Karen and Bill Ludwig thought they knew what they were getting into when they decided to purchase the perfect lot to build the perfect house in Parkton.
They inspected the 8 acres. They walked the grounds and questioned the seller about possible problems. They studied tax maps and made sure the land would support a septic system.
When their builder applied to Baltimore County for the building permit last spring, it was discovered that part of the lot was within a 100-year flood plain, and the issue brought the building process to a screeching, expensive halt.
Part of the flood plain lay where the Ludwigs planned their driveway. That necessitated special grading of the land to protect the driveway, and it required a formal plan by a soils engineer. A special grading permit then had to be issued by the Maryland Department of the Environment. Only after state approval would Baltimore County allow construction.
"Ours was the last lot in the subdivision. Now I know why," Karen said. "Why us?"
Most new-home buyers find their lots through a builder who has already developed a piece of land into a subdivision. There are other buyers, however, who enjoy the hunt of being able to find that special parcel - an acre or two that no one else knows about - and securing it for their home. But purchasing a raw piece of land to build a home can be daunting task. How do you look for land? Is it buildable? What is its value? What is the process that precedes building?
Though the Ludwigs' troubles are nearing an end, their $125,000 dream lot wound up costing them about $140,000. To that, add $20,000 in closing costs for their construction loan, a $10,000 down payment to the builder and more than $10,000 for state and county permits. The Ludwigs had a lot of cash tied up in the project.
The moral of the story is that great-looking land can come with great problems if the buyer isn't properly educated.
Flooding can be just one problem.
A basic weakness in the soil that makes the lot unable to sustain the home's weight.
Building restriction lines, streams and buffers.
Community association restrictions.
Controls on which builders are allowed to build within a subdivision.
That's why builders, developers and real estate agents say the first hurdle in the land game is the land itself.
Perhaps the biggest land-related issue, for those properties not serviced by public utilities, is water. Can you get enough water out of the ground? If there's no water, there's no house.
Water yield must be tested for all new wells.
The state has set a yield rate of one gallon per minute on new residential wells. This means that after the well's reservoir - or water standing in the well shaft - is drawn down by a licensed contractor, the well must pump a gallon a minute for six hours. This indicates that water is replenishing itself from fissures in the area at that rate. In addition, new wells (not drawn down) must be able to deliver at least 500 gallons over two hours.
Then comes septic. Before installation of a septic system, a county-certified soil percolation, or "perc test," is also required. This shows the ability of the soil to absorb liquid wastes.
Almost all of the homes that Pat Hagan, principal of Hagan & Hamilton custom homes, builds each year are on private well-and-septic systems. Some sellers make it the buyer's responsibility to drill the well, which can cost up to $5,000. Hagan and others say this is risky for the buyer, because some land doesn't have enough water - or it might take two or three tries to hit water.
"It's more prudent to buy with the well established, or make it the seller's responsibility to drill," Hagan said.
Time to investigate
As a safeguard against property flaws, when Chris Crampton, a land specialist with Long & Foster Real Estate Inc., signs a contract for a lot that's not in a developer's subdivision, he includes a "feasibility contingency clause." This gives the buyer a specific amount of time to investigate and check with county officials for potential problems. Sometimes even that isn't enough.
The Ludwigs had 30 days to check things out, and they knew about the flood plain from county paperwork. Even so, Karen said, they didn't recognize the ramifications of being within a flood plain until Hagan, their builder, went to secure the building permit.
Despite risks, some developers purchase distressed lots - lots that won't perc - or lots that need special grading or backfill work. Developers don't recommend such a strategy to the average consumer. Going straight to the farmer who owns the land is dangerous.
"We can walk in and estimate our costs to finish the job. The average person can't go in blind," said Harford County-based custom home builder Dave Thomas of TDT Construction.
Consumers also should be wary of when a parcel was subdivided.
Land subdivided in the 1970s might run into approval problems at the county level because of environmental and open-space constraints added during the past two decades.
"If you look at the plat and you see 1960s or 1970s, the subdivision may be iffy as to [obtaining] county approvals," Crampton said. "Make the contract contingent on getting the building permit."
Available at county courthouses, the critical "plat" explains where many utilities can and can't be placed.
A well, for example, can't be drilled just anywhere. The plat explains where it can be located. The plat will also list setback rules, septic stipulations and other construction cans and can'ts.
After you study the plat, look at tax maps to check property boundaries, and walk around the grounds, says agent Carol Freund of the Harford County office of Prudential Carruthers Realtors.
Deciding the home's relationship to the land is critical as well, says Portrait Homes Inc. President Scott Adashek. How does the land allow the house to be positioned? Can a walk-out basement be built? Such questions are good to ask, he said.
One couple approached Adashek after purchasing a lot in Carroll County from a licensed surveyor, who told them they could have their desired walk-out basement. But when Adashek inspected the lot and compared it to what the couple wanted, he saw that the hilliness of the lot forced the walk-out basement to be in the front, not the back or side of the house. They wound up having to rotate the house's position before building.
Water levels also must be considered.
In Anne Arundel County, at the basin of the Chesapeake Bay, land is sandy and silty. In wet weather, the water table can lie only 3 feet below the surface. That means wet basements. Wetlands are not only costly to deal with, they also can change over the years.
"The county can take a large lot and let you build on two-tenths of an acre if it's wetlands," Adashek said.
The Ludwigs found that out.
Of their nearly eight acres, only one will be dedicated to the home. The rest is forest, stream and other buffers. That was OK with them but might not be acceptable to others who want large back yards for pools, play areas or horses.
If the land is rocky, as in parts of Carroll County, it has to be excavated for basements and plumbing lines - at $5,000 a day. Adashek has seen underground rocks the size of houses.
Other expenses include removing dirt and trees to level a lot, or importing dirt to build up a lot. Alan and Carmel Locey of Monkton had to import backfill dirt for their foundation. Forty truckloads were needed to build up the grade.
The wisest first step to finding a lot is having a clear vision of what you want, said Freund of Prudential Carruthers.
"You need to understand the usability of a site," said Maury Bass, director of sales and marketing for Homebuilders Realty Services of Owings Mills, which assists builders in finding developable land and then supplies on-site sales staff and marketing support. "Do you have kids and want a back yard? There are many factors."
Setting a realistic time frame and doing plenty of background work also helps pinpoint the right site.
Alan Locey, who is completing a home in the Monkton-Hereford area on slightly more than an acre, took nearly five years to decide on a lot. He and his wife considered proximity to roads, jobs, entertainment and schools. Alan said that once the lot is located, it's still a one- to two-year process - one if "you hustle."
"I believe in efficiencies. ... Do the preliminary homework on your own," Locey said. "Once you set a time frame, you hire a reputable professional. There are a lot of specialists."
Savvy real estate agents know about lots that aren't visible from the road. An agent should know about water issues, soils issues, roadblocks to the approval process, zoning, title and plat problems. It's also smart to find a reputable soils engineer to explain drainage, runoff, setbacks and other issues related to the land.
"The smartest people hire good people," Bass said.
Even when everything seems perfect, a final "gotcha" might lie within the property lines.
One new Monkton landowner said that when she was completing her purchase of about 20 acres, she spotted a neighbor pulling up the boundary stakes on her property and resetting them, in a dispute over where the boundaries were.
"We run into neighbor disputes over property lines. It gets ugly," said Bonnie Miller, president of Residential Title and Escrow Co.
A surefire protection is the "stake survey" in which the property is staked out by a surveyor. Many buyers never get such a survey, which can cost thousands and is often unnecessary unless a dispute arises, Miller said.
Title companies usually require "location surveys," which ensure only that the house is on the property - but doesn't say where the property begins and ends. Miller also urges that a buyer make sure the seller is the actual owner.
Land is expensive.
Many builders and agents say it's unrealistic to expect to buy a multiacre parcel in a posh neighborhood and build a home for less than about $600,000 in Baltimore and Howard counties. Other counties, like Cecil and Carroll, offer less expensive land, but land cost amounts to 30 percent to 40 percent of the overall purchase price, up from about 25 percent in recent years, Hagan said.
"Rob a bank," Crampton said jokingly. "Of the past five lots I've sold in the last three to four months, four were more than $200,000. Some were as little as an acre."
Creampuff lots, such as in Hunt Valley's new Hayfields golf community, sell for up to $300,000.
"All the lots I've sold [in Baltimore and Howard counties] under $200,000 have sizable problems," Crampton said.
One of the biggest misconceptions land-seekers have is that size equals value. "Size is the last parameter," Crampton said. "When we price 20 lots, we may have a three-acre next to a one-acre. The larger lot may only cost $10,000 or $20,000 more. What's really important is the buildable site."
One reason for the high costs is that it's hard to pay wholesale prices for land. Builders and developers are hard to beat for choice parcels. Their teams of professional land experts scour county records, hang out at government building and zoning departments, and even approach private homeowners and ask if they plan to sell.
"The consumer has no way to compete. They're at a large disadvantage," said real estate investor Carl Woolford, who lives on part of the 105 acres he bought in Fallston. "And they're not making any more land."
"Developers are in the game of getting ground. The individual doesn't stand a chance," Crampton said. "They court production builders early on, camp out in development offices at the county to get first dibs on land. It's supply and demand."
Many predict that costs will only rise higher in the Baltimore metropolitan area, where the development process has become more restrictive and the entire process for a subdivision might take up to two years.
"In Baltimore and Howard counties, it's becoming a thing for the wealthy," Crampton said. "In Carroll County, prices are a bit softer and regulations a bit less restrictive." Even so, Crampton said, production builders have to satisfy their hunger for land, and "they grab up what's there in bulk."
Another benefit of land acquisition is a savings in transfer tax, which could mean thousands of dollars at closing.
The transfer tax is based on the price of the lot only when a lot sale is involved - compared to the total home sales price of an existing or new home.
So, if a person wants a $250,000 home, he has a choice: Buy it with full transfer tax on the $250,000, or buy the land at $50,000 and build. The transfer tax is based only on the land price, and no tax is applied later.
Lenders such as SunTrust Mortgage offer two basic type of land loans. The "lot loan" covers only the lot. The program requires 10 percent down for up to 10 acres with a maximum loan amount of $150,000. If a buyer puts down 20 percent, loans can range up to $250,000. The period of repayment can last from one to 10 years, said SunTrust finance specialist Ed Naworol.
The more popular loan is the "construction-to-permanent" plan, which marries the lot to the builder. The lender pays the lot amount and guarantees the builder the money for construction. The builder is paid in stages, or "draws," as the home is completed. For example, when the foundation is finished, the builder would get about 10 percent of the total; when the roof is done, another 5 percent.
Finally, Naworol emphasized that buyers of land need to find out how much money should be budgeted for the land as well as the home - a big, expensive lot with a smaller residence, or a smaller lot with more money devoted to construction.
Terms to know when you're researching parcels of land:
Building restriction lines: The county boundaries that define what portion of a site can be built on.
Construction loan: A loan on the amount a buyer needs to build the house.
Density lots: Lots served by public utilities, such as water and sewer.
Farmettes: Parcels from 3 to 10 acres that were subdivided from farms but aren't classified as true farms. Rural uses such as horse boarding are allowed.
Infill lots: Individual parcels that remain in an established, built-out neighborhood such as Ruxton or Mount Washington.
Limited disturbance areas: Sections of the property beyond which building equipment may not go or it will cause extensive tree and land damage.
Location survey: Required by most title companies, it is a document and study that ensures the house is within the property boundaries - but does not usually indicate the precise property lines.
Offsite lot: A lot that lies a short distance from an existing development or neighborhood, which the developer agrees to build on because it is so close to the main development.
Panhandle or Flag lot: A piece of land sharing a driveway with one or more other lots. Usually, a shared-driveway agreement is necessary with the neighbors.
Perc test: The soil percolation test is required by the state before residential construction can begin. This shows the ability or inability of the surrounding soil to absorb liquid wastes from septic systems.
Plat: A document available from county building departments that shows where various utilities can be installed on the lot. The plat stipulates locations for septic, well and house setbacks, among other things.
Spot lot: A lot for sale either privately or by a developer. It might stand by itself or be the last lot in a subdivision.
Stake survey: A study of the land boundaries walked out by a surveyor and staked with wooden markers.
Subdivision: A legal term for land that has been divided into residential lots on which homes may be built.
Tie-in: An agreement attached to a piece of land that designates one or more specific builders who may build the home on that property. Other builders are prohibited, unless a special agreement is reached.
Yield test: Another test required by the state, to ensure that there is enough water to support a household. Maryland requires a new well to yield one gallon per minute.