• Finding the right lot. This is often the hardest part of the entire process. Castlewood finds lot through their years of marketing possible teardown opportunities.
  • Lot contract.
  • Feasibility Study. During this short timeframe we will have our surveyor determine the size and type of home that will best fit the lot.
Next Step: Design

Finding the right lot is often one of the hardest parts of the entire process. The lot search phase is tricky as you must determine first WHAT type of land to acquire, and second, HOW to acquire it? Many times these issues are resolved at the same time as each opportunity for land acquisition presents itself with specific preset parameters intrinsic to the overall deal.

WHAT type of land?

How many times have you been driving down the road and noticed a posted sign that reads: “Land for Sale”? Sometimes it says “building lot for sale” or “acreage for sale”. Regardless, the question of buying “land” for a custom home boils down to first determining how easy (or hard) it will be to actually “build” on that particular spot.

The most common issue encountered is whether to purchase a “vacant” lot or a lot that is already “improved” (i.e., a lot with a home or some other structure already on it).

“Vacant” Lots:

Vacant lots can take many forms, ranging from “raw land” to lots that were once improved, but the improvements have since been demolished and cleared away.

As a general rule, raw land raises the most issues simply because nothing has ever been done with the land in the past. Conversely, a previously improved lot would normally have fewer issues, because it has already been subject to the building process. For example, raw land might require a private “well and septic” system, as opposed to public water and sewer availability – a circumstance that some customers accept, but which is clearly not for everyone.

But let’s not forget that these are just “rules of thumb,” meaning that in certain instances the EXACT OPPOSITE MIGHT APPLY.
“Improved” Lots:

Lots with presently existing improvements answer some (but not all) questions that might be raised with a vacant lot. For example, existence of a house on the lot means that the correct zoning (residential) exists and gives a good initial indication regarding the availability of necessary utilities for the site.

However, the fact that a lot is presently “improved” does not make all issues disappear. As discussed in the vacant-lot section above, a previously improved lot (even with a presently existing house) does not guarantee suitability of the lot for the customer’s planned custom home.

In short, there are numerous issues and nuances related to the lot-acquisition process, and the customer can never know too much, or be too careful when evaluating the suitability of any lot, whether vacant or improved, for any building project.

HOW to acquire the land?

There are several different ways to acquire the land upon which to build your custom home, and each has its own set of distinct issues. Let’s review a few common ones:

Purchase Your Own Lot

The least complicated method of acquisition is simply to purchase the lot separately, prior to the construction phase. Like any real estate purchase, this will usually involve providing a substantial down-payment and obtaining financing for the rest of the purchase. For example, if the lot you find costs $400,000, then you will likely need at least $80,000 as a down-payment, plus closing costs and other fees, along with financing for the remainder of the purchase price. Of course, you could always purchase the lot without financing if you have the funds.

Purchasing the lot ahead of time has its advantages and disadvantages. For example, one advantage is that it formally divides the custom-home-building process into two separate steps, which may ultimately allow for better focus and a more streamlined financing process in the construction phase. One disadvantage is that you will be confined to the parameters of the lot once you have acquired it, but this issue can be eliminated to the extent you know in advance what type of house you would like to build, which may include actually designing it and obtaining architectural plans before searching for the lot. Consequently, the order in which you do things will be determined by what is most important to you – lot location, or house design.

Put a Lot Under Contract

A common method of acquisition is to sign a contract to purchase a lot, but perform certain “due diligence” prior to closing to determine, among other things, the lot’s suitability for the particular design, size and dimensions of the home you want to build. In this context, the lot purchase becomes part of the overall financing of the project. That is, you have one closing at the beginning of the project, at which you finance both the lot purchase and the construction as part of one loan, where the bank provides some portion of the purchase price (to allow you to take title to the property before you begin building), and then finances the construction through a pre-determined “draw schedule.” This type of financing is commonly referred to as Construction/PERM (i.e., “permanent”) financing.

The advantage of this process is that it enables you to make sure that the lot works for the house you want to build, and that you will be able to finance everything. The lot-purchase contract is normally structured so that if you are unable to finance the entire project or the lot is unsuitable for your needs, you will be able to discontinue with the contract and obtain your deposit back. The “due diligence” period should be between 60-90 days to allow you time to complete your assessment, but this period could be as little as 30 days, depending on the circumstances.

Have your Builder Find a Lot for You

Another way to go about things is to choose a builder first and have the builder find a lot for you, with the builder putting it under contract while you perform due diligence as described above. If all is well, you would then close on the lot purchase and construction financing in much the same manner as described above.

A less common method of doing this would be for the builder to acquire the lot, build your home on it, and then sell you the finished product. This would obviously be the most expensive method of lot acquisition, as it would require the greatest time commitment and assumption of risk by the builder.

We know that all of this may seem a bit overwhelming, but we also know that the more knowledge you gain the more comfortable you will become. Castlewood’s diverse expertise and depth of knowledge can help you get there!


Next Step: Design Phase