The Hidden Costs and Considerations of Land Development

Whether you’re building your dream home or looking to make an investment, there’s something appealing about buying a piece of land and developing it just the way you want. But as anyone with experience will tell you, land development can be a frustrating, costly and unpredictable endeavor if you don’t plan and prepare properly.

To make your dream home or structure a reality, you’ll need to do more than just buy a piece of land and start building. Before you run off and buy a plot of land, consider these hidden costs of land development.

Fees and Permits

Before you can start building, you’ll need to pay fees and obtain permits for site development, which can costs thousands of dollars. In high cost areas, fees and permits alone can cost upwards of $10,000. In the state of California, you’re looking at spending $20,000 or more in most cases.

Site development costs are the one thing that inexperienced buyers often overlook, and it can lead to delays or shut the project down altogether. When evaluating a piece of land, get a realistic estimate of site improvement costs. Even if the lot is developed, make sure that you know exactly what is included. Packages can vary from one development to another, and there may be additional site work that is not included.

Additionally, you’ll also need to consider the costs of obtaining a survey of the property. Surveys are typically required by lenders and local building departments. Be sure to budget for this fee.

Utilities, Septic and Water

Does the property already have utilities hooked up? If not, you’ll foot the bill for electrical, cable, phone, sewer, water and gas hookups. This may also mean paying for trenching costs to run underground lines, oil or propane tanks, or installing an electrical transformer. If there are no water or sewer connections, you’ll need to pay for the implantation of these as well.

Water well costs may include:

* Casing
* Well drilling
* Pressure tank
* Pump and wiring
* Trenching
* Running plumbing lines to the house
* Water treatment, if necessary

Similar costs may be incurred for the installation of a septic system. Alternative systems, which can be more costly, may be required for properties with poorly drained soils, environmentally-sensitive areas and waterfront properties. Additionally, you may have to pay for soil testing (perc or deep hole test) to determine if your soil drains poorly.

Earthwork and Paving

Every land development project will require at least some earthwork and paving. While most land owners anticipate these costs to some degree, it’s easy to overlook the extent of work needed to prepare a site for development.
A few costs that you may have overlooked include:

* Clearing: The cost to remove trees and shrubs on the building site. Costs may be higher if you plan on preserving some trees as cuts need to be made carefully. In some cases, stump and timber removal will be included, but not always.

* Blasting: May be required when building the foundation or trenching for utilities. This will normally include the removal of blast rock.

* Rough and finish grading: This may include the purchase of sand, soil, crushed stone or gravel.

* Excavation and backfill: You may also be required to purchase granular fill.

* Inclines: May require cutting and filling, terracing and the construction of retaining walls.

* Drainage: Costs incurred as needed. Drainage may include curtain drains, drains around the perimeter of the foundation, subsurface drains, culverts, swales, gravel, stone and sand.

* Paving: For driveways and possibly walkways. Even if you opt for an unpaved driveway, you will incur costs for the gravel/stone and top layer.

As you can see, there are a number of hidden costs associated with earthworks and paving. Plan for these carefully, and be sure to get accurate estimates from trusted professionals. This way, you know exactly what you’re up against.

Legal Fees

Many land buyers also overlook the legal costs associated with land development. These costs include:

* Title search
* Additional closing costs
* Variance requests
* Resolving rights-of-way conflicts
* Issues with boundaries
* Refuting challenges from abutters

Legal fees can be difficult to anticipate, but you should consider including them into your budget just in case. If you wind up not facing any challenges from abutters or right-of-way conflicts, then you’ll wind up with more money in your budget for building or unforeseen complications.

Impact Fees

Many towns now impose impact fees to help cover the costs of infrastructure, schools and additional public costs that come along with building new homes. These fees will vary from state to state and city to city. This fee goes by many names: mitigation fees, development fees, facility fees, service availability charge, etc.

Roughly 60% of all cities with a population of 25,000 or more have these fees in place. In Florida, 80% of cities have this fee, and that number jumps to 90% in California.

This is one fee that many buyers do not account for simply because they don’t know it exists. Considering that this fee can range anywhere from $1,000 to $20,000 or more, it’s important to include it in your budget right from the start. According to an impact fee study conducted in 2010, the average fee for a single family home is just below $12,000.

Keep in mind that even if you purchase a design and build package with your lot, you will more than likely be hit with an impact fee separately and in addition to the fee you pay the developer.

Land development can be a costly endeavor, but if you plan properly and account for these hidden costs, your project will run much more smoothly. While you still may encounter some surprise costs (project delays or unforeseen complications), budgeting for these costs will minimize the impact of these costs on your final project. Be sure to get accurate estimates of the costs associated with each phase of the project from fees and permits to clearing and utility costs. Doing so will give you peace of mind in knowing what your actual costs will be.