Locating and purchasing a site
Locating and purchasing a site
So have a core group together with a defined decision process and some sort of legal agreement about expenditures (see 7 steps to getting started). Your goals as a group have been defined and you know generally how you want to live. If your group does not have the above things done it is not advisable to be looking for a site. Unless you are sitting on an incredible deal on the perfect site, you will be much better served to get your group organized before you look for a site. At minimum, you need a legal partnership formed before you invest any money in land, unless only one person is investing and holding title to the site. Many a community has been started by one or two individuals who bought some land and then gone bust because other people never joined. Having a minimum number, such as 6-8 partners, before committing financially to a site may keep the group from dissolving from lack of resources or energy. Once you acquire a site, the amount of time and energy required acclerates rapidly through the development process.
Evaluating the group needs
If you haven’t figured out the general location and cost criteria yet, now is the time to tackle it. Take a survey of every member and evaluate where they currently work, how likely on a scale of one to ten, they would or could relocate their work place, and how long a commute they would be willing to endure. When you have that information, you have defined your general location criteria.
The next step is to evaluate the initial down payment cost. As a group, hopefully legally organized, you will need to find out how much cash you can develop for the option money down payment. Assume whatever you can generate will be twenty percent of the total cost, which is a typical land down payment. If you want to buy an existing structure, assume ten percent of the total cost. Be honest! It can be a disaster to sign a contract and then find out the down payment required is more money than your group can generate. If you are lucky, and you default on a contract all you may lose is some time. If you are not lucky, defaulting on a contract might lose part or all of the earnest money.
When a down payment on land is pending, people who are marginally committed will often leave, and you may have substantially less membership. Losing membership at this point is pretty typical. Once the group sincerely starts talking money the real commitment begins. Up to this point the project has been intellectual. Expect some tension here as people leave and others are forced into putting what maybe a significant sum of money into a project which has no guarantees for success. If your group decision and communication process is weak, this may be where the group falls apart.
Defining the site criteria
As a group you will need to define what you are looking for. Consider things such as transportation, utilities access, neighbors, solar exposure. Spend time brainstorming and prioritizing a list of the site criteria. Make a list of land or building considerations and rank the items in priority. Very few groups find the perfect site and it is likely you will have to compromise. Establish what are the non-negotiable criteria, what are negotiable, and what things would be nice but not blocking. Make this list into a checklist that each member can take with them to potential sites. It is easy to forget things, especially if you are excited about the site. Also let each member have their own check list. You will find that members may disagree about whether a site has a particular aspect or not. You may discover at this point that your group has a wide disparity in what they want in a site. Don’t get discouraged by this. People do change their minds, especially once a site is found.
Finding the Right Site
Don’t be discouraged if it takes awhile to find a site. The process of finding the right site often takes longer than any other. Some of the groups goals may need to be compromised. You will lose a few people along the way so be prepared to do yet more recruiting. A good site for some members may be unacceptable to others.
Often what you are looking for is not on the market yet, and so you need to be able to draw out properties in transition, such as the old family farm that the heirs need to sell but don’t want to put on the development market, or a family homestead that is caretaken by an elder whom you might be able to offer a home in the community in exchange for the land.
Some ideas for finding a site
- Locate other intentional communities in the area and ask them how they found their land.
- Check the local papers, any alternative papers, and don’t hesitate to put in some ads.
- Spend some time biking or driving around the area looking for For Sale signs.
- One group placed hand painted signs out in the area they were looking and a supportive farmer contacted them!
- Contact owners directly in person about their land, even if its not for sale.
- Go to the building or land use department and study the zoning maps.
- Hire a developer to find your site.
- Have all the members tell all their friends and relatives, churches, etc. that you are looking for land. Word of mouth can be surprisingly effective at bringing up land not yet on the market.
- Check the Owner/Seller resources in your area. Often for a small fee you can get access to the computerized real estate listing services in your area.
- Put ads in newsletters of local organizations that members belong to.
A key element of any site is Zoning. Zoning determines how land is used. The process of changing zoning can be arduous and expensive depending on where you live. You need to know what kind of local zoning is required for what you want to do. The local government has an department that deals with this. You should visit these folks and get an education. If you violate local zoning your property can be condemned, and in the worse case, the sheriffs will come and escort people off the land.
Working with professionals to find a site
A good supportive Realtor can really help, and in many places you can hire a buying agent to search for property for you. Some of the consulting agencies listed in the resources section can offer valuable insight and service in finding a site. A professional can offer a great deal of land buying expertise and also will know strategies for negotiating a good deal, what the local development rules allow, and have connections which can benefit the group. Turning over the site location to a professional allows the group to concentrate on creating the communication and conflict resolving expertise you will need for the design stage. Also consult development companies in your area. These people are pros at finding and developing sites and may offer substantial resources as a partner.
Even if you have very little money, the next step is to start evaluating the real costs. Talk with some Realtors about what you are looking for. Realtors will help you get an understanding of the real estate market in the area. Look at the ads in the local papers for the locality. This is a good job for a committee. The prices in your locality may seem out of the financial abilities of the group. Don’t give up! Reevaluate your group and its goals. Carefully examine how many members investments you will need to make a downpayment. After you know the general prices in the area, you can define the size of your “financial core group”. The financial core group is the minimum number of committed people it takes to make a downpayment. Don’t worry if that number seems impossibly huge. There is lots to do and you have again come to realize that it will take dedication to pull this off. Also keep in mind that not everyone has to have the same level of resources. You may find members who will put in more than their equal share.
Splitting up the group
It sometimes happens that a site is found which meets the needs of some of the group but not every single person. Many times the best course of action at this point is to create two groups and move forward with the site purchase, allowing those who don’t want to live at that location to continue as a separate group. One very common problem within forming groups is the group finds a good site, but two or three people don’t like the site so the whole group abandons a perfectly good site, sometimes causing the eventual break up of the group anyway. If a site is found which meets the needs of many of the group, splitting the group into two can allow the project to continue and the two groups can continue to share and communicate.
Working with local officials to find a site
Find out if there is a local government planner and set up an appointment. When you meet with the planner introduce who your group is and what you generally want to do. Be cautiously open, especially if you already know you will be potentially stretching the limits of what is allowable. Ask questions, be humble. After the meeting send them a thank you card for their time. You really want these people to be your friends. You will want to ask about zoning and rezoning procedures, general rules about land development, and what advise they would give you as a citizen developer. The local governmental planner can be a good source for professional resources in the area to help you with your site location. Many planners become enthusiastic about community and may have insights into special government development options.
Purchasing the site
Once you locate the site you will have to negotiate for its control. You probably don’t want to actually buy the site yet, and you probably can put an option on the site rather than outright purchasing. The obvious warning here is to get any agreements in writing and signed.
Putting an option on some land.
OK, you have finally discovered that prime peice of real estate that meets most your needs. Now you need to tie that land up for some period of time so you can get plans done and through the process of permits and approvals from the local powers that regulate building and development in your area. If can avoid it, you don’t have to actually want to buy the land, what you want to do is option to buy, which means that in exchange for some considerations, you want to have an option to purchase the property in the future. Option agreements are often set for a specified amount of time, and then must be renegotiated.
Here is the tricky part: The seller wants to close sooner, and you want to close as late as you can get. This is where the real risk of real estate development comes into play. If your option expires before you can get your designs, and development approvals, the owner may sell the property to someone else, and you are out the cost of all your planning, or you will have to pay more money, perhaps not refundable.
Using your attorney
The key is to GET GOOD LEGAL COUNSEL when you draw up your option agreement. This is not the time for amateurs winging it. Hire an experienced real estate attorney and tell them what you want to do and have them represent you when you purchase the option. One idea is to program your legal requirements on paper first, detailing an outline of all the things you want your option agreement to cover. This will help you not forget anything as you meet with your attorney for the first time. Be sure you communicate well with your attorney, they tend to be very literal and if you want to encourage some flexablility you need to tell them that.
One approach is to have an attorney write up an option agreement for you to use, then have the attorney review the papers before you sign. Keeping your attorney in the background may be helpful depending on how your relationship with the seller develops.
How much does an option cost?
An option is whatever you can negotiate, although 10-20% of the asking price is a common option amount. Option money is held in escrow, meaning that a nuetral third party deposits the money. Usually the seller gets the interest on the escrow account, which is why they are willing to have the land tied up for a long period of time. You may also be responsible for other payments such as taxes,or interest. Some percentage of your option may be non-refundable, meaning if your option expires, or you can’t get the development built, the seller keeps that amount and either renogiates another option with you or puts the land back for sale to another buyer. All these things can and should be negotiated carefully with the seller although if the real estate market in your area is really hot, you may have to make some tough choices.
Hidden dangers to look for
- Check the site for low areas that may have standing water. Even though these may seem to be just wet fields, the local jurisdictions could consider them wetlands and restrict their use.
- Before you look at even one piece of land you should develop land buying expertise within your group. There are a number of books available about buying land and real estate. Study them and draw up a list of things to be mindful of.
- Go to the County records office and examine the records for the site and the immediate neighborhood. If there is a comprehensive plan for the area get a copy and study it.
- Look for easements, liens, or unpaid taxes on the property. Easements can prevent building on a site and can give access to roadways, pipelines, electrical lines, etc.
- Contact the water utility in your area and find out about service to the site. Do the same for power, phones, sewers and any other services such as natural gas, garbage, etc.
- Check into the requirements for drainfields if your site is not located on sewers. Talk with local drainfield installers. Remember, a site that passes a perk test in one location may not do so in another and you may need considerable area set aside for drainfield. If the seller says a perk test has not been done, be wary. Land that doesn’t pass proper perk testing could be enormously expensive to develop.
- Be prepared to have members drop out. When a site is found and a down payment made is where most groups lose some people.
- The longer it takes to find a site, the fewer people you will have. This is the stage where several groups have gone bust because it took too long and the members couldn’t
- Have a real estate attorney write you a good earnest money contract, then either demand to use your earnest money contract or change the sellers to meet what you want. Losing your earnest money can be an expensive lesson.
- If you have group process problems, they may be magnified here because of the pressure of putting real money at risk.
This started as an article by Rob Sandelin, distributed in various forms and published online by NICA. Rob gave permission to post it here, knowing that it may morph into something new as we "wiki" it...