What does land cost these days?
It seems that the only thing increasing faster than the cost of land
today is the demand for it. To the casual observer it would seem as
if there is plenty of vacant land, yet many factors have come
together to create a time wherein land is not only increasingly
unavailable, but selling at record prices.
Wisconsin's farm land is not unlike crude oil. We all know that when
the price of crude goes up, all petroleum products go up in price.
In Wisconsin, the price of farm land has the same effect on other
land products. The March 31, 2001 edition of the Wisconsin State
Journal states, "Wisconsin farmland is more expensive than
ever...the average price per acre of agricultural land in the state
rose 9.4 percent from Jan. 1, 1999 to Jan. 1, 2000 according to a
report by Wisconsin Agricultural Statistics Service." According to
the same article, land prices vary throughout the state from a
record high price of $68,400 for a single acre in Vilas County! to
as much
as $4000,00 per acre in Dane County. This article stated that these
figures were preliminary and more information would be available in
June.
The Milwaukee Journal Sentinel's June 17, 2000 issue, stated: "The
average price for an acre of farm land in Wisconsin rose by 24% in
1999, the largest one year increase in at least 20 years, according
to a state report released Friday ( June 16th)." In June of 2001 the
same report stated that Wisconsin lead the nation in farm land price
increases for the year 2000 with another %18 increase! That's a 42%
increase in just 2 years!
On the surface $4000.00 per acre may seem like a good deal, but one
must remember that this price is for one whose budget will allow the
purchase of large tracts of land totaling, perhaps, one hundred
acres or more. This would be a developer's cost and does not include
the costs of preparing the land for resale. Less expensive land may
be found, but it will most likely be treeless open land suitable for
crop farming and you will most likely have to take care of getting
an easement, installing a road and bringing in the electricity and
telephone service on top of the price you pay for the land.
It is also important to remember that build-able land is not priced
by the acre. Only when buying large tracts of land for agricultural
purposes will the price be reflected in "per acre" units. There are
virtually no development costs associated with agricultural land.
Just like city lots, rural building parcels, regardless of size, are
priced based on the raw land costs and the costs associated with
preparing the land for sale. Even if you could purchase 5 or 10
acres of undeveloped land, by the time you pay for an access road or
driveway, surveying, soil testing, and electric and telephone
service to the property, your cost per acre will be even higher.
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Why Is land getting so
expensive?
There are many reasons including, but not limited to, high demand.
As Wisconsin's rural land continues to be developed and cities and
suburbs swell into the surrounding countryside, land use committees
prescribe zoning regulations designed to keep population density
confined to the cities. Every year, more and more townships are
adopting zoning laws that mandate 35 acre minimum subdivisions. This
means that one would have to buy 35 acres in order to build one
single family home in the country. With land getting so expensive,
the cost of 35 acres is prohibitive.
Other factors resulting in the high cost of land include it's
nearness to metropolitan areas (commutable distance) where work can
be found. If the land is wooded, has water frontage, a nice view or
a high degree of seclusion, it will be more expensive.
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Will the price of
land ever come down?
The industry analysts don't see that happening. It's the law of
supply and demand. Many people waiting for the price of land to come
down can't imagine that the cost of land will continue to increase.
Ten years ago, these same people thought land was over priced then!
While some people sit around grumbling about the high cost of land,
the prices continue to rise and zoning becomes more restrictive.
There will be much more to complain about tomorrow unless they act
today!
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How do I know if I
am paying too much ?
Many things determine the value of a parcel of land. Ultimately, it
comes down to what the market will bear. It is not the seller, real
estate broker, the bank or anyone else who sets the value of the
land. It is the consumer. It is the demand for land that drives it's
price up or down. The easiest way to determine whether or not you
have offered too much is through the appraisal process.
The vast majority of real estate purchases are financed through a
lending institution. In the case of vacant land, banks are usually
financing 80% of the purchase. They have the greatest amount of risk
and are not willing to proceed with the financing without first
having a qualified, licensed appraiser confirm that the land is
worth the risk.
The appraiser's job is not to determine the property's ultimate
value, but whether or not it is worth what has been offered. If the
property does not appraise, you would have the option of canceling
your offer to purchase, putting more money down to reduce the bank's
risk or renegotiating the purchase amount with the seller.
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What should I be
getting for my money?
We've all heard the saying, "you get what you pay for." This is as
much true for land as any other consumer product. Considering the
rising cost of land these days, if it seems too good to be true it
probably is. Some things a buyer should determine is whether or not
the land is guaranteed to be build-able? Has there been a recent
survey and soil test? Is there clear title and legal access? Is
telephone service and electricity on site or scheduled to be
installed? These additional expenses can add substantially to the
cost of the "too good to be true" deal.
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Can I finance my land
purchase?
Yes. It used to be that many lending institutions would not finance
vacant land, but today, land is considered a great investment! As a
result, many banks and credit unions will finance vacant land. Most
lending institutions will require 10% to 20% down and finance the
remaining 80% to 90%. The bank is taking most of the risk so they
will want to make sure you are purchasing quality build-able land.
Your real estate agent should be able to provide you with
information about financing.
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Can I use the equity in my home to finance my land purchase?
Many people find that using home equity is an advantage. By using
the equity in your home to
finance your land purchase you may be
able to finance 100% of the purchase price rather than putting 10%
to 20% down. There may also be tax incentives when you purchase
vacant land with home equity. It is important that you consult with
a financial expert when considering financing options.
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Are
there any advantages in pre-approving my financing?
Yes. In fact, there are many.
Pre-approving will help you determine
what you can afford before you look at property. It allows you to
find the loan program that best suits your needs. Pre-approval
allows you to get ahead of others by showing sellers that you're a
buyer with a written pre-approval in your hands. When it comes time
to make an offer, you will have the clout of a cash buyer and more
negotiating power. Additionally, pre-approval will eliminate
unexpected delays in loan approval and closing your loan, so you can
begin enjoying your new land sooner.
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What do I do if I
want to make an offer?
There are three primary elements of an offer: 1) the purchase price,
2) earnest money, and 3) the closing date. While all are important,
purchase price alone is not necessarily the most important element
of the offer.
The purchase price is a negotiable amount. Keep in mind that when
two offers are essentially the same, usually the offer with the
highest purchase price will be accepted. However, both earnest money
and closing date could influence a seller in your favor even more
than the purchase price you offer. Let me explain.
When making an offer on property you should act in good faith and
make your best offer. Your goal is to make a strong offer that will
get accepted and stand up against any other offer that should be
submitted. In addition to a fair purchase price, your offer will be
much stronger if you include solid earnest money of $1000.00 or more
and a short closing date of no more than 2 or 3 weeks if possible.
Sellers will often judge the seriousness of an offer by the amount
of earnest money tendered with the offer. Earnest money is money put
down as a deposit and is fully refundable if your offer is not
accepted. Earnest money is deposited into the Broker's trust account
and is applied to the purchase price at closing if your offer is
accepted.
The closing date on the offer will also get a seller's attention.
What concerns a seller the most about a long closing date is that
something may happen to prevent you from closing during the interim.
Nobody can predict the future and your plans to close on the
property could be interrupted by circumstances beyond your control.
The seller will have missed the opportunity to sell the land to
another buyer while waiting for a closing that ultimately never
occurs.
In addition to the purchase price, earnest money, and closing date
one other factor that could either make or break your offer is the
presence of contingencies. Contingencies are conditions or
requirements that must be met before an offer can proceed to
closing. To many sellers an offer containing contingencies (other
than standard financing language) is less attractive. An offer free
of contingencies is in many ways superior to offers that contain
them.
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Are
there any advantages in working with a developer?
There can be a world of difference between buying land from the "guy
down the road" and from somebody who develops land for the market on
a regular basis. Buying from a developer means that you do not have
to worry about many of the details mentioned above. A professional
real estate developer regularly arranges for such things as
surveying, road work and the installation of utilities and is more
likely to get a better price from the contractors than an
individual who develops a single parcel for a personal residence.
The developer can pass the savings on to the buyer.
It may be worth remembering that the developer is a professional who
is in tune to the market and what the consumer is looking for. The
developer handles carefully the details associated with making raw
land suitable for a residence and does so in a much more cost
effective manner than the average consumer. Things you and I may
forget are handled routinely by the professional developer.
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I don't want a subdivision.
Without a doubt, most people considering a vacant land purchase feel
the same way. This is especially true if the land will be used as a
vacation getaway. In Wisconsin, a subdivision is defined as 5 or
more lots of 1.5 acres or less. The idea of living shoulder to
shoulder with close neighbors clustered around a paved cul de sac is
not what most people have in mind. But, it is important to remember
that all land everywhere is subdivided. The land must be subdivided
or you would be forced to purchase more land than you want or can
afford.
Since all land is subdivided, the size, number and characteristics
of the parcels within the subdivision is what matters. Privacy and
seclusion come from the topography of the land, the amount and
position of tree cover and other features like water on or near the
property. Decide for yourself, is there more seclusion in a large
open field or a small wooded lot?
Many people dream of purchasing 5 acres or so at the back of a 40
acre tract. Considering the cost of land today, if you can not
afford the entire 40 acres, the only way you will be able to own the
secluded 5 acres parcel is if the property is divided and the
development costs are spread out among several others. The
difficulty in obtaining an easement across the remaining 35 acres,
the cost of the road and the cost of running the utilities to your
parcel would be tremendous.
It is important to keep in mind that even if you could find a 5 acre
tract surrounded by undeveloped land, it is because local zoning has
permitted subdividing the land into smaller parcels. There would be
no way to know if or when the land next to you're would be further
subdivided.
When it comes to purchasing waterfront land in today's market,
considering the cost and rarity of waterfront land, it is almost
certain your only choice will be relatively small lots in rural
subdivisions.
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What are covenants
and do I want them?
Protective covenants are sometimes misunderstood and almost always a
benefit for the buyer. Simply put, covenants are designed to protect
your property's value and maintain it in substantially the same way
it appeared when you first purchased it.
Most people who purchase rural recreational or residential vacant
land do so because it's natural beauty appeals to them. Most people
expect that the land will retain the same characteristics that first
attracted them. They don't want to worry that unsightly development
or the accumulation of trash will spoil their dream. This is why
protective covenants are essential.
Imagine how upset you would be if you built a cabin or year round
home in a beautiful natural setting only to have it spoiled by a
neighbor who abandoned old vehicles in the woods. How much would
your enjoyment of your property and it's value be affected by a
commercial business opening up next door? What if your neighbor, by
the absence of protective covenants, was within his or her legal
right to build a shack next to your tasteful home?
Protective covenants are recorded and legally enforceable in a court
of law. They give you legal recourse to take action, if necessary,
to handle violations. Without protective covenants your options
could be severely limited and your enjoyment of your property and
it's value could be
affected.
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What is an Owner's
Association?
Owner's associations are established in order to provide property
owners in a development an opportunity to share in management of and
to provide funds for maintenance of common areas and access
easements.
Associations may be formed to provide for management and maintenance
of lake shorelines, ponds, parks or other "green spaces" that are
common (jointly owned) areas in a development. A typical owner's
association would be a private road association. Private roads
require periodic maintenance such as snow plowing, grading, and
gravel. By forming a road maintenance association, with each
property owner paying a nominal annual fee, the costs for
maintaining the road is shared by several users rather than by a
single owner.
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What
should I do to prepare for looking at land?
Looking at land is not the same as looking at a house. You will be
out of doors so weather conditions will be a factor. You will want
to dress for the weather and even be prepared with additional
clothing in the event weather conditions should change. Appropriate
clothing for a land showing would include items such as hiking boots
or tennis shoes, jeans and jackets. Remember, you will be out of
doors in fields and woods. You may be visiting a lake or river
shoreline. Dress as if you are going camping and not as if you will
be inside of a building.
You should be willing to set aside an entire day so the real estate
agent can, if necessary, show you several properties. Once on the
land, you should be willing to explore the entire property with the
real estate agent. Remember, a land purchase is every bit as
important as a home purchase. You would never buy a house without
having explored every room. It is just as important to give this
same attention to vacant land.
Wisconsin law requires that you personally inspect any property that
you purchase. In the case of married couples, only one spouse is
required to be present. However, it is imperative that all decision
makers are present when touring property so that you have the
ability to write an offer to protect the property in which you have
an interest. All to often, one of the decision makers is not present
and the intended property sells before a second visit can be
scheduled.
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Can I look at property without a real estate agent present?
It is difficult to see any advantage in looking at land without the
assistance of a real estate agent. A professional real estate agent
will have specific knowledge that will be of great value to you.
Even though you may have asked several questions before going to
visit the land, you will most likely think of several more once you
begin walking the property. Having an agent present will result in
your being able to get the answers you want on the spot.
If you are looking at a remote property it may be difficult to
locate without having an agent present. The professional real estate
agent will have visited the land prior to your visit and will be
able to make sure you are walking the right property. Imagine how
disappointed you would be if you wanted to make an offer on a
property only to discover you were on the wrong land.
A professional real estate agent will be able to help you understand
the boundaries by locating the survey markers and assist you with
reading survey maps. Additionally, the real estate agent can answer
your questions about zoning, building setbacks, driveways, utilities
and covenants, if any.
One other consideration worth mentioning is that sellers are often
concerned with your safety and the liability they could incur should
you sustain an injury while visiting a property. Some sellers
mandate that all showings be guided by a real estate agent for this
reason.
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What should
I expect from a real estate Agent?
Honesty and professionalism. A professional real estate agent will
know the market and will be familiar with the properties he/she is
showing to you. The real estate agent should also be familiar with
the area and able to inform you about amenities such as lakes,
parks, and other recreational opportunities. The real estate
professional should be prepared to inform you about such things as
schools, churches, and medical facilities as well as police, fire,
telephone and electric service. These things are important whether
you are purchasing land for recreational or residential use.
The real estate professional wants to help you locate the perfect
property and is depending on you to be honest about your needs. If
you do not accurately convey your particular needs to the real
estate agent he/she will not be able to direct you to the best
possible properties.
Don't be afraid to tell the real estate agent if you do not like a
property. Sometimes people are afraid to say "no" and they attempt
to soften it by saying "we need to think about it." The professional
real estate agent knows that when you say "no" you are saying "no"
to the property. He or she will not be offended. The agent will
want to continue to search for the perfect property for you, so you
must let the agent know when a property is not right for you.
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