
Interest rates on seller-financed land generally range from 4% to 10%. I recommend that you not offer less than 6%.
Terms (length of the loan) typically ranges from 2-10 years.

Out of all these items (down payment, interest rate, and term) the thing that sellers care most about is the down payment. To increase your odds of success, make the down payment as large as you can.

How Not to Ask a Realtor if the Seller Will Carry

For comparison, let’s look at how not to ask a Realtor if the owner will offer seller-financing.

Buyer: Yo, will the seller carry the loan on that parcel?

Agent: Which parcel?

Buyer: The one on the internet

Agent: Which parcel on the Internet? What street, city, county, state please?

Buyer: The land listing

Agent: I have 50+ land listings.

Buyer: The one priced at $100,000?

Agent: There are two, the one in California or the one in Oregon?

Buyer: California

Agent: OK, that’s the one in Riverside. I will be pleased to ask the seller if they will carry the loan. In order to ask the seller, I need to know the price, down payment, interest rate and term that you are proposing. Then I can ask the seller.

Buyer: Can’t you just ask the seller if he will carry, like, in general?

Agent: Sorry, no, because if I do the seller will ask me to specify the terms before he decides. What terms are you proposing please? I need your proposed price, down payment, interest rate and the length of the loan.

Buyer: I can put 25% down

Agent: OK what price, interest rate and term?

Buyer: 6% interest

Agent: Are you offering $100,000? How long would you like the term to be?

Buyer: No, I only want to pay $80,000.

Agent: OK what term?

Buyer: 10 years

Agent: Payments would be $666.12 per month. I will ask the seller and let you know when he replies.

Buyer: No, I can only afford about $500 per month

Agent: OK then let’s change the term to 15 years. I will ask the seller if he will consider $80,000 with $20,000 down at 6% interest for 15 years, payments to be $506.31 per month. I will let you know when he replies.

Buyer: OK thanks

Buyers, you don’t want to spend a bunch of time going back and forth on the phone, text or email just to get an answer to your question, do you? I mean, the email/text exchange above took like half an hour. You don’t want to invest that same half hour with five different Realtors on the five different parcels you’re interested in, right? It would be much easier for you to spend a little time thinking about it before even contacting the agent and just send the agent the email I recommended above. You could even use it as a template and send it to multiple agents on several parcels, editing key items slightly for each one. Save yourself a bunch of time!

Who Should Name Their Terms First: Buyer or Seller?

I find that Buyers usually want sellers to name their terms up front and sellers want buyers to name their terms up front. So, who goes first?

I recommend that the buyer “go first”. Here’s why: As a listing agent who represents the seller, it doesn’t make sense for me to even ask seller if they will carry the loan at the time of taking the listing. Why? Because if I ask the seller if they will carry at the time of signing the listing agreement, the seller’s answer is almost uniformly “no”. So, there’s no point to even asking. Almost all sellers prefer cash, and, at the time of listing, they are usually thinking their parcel is so special it will sell quickly and for a full cash price. At the outset, sellers see no reason to carry the loan. This means that if you’re the first buyer me to ask, “will the seller carry?” it’s likely that I won’t know the answer to your question.

And I cannot just pose this question to the seller “in general” or “hypothetically”. I find that sellers run into a mental block when they are asked whether, in theory, they might consider carrying the loan. Most sellers have no clue whether they should ask for 20% down or 50% down, whether the interest rate should be 4% or 10%, whether it makes sense to carry for 2 years or 15 years. I find that most sellers cannot wrap their mind around the question of whether they might carry in general for some hypothetical nameless faceless buyer. Sellers can only think about financing when the precise terms are spelled out by an actual buyer. It’s a psychological thing.

So, as an agent, instead of asking the seller at the time of taking the listing whether or not they will carry, I wait a month or two until I get the first inquiry about seller financing from a buyer. Then I ask the buyer to name their terms. Armed with those terms, I go to the seller and say hey there is real buyer proposing actual specific terms and I ask the seller if they will consider those exact terms.

This strategy is more likely to get a positive response from the seller. One reason is that a couple of months into the listing period, sellers are starting to see that their parcel has not flown off the market with a full price all cash offer. By this time, sellers are beginning to think about new ways to get their land sold. A second reason is that if I can specify exact terms to a seller, he can ruminate about it in a concrete way. Is the 20% down proposed by the buyer sufficient, he will wonder, or would it be better to counter at 30% so that the buyer has more “skin in the game”? Is he willing to carry for 10 years, as the buyer requests, or will he need the money in 5 years for his kid’s college education? Is the 6% interest rate proposed by the buyer less or more than what he earns on his other investments? What would it be like to get a regular check for $506.31 per month? That might be nice, he will think.

So, buyers, when you name your terms this gives the seller something concrete to focus his thinking on. It works much better this way and he is more likely to say “yes”. Trust this advice from the experienced land broker.

Consider Your Audience

As a buyer, it’s best if you can learn something about the seller and agent before preparing your detailed inquiry about seller-financing. Is the seller younger or older? Is the Realtor a residential broker or a land broker?

If the seller is older, you will want to propose a shorter term for the seller-financing. While banks can entertain long loan terms like 15-30 years, because they exist in perpetuity, land sellers are not banks. They are humans with finite lifespans. Some sellers are older and naturally want to get paid off while they are alive. So, consider the seller’s age when deciding what term to propose. The older the seller, the shorter the term you should propose.

The reason to consider whether the listing agent is a residential broker or land broker is that residential brokers will be less familiar with seller financing. Residential brokers sell mostly houses and condos and may have only one or two land listings. Since conventional loans are plentiful for houses, Residential brokers may not be aware that there are few conventional loans available for vacant land. A residential Realtor might wonder “why doesn’t the buyer just go to their bank?” Residential brokers may even greet your seller-financing request with suspicion. Some may not have a clue how to prepare a seller financing offer, calculate monthly payments, create an amortization schedule, etc. (By the way, these are just some of many reasons that land sellers should list with land brokers not residential brokers, but I digress….) Buyers, if your audience is a residential Realtor, it is even more important to spell out your proposed terms in detail in your first inquiry as I have shown you above. If you do this, you will look like a serious buyer. In addition, you will be educating the residential broker so that they will see that preparing an offer like this would not be all that cumbersome (for them). Then they may take your “seller financing?” question more seriously.

Also remember that your “audience” for this inquiry, the listing agent and the seller, are probably not mathematicians or loan brokers. So keep it simple! I recommend that the type of loan you propose be as basic as possible. For clarity, make it fully amortized. This is because loans that are amortized involve just a single monthly payment and when you’re done making those payments the whole principal will be paid off. It’s an easy concept for sellers to grasp. Try to avoid proposing a balloon payment and never ever propose multiple balloon payments such as “I’ll pay you $20,000 up front, then monthly payments, the another $30,000 in 1 year, then more monthly payments, then $40,000 in 3 years.” OMG. Do not ask for an interest-only loan because that involves a balloon payment at the end. A final recommendation is to avoid proposing multiple options. Never say “we could do it this way or we could do it that way”. You might think it’s totally logical that the seller would prefer to have choices, that way the seller can get more what he wants and so is more likely to carry the loan. Wrong. It just confuses the negotiation. Think about Trader Joes. One of the reasons they are so successful selling tomato sauce and frozen burritos is that they offer one option not multiple options. If you want the seller to say “yes”, just propose a single garden variety amortized loan with one set of terms.

Finally, buyer, keep in mind that most sellers prefer all cash. So, your audience for your “seller financing?” question will be someone who really doesn’t want to carry the loan. You will have to entice them. So, don’t go in with an offer that is low price AND a small down payment AND a low interest rate AND a long term because that’s not going to work. Give the seller something to hang his hat on. Make him want to work with you. You’re not the only buyer out there. You are in competition with other buyers, actual or theoretical, past, present or future. And while you cannot make your offer superior to other buyers in all ways (because you’re not offering cash), you can make it superior to all other buyers in one way – and that’s on price. So, if you’re going to request terms, at least offer full price.

Buyer Worries

Sometimes buyers worry that if they send a detailed inquiry like the one I am suggesting, the seller will get the mistaken impression that it is an actual offer. They fret that if the seller says “yes” they will be “under contract”. Not true. In real estate, a contract has to have two signatures. And when a buyer sends this kind of inquiry to a Realtor, and the Realtor forwards it to the seller, and the seller says, “sounds good”, nobody has signed anything. The seller’s positive response just means “I invite you to submit a formal offer and, if you do, and I will look at it favorably”. However, until there is a signed agreement, there is no deal and either party can walk. So, buyers, don’t be afraid to state your terms up front with some specificity.

From the Perspective of the Realtor and Seller

In addition to increasing the odds of getting a positive response, something that benefits the buyer, the strategy that I am advocating also serves the purposes of the Realtor and seller. Asking the buyer to give a few minutes of thought to the kind of seller-financing deal he wants, weeds out those buyers who are not serious about the parcel in question and are just sitting around in their jammies, watching Netflix, surfing Zillow, and blasting off “seller carry?” emails to random agents. After all, not all “buyers” are buyers. And there’s no point in getting a seller’s hopes up if the buyer is not really a buyer. I find that real buyers are willing to spend a few minutes crafting their seller financing proposal. It’s a good test.

Conclusion

If you’re interested in purchasing a piece of land, it’s reasonable to ask a Realtor whether or not their seller client will carry the loan on a parcel of land. The best way to do it is to briefly specify all terms up front. This will increase your odds of getting a positive response!

No, the seller will not accept $0 down

by Tammy Tengs

In lieu of requiring buyers to pay all cash, some land sellers choose to offer “owner financing”. The seller accepts a down payment from a buyer of, say, 20% and then the buyer makes monthly payments to the seller over time.

When one of my seller-clients decides to do this, I ask them to specify up front the terms they will consider, i.e., the down payment, interest rate, and number of years. An example is 20% down, 6% interest, 10 years. I put the seller’s terms in black and white in all of my marketing materials. Yet, inevitably, I find that whatever down payment the seller requires, a few buyers will always contact me and ask if the seller will accept a smaller down payment.

Typical conversation with a buyer

This video shows a typical conversation that I will have with buyers. It explains why sellers offering “owner financing” will not accept a small down payment:

http://https://youtu.be/8nr6GICqO88

Additional reasons why sellers will not accept $0 down or a low down

The commission and closing costs are not the only reason sellers will not accept $0 down. The seller might also have liens or back property taxes to pay.

For example, suppose the seller in our $100,000 video example still owes $4000 on a loan tied to the land. In addition, he owes $3000 in a child support lien and $2000 in back property taxes. In order to transfer the land to a buyer “free and clear”, escrow will require the seller to pay those items, along with the commission and closing costs, out of the seller’s proceeds. Even though the seller is paying these items, and the buyer is not paying them, the down payment that the buyer gives the seller has to be sufficient to cover all of the items the seller is responsible for or the seller will have to write a check to escrow in order to close. Land sellers do not want to write checks. They want to receive checks. Getting money in return is kind of the whole point of selling land when you think about it!

Further, when a seller offers to carry the loan, he will naturally have a keen interest in making sure that the buyer will make their monthly payments in full and on time. The higher the down payment, the less likely the buyer will flake out in the future. This is because buyers realize that they will lose their down payment (and the land too) if they don’t pay.

Other sellers have in mind a certain amount of money that they want up front for a particular and immediate use in their life. Maybe they have medical bills to pay. Maybe they’re trying to fund the family’s vacation to Hawaii. Maybe they want to buy another parcel of land. Maybe they want to renovate their kitchen. Maybe they owe money to their drug dealer. Who knows? The point is, some land owners don’t want to sell their land at all unless they can get some threshold dollar amount down from a buyer. If they can’t get at least that amount, they won’t sell at all.

Occasionally “the seller” is actually multiple sellers, each with a percent interest. So, whatever the buyer puts down ends up getting split 2, 5, 8 ways (or whatever) after costs are deducted. The amount each individual seller will end up with at closing is therefore small. The more co-owners there are, the more the required down payment can get ratcheted up.

Advice to buyers

Before buying land, consider saving your money for a while so that you will have a sizeable down payment. Or, find a co-investor. Or purchase a less expensive parcel of land.

If you really want to purchase land with $0 down or a small down, don’t even look at parcels listed by Realtors. This is because, when there is a Realtor involved, the seller will always have to pay the commission out of any down payment that you propose. The math is not going to work out. So, buyers, if you don’t want to put at least 20% down, look only at For Sale by Owner (FSBO) listings where the seller does not have the expense of a commission.

If you have your heart set on a parcel listed by a Realtor, then at least contact the Realtor and ask if the land is “free and clear” of all liens and back taxes. Sometimes the agent will know the answer to this question and sometimes they won’t. Depending on what the agent says, do a “back of the envelope” calculation. Consider things from the perspective of the seller. Add up all the costs you think the seller will have to pay at closing: liens, back taxes, commission, and closing costs. You won’t have the exact numbers, so just estimate. When estimating, keep in mind that commissions are not always 6%. They can be 8%, 10% or anything and the listing agent is unlikely to tell you what commission the seller is paying. The total you come up with is your estimate of the bare minimum down payment the seller might possibly consider. Throw in an additional cushion of several thousand dollars over that sum and that’s the down payment you might propose in your seller-financing offer. If you find that the total exceeds what you want to put down, then don’t even bother submitting an offer. Move on down the road and buy a different parcel.

Suppose that the seller’s total costs, including liens, back taxes, commission, and closing costs, add up to $9642. Buyers, please don’t assume that you can offer the seller $9700 down and he will accept it. The seller is not going to transfer title to you in return for a check for $58 dollars at closing. The seller will want to receive a check for thousands of dollars at closing in order to agree to carry the loan for you. That’s why it’s important to cushion the down payment offer by several thousand dollars over and above the seller’s total costs.

Also, note there are basically two ways the seller can carry the loan. One is with a “trust deed” where title is transferred to the buyer at closing. Escrow records a lien on the land in favor of the seller and the seller and becomes a non-owner and lender just like he is Wells Fargo. The second way is a “land contract” where the seller retains title until the loan is fully paid off. The land contract is sort of like buying a car. After you make all the payments, then you get the pink slip. You don’t get the pink slip (title) up front. I’m not sure about other states, but the trust deed is the most common in California and Oregon, and I have never seen a “land contract” used in these states in my career. However, a “land contract” is the only kind of agreement that is likely to work with $0 down or a low down. This is because sellers are unlikely to want to transfer title to you up front when you are putting no money down. As a buyer, you might try proposing a “land contract” to FSBO sellers instead of a “trust deed”.

Finally, buyers, remember that, in addition to the down payment, you will also be expected to pay your portion of closing costs. Closing costs include the escrow fee and title insurance. These costs are entirely separate from the down payment and are paid to the escrow and title companies, not to the seller and not to the Realtor. Even in the unlikely event that you can convince a seller to accept $0 down, you will still be expected to pay your share of these costs. Purchasing real estate is not free.

Advice to sellers

Offering to “carry the loan” is one way to dramatically increase the odds of selling your land, and for top dollar. The reason is, there are virtually no good bank loans for most kinds of vacant land. Sellers who offer to “carry” do not think of it as a burden. They think of it as an investment that yields a return secured by real estate. Consider whether or not seller-financing is right for you. If you don’t want to carry the loan, that’s totally fine, just know that your buyer-pool will likely be limited to those buyers who have all cash. If you do decide to offer seller-financing as an option, consider requiring at least 20% down.

Conclusion

The notion of a zero-down payment on land is basically a myth. I have never seen a seller accept that in my career. Purchasing land with a low (not $0) down payment might be possible but not when a Realtor is involved in a transaction. Buyers who are seeking seller-financing, and want to consider parcels listed by Realtors, should be prepared to put down at least 20%.

10 reasons land sellers sometimes have so little knowledge about what they’re selling

by Tammy Tengs

Land owners have a legal duty to disclose to buyers all material facts about the land they’re selling. This duty, however, is limited to information the seller is actually aware of. Buyers are sometimes dismayed when they learn that sellers have so little knowledge about their own land.

Here is a typical scenario: A buyer asks me a question like “where are the exact corners?” or “will this property perc for septic?” When I say that I don’t have that information, the buyer says “well, could you ask the seller?”

The thing is, the seller has no idea either.

“How could that be?” the suspicious buyer wonders. “Surely the seller knows everything there is to know about their own land, right?”

Um, no.

The vast majority of sellers are ethical and helpful and will provide the information if they have it. However, there are many reasons why some sellers know little about the land they’re selling. Here are the top ten reasons:

Bought it at a tax sale

Seller Larry is an investor. He buys land at county tax sales at low prices. Then, he “flips” the land a couple of years later at a profit. For parcels under $50,000, Larry does not go to see the land in person. To decide what to buy, he relies on studying satellite maps and other online information sources. As a consequence, when it comes time to sell the land, Larry does not have detailed knowledge about the land he’s selling.

Just the lenders

Seller Seymour did not invest his retirement money in the stock market. Instead, he became a hard money lender because the rates of return were higher. A few years ago, buyer Jane wanted to buy some land and Seymour loaned Jane the money. At that time, Seymour had the land appraised. Unfortunately, after buying the land, Jane lost her job and did not pay Seymour. Seymour foreclosed on Jane and took the land back. Now he wants to sell it and the old appraisal report is the only information Seymour has about the land. Seymour will be happy to disclose the appraisal to new buyers, but that’s all the information he has.

Purchased it for someone else

Sellers Wang and Chen purchased a lot for their daughter Lilly to build a home in California. Wang and Chen live in New York. Although they are the owners, they have not seen the land. A year later, Lilly’s company transferred her to an office in a different state. Lilly moved away from California and so decided not to build. The family now wants to sell the land. It is Wang and Chen, not Lilly, who must list the land for sale with a Realtor and complete the official disclosure forms. This is because they are the legal owners. Sellers Wang and Chen know almost nothing about the land and their disclosures reflect their lack of knowledge.

Live far away

Sellers Brad and Leslie live in the Rocky Mountains of Colorado. They purchased land on the Oregon Coast 10 years ago with the intent of someday building a retirement home there. However, they have now decided to stay in Colorado near their children. Brad and Leslie live hundreds of miles from the land. They bought it on a whim based on the amazing ocean view and have little information about the land beyond happy memories of salt air and seagulls.

The person with detailed knowledge about the land is deceased

Seller Myrtle owns land near Crescent Lake in Oregon. Her husband Fred used to love to take the RV over to Central Oregon to go fishing with his friends. The guys would camp on the land and Fred would dream about someday building a cabin there. Fred was a fastidious person and knew every single detail about the land. Myrtle, on the other hand, preferred the comforts of city life and did not get into detailed discussions about the land with Fred. Fred is now deceased and Myrtle is trying to sell it.

Have not seen the land in decades

Seller Cecil, age 85, purchased 160 acres of desert land 50 years ago. Cecil went to see the land prior to purchasing it. In addition, while on vacation 10 years later, Cecil took a detour to go “visit” his land. At that time, access was via a dirt road and the nearest electric pole was 1 mile away near a small development of new homes. Decades have now passed and he has not seen the land for 40 years. Cecil has no knowledge of whether or not additional development (paved streets, water, electricity, sewer) might have reached his land or not.

Didn’t do their research when they bought it

Seller Omar received a large inheritance 5 years ago. He bought 12 lake-front lots at the time. He chose the parcels based on how pretty the lake looked in the Realtor’s online photos. Omar relied on what the Realtor told him and did not do any independent due diligence on the parcels prior to purchase. Consequently, now that Omar is a seller he is is unable to provide much information to potential buyers.

In the hospital

Seller Thelma hired a listing agent to sell her land. A few months later, when the agent located a buyer, he called Thelma’s home to tell her about the offer only to learn from her family that Thelma was in the hospital. Thelma is scheduled for surgery next week. She is anxious to sell her land so that she can pay her medical and after-care bills. Thelma is of sound mind so, with the assistance of a mobile notary, she is able to sign the offer and escrow documents to sell her land. However, since she is in the hospital, she is not exactly in the position to be looking through her files at home for additional documents.

Never had plans to build

Seller Juan purchased 10 rural acres from a friend for about 50% of its true value. Juan already owns his dream home so he has no plans to build on this land. He bought it strictly as a long-term investment and to help out his friend, who needed fast money. Because Juan never planned to build, and because he bought it at such a bargain price, he did no research on building and has no knowledge about things such as utilities or even whether there is legal access.

No legal duty to research

Seller Tamar owns a view lot in Malibu. Tamar is an orchestral musician and does not have a background in construction. Tamar is represented by a Realtor. Buyer Manuel is considering purchasing Tamar’s lot to build a fabulous architectural house for his family. Manuel has never built a home before. He does not have a contractor or architect yet. Manuel has many questions about whether or not the lot is buildable. He asks Tamar’s Realtor for information about the degree of slope, whether a flat pad can be graded, the minimum square footage for a house, the cost of a water meter, etc. Seller Tamar and her Realtor reply that they do not know the answers to these questions. The Realtor explains to Manuel that the owner is selling dirt and has no duty to research matters related to building. The Realtor helpfully advises buyer Manuel to seek the assistance of a contractor, architect, engineer, or other building professionals to assist him.

What’s a Buyer to Do?

Land buyers should do their own independent due diligence. Here is a partial list of things that land buyers will want to research: Zoning, building restrictions, electricity, water/well, sewer/septic, and legal access.

Buyers sometimes wonder whether the Realtor will get answers to all their questions. Realtors do sometimes have considerable knowledge about the land they’re representing. In fact, Realtors often know more about the land than the sellers do. On the other hand, it is also common for the Realtor to have little information. The Realtor’s ability to provide answers, varies depending on the parcel. So just ask. If the Realtor has answers, the Realtor will be pleased to provide them to you. If the Realtor does not have the information, they can usually be very helpful in advising the buyer where the buyer can go to get answers.

Note however that while the Realtor will happily disclose what they already know about the land, it is not the agent’s role to perform new research, especially on matters related to building.

Further, experienced Realtors have learned that the best way to prevent misunderstandings and lawsuits is for the buyer to get as much information as possible from an official source instead of relying on the Realtor or seller. A wise Realtor will advise a land buyer to roll up their sleeves and get answers “straight from the horse’s mouth”. This means that the buyer, not the Realtor, should phone the utility company to get information on utilities or drive down to the Planning or Building Department to discuss building restrictions.

A great side benefit to a buyer doing their own due diligence, is that they may learn things about the land that they did not even know they had questions about. For example, a buyer who calls the water company to ask about the cost of a water meter, may learn there is no sewer. Or, a buyer who sits down with a City Planner to discuss building setbacks may discover, in the course of conversation, that the mother-in-law unit they were planning is not allowed by the municipality.

As a buyer, you may feel that you don’t have time to do your own independent due diligence. Or maybe you feel it’s not that fun and you just don’t want to do it. I understand completely. However, in that case it is in your best interest to buy a house or condo, not land.

Conclusion

For the reasons described above, it is common for sellers to have little knowledge about the land they’re selling. The careful buyer will seek answers from official sources such as the City, County or utility companies.