09/30/2013 11:06 am ET Updated Nov 30, 2013

Building a House 102: The Nitty Gritty

Welcome back to my Land Development Training. I'm gleefully happy to report that the land agent from last week who changed the property details based on my questions has also dropped the price on those lots by 33 percent. Now, if you were the seller of that property and your agent maintained the land could be listed at $300,000 and then suddenly had to drop the price to $200,000, wouldn't you be upset at having your expectations set at such a high number? This is why it's very important to find agents who understand land use and laws -- whether you are the buyer or seller.

Zoning is Everything Zoning tells you exactly what you can and can't do with a property. Google the zoning code and the county and you should find out exactly what can be done in that zone. If it says one house per half acre and the lot is less than half an acre? You probably can't build a house there no matter what someone says, unless the seller has filed for an exception, called a variance, which might allow you to build on the land.

There are also overlay zones. An entire area may be zoned for two houses per acre but there might be an overlay of a protection area across all or part of the lot. You can find all this out by checking with the Jurisdiction. Don't worry, not only won't you do this yourself, you should NOT do this yourself.

Feasibility Study A feasibility study is pretty standard whether you are a builder or individual - it's like a home inspection period except only for land. Depending on your local market, you need anywhere from 15 to 60 days. (More competitive markets will demand shorter feasibility studies.) During this time, consultants you hire (engineer, environmental, architect) will study the property and check the county/jurisdiction master plan to determine exactly what condition the land is in, what development still needs to be done and what permits are in place, if any. The more that has been done to get you to the point where you can pour a foundation, the more value there is in the land because jumping through hurdles with the local government and utility companies is difficult, time-consuming work. At the end of the study period, you will know what you are facing to prepare the land for your home. Remember, builders have economies of scale that you won't have as an individual. You don't have multiple lots to spread out your costs, so it has to make financial sense with enough cushion the unexpected.

This Sounds Hard. Maybe I Should Tear Down People think vacant land is better but that's not necessarily true. A vacant piece of land could have utilities so far away that it's too costly to bring them in. When developers buy huge parcels of land to subdivide, they can afford to bring utilities in because they spread the cost across multiple lots. When you tear a house down, unless it was the Unabomber's house in the woods, you are practically guaranteed that utilities are already at the site since you can assume someone lived there with running water and electricity. This means you can reconnect quite easily. You just have to get a permit and pay to demo the house.

Also, in many jurisdictions, they charge an impact fee to add a new household to the community. You will have more cars on the road, more kids in the school, more use of public services -- and you need to pay the jurisdiction to offset that cost. The impact fees locally can run as much as $35,000. But if you tear a house down and rebuild? You likely will have no impact fee since technically that household has already been accounted for.

There's also a huge time savings with tearing down a house. You are usually just filing for permits and submitting plans for your new house. When developing vacant land, you are at the mercy of government calendars, hearing dates and conditions required to get your plans approved and your development rolling. People can lose years trying to get vacant land to the day the trucks arrive. The downside to tearing a house down is finding a house that a seller understands is a teardown. Unfortunately many sellers make upgrades to bring in a higher sales price and these will have no value to you since for you, the value is in the land and the seller still believes the value is in the house.

I could probably go on forever, but I've given you the basic background to start the conversations. Understanding the seller's frame of mind and logic will help, as will finding an agent who specializes in land. Getting the right consultants on board to do your feasibility will ensure you don't end up with swampland where you can't build a house, and knowing the pros and cons of tearing a house down will hopefully help you make some better decisions.

Melissa has been in the Real Estate Industry for 12 years and is a Realtor with City Chic Real Estate in Washington, D.C.