construction costs

How to Choose a Lot for a Custom Home

Tuesday, June 23rd, 2009 | Custom Home Construction | 1 Comment
Foundation work for custom home on mountain building lot

Foundation work for custom home on mountain building lot

There are many variables to consider when choosing a lot for your custom home.   Whether you’re basing it on neighborhood, commute to work, or the fact that the particular lot just feels “right”, where to buy is just one piece of the puzzle.  The cost of land (from an investment perspective) and the type of lot (from a building perspective) will also play key roles in the process.

A qualified real estate broker should be able to help you with all these considerations.   Not only will they be familiar with what lots are on the market – both listed, and unlisted –  but they will also have a good working knowledge of things like public utilities and what it might cost, for example, to install a septic system.  They should also be able to refer you to experts in these areas.  Finally – from an investment standpoint – they will be able to supply you with the data you need to make an informed decision.

Where to buy. Consider how important it is for you to be close to school, work, shopping, etc.  You might even want to spend some time testing the drives to, and from, the prospective lot (on different days, and at different times) to get an idea of what the commute would be like.  In terms of cost, land further out of metropolitan areas generally cost less.  However, not everything about a home is the country is less expensive.  During the construction process, there may be extra delivery, material, or labor fees incurred depending on how far out your lot is.

Cost of Land. Generally, the cost of land represents 17-25% of the total value of your home.  If your budget is $350,000 a typical breakdown will look something like this:

Land – $70,000

Real Estate Commissions – $20,000

Carrying Costs on Construction Loan – $15,000

Total Construction Costs – $245,000

Total Cost of Home – $350,000

In this example, the land cost is 20% of the full cost of the house.  Most experts recommend that the land cost be between 17-20% of the total value of the home.  However, if land costs in the area are high, that figure can be stretched to 25%.

Tip:  Be aware that construction costs are far reaching.  They include everything from preparing the land, to laying the carpet, to covering the necessary permits and fees.

Type of Lot. There are many variables to consider when thinking about lot type.  First, what makes a lot more valuable?  Location, views, streams, trees;  all will contribute to a more expensive price tag.  Neighborhood also plays an important role – and on this front, one thing to keep in mind is not to “overbuild” or “underbuild”.  If the neighborhood you choose is made of up homes in the 3-4,000 square foot range, you should probably avoid building a 6,000, or 1,500 square foot home in the same neighborhood.  The reason being that if your home is – by far – the largest or smallest in the neighborhood, you could pay the price later in terms of resell.

The physical characteristics of the lot are also key when it comes to either avoiding, or anticipating, expensive site work.  One thing to keep in mind is slope. A house on a hill may have impressive views, but will also require more site preparation and more work on the foundation – both of which can add to construction costs.  Drainage can be a factor too.  Other things to consider when viewing lots are their size and shape, and their “setback”.  The setback is the amount of space you are required to leave between the edge of your home, and the edge of your property.  This is often required in subdivisions or fully developed neighborhoods where space is at a premium.  Both the size and shape of the lot, and the setback can have an impact on the kind of house you want to build.   Finally, keep in mind the number of trees, or boulders, on the lot.  They too will require extra site preparation. 

Tip:  Be wary of a lot listed at a price that’s considerable less than the other lots in that area, and particularly of the term “no perk”.  When used in conjunction with land, “perk” means the ability for the ground to support a septic system.  If your land is not connected to a city sewer system, a septic system will be necessary.  However, if the ground does not “perk” you’ll be required to use some very costly alternatives.  Make sure to get an expert opinion before purchasing a lot with this label.

Tags: , , , , , , ,