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Review of all things Real Estate: Lot-land build factors

If there aren’t enough resale homes on the market then the next logical discussion is, what about buying raw land and building a new custom home which meets all your wants and needs?

I represented a great local builder for over 12 years who taught me so much about the concerns of new construction, and I’ll pass along some of the bullet points associated with building new construction in this article.

I will identify wavetop issues and if it whets an appetite within you to consider building new construction then my strongest recommendation is to contact our local trusted general contractors and engage in detailed discussions about building your dream home.

Financing for new construction is different from residential resale purchases and few lenders have those kinds of programs. Different lenders have different down payment requirements, different draw schedules and different lengths of time to refinance out of the construction loan into the take-out loan (permanent financing). The best advice is to deep dive into the internet because loan programs are different between lenders so research the best program that meets your building needs.

Electrical power is always a prime concern when building. If the project will be within 300’ of a transformer then it is mostly just a connection fee, but if there is a requirement to install additional power poles or there’s a requirement that the utilities must be underground, then standby for some eye-watering expenses. And no, generators cannot be the primary source of power. Power must be provided by SDG&E or solar. Generators can only be back-up power sources.

Water: It costs approximately $16,000-26,000 to install a water meter with the proviso that there is a water main nearby. If not, then digging a well may be the solution. A new well will cost about $40,000 to drill, case, install the pump and storage tank plus there will need to be electrical power to the pump.

Sewer/septic: If the property is in a sewer district, does the parcel have a sewer reservation to join the district? If not, there must be approval to join. Hooking up to sewer isn’t cheap as the road must be closed for up to two days with accompanying traffic control and subsequent road repair. A sewer lateral from the parcel is required to join the sewer line.

If a septic system is going to handle the sewage requirements, the land must first pass a percolation test (separate expense of approximately $3,200), then the cost to install a traditional septic system is approximately $16,000-18,000. A septic system needs to have enough land for 100% of the leach lines plus there needs to be room for a 100% reserve leach field. There are required setbacks for leach fields from property lines and riparian waterways.

Legal access: Just because the parcel abuts a road doesn’t mean it has legal access from the road to the parcel; check with a title officer. California law allows for the sale of landlocked parcels which means the owner might have to buy easements over adjacent parcels to get to their own property.

Permits and fees, which can be a crazy amount of money, include traffic impact fees, schools impact fees, environmental impact studies plus other fees. My builder once told me they pay up to $80,000 before a shovel of dirt is turned. Design review is part of permits and fees. If using a previously approved structure design that will fit the lot, some fees are mitigated, if not then factor in architect fees.

Grading and watershed, not all lots can be graded to conform with environmental and fire department requirements (20% gradient is the maximum driveway slope due to county rugged terrain fire engine limitations).

Expense to build new construction is approximately 15-25% more than residential resale because the project is starting from unimproved raw dirt.

All dirt is not of equal value. If the parcel price is inexpensive there is a reason. Always consult with a local general contractor before finalizing a land lot purchase to ensure the intended utilizations can be accomplished.


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