Info-to-Build-On One House at a Time by Patsy Hennin Co-Founder Shelter Institute January 20, 2004 Consider alternatives to the traditional subdivision when building for resale.

Small Contractors can do well by buying one lot at a time rather than tying up money in a more substantial development. An isolated lot can be a good deal and may lead to an inspired house, designed specifically for the lot with upscale appeal. To avoid upfront subdivision expenses, which dramatically add to the cost of construction, be sure to check state regulations that define clearly the terms of a "subdivision." These regulations will tell you whether:

1) the land you are buying is unwittingly a ubdivision which could preclude construction if it is not meeting the strict requirements
2) you may sell a parcel or two and not fall under the state definition for subdivision.

Each state has its own definition and requirements for subdivision of land. As a builder and Realtor in the state of Maine, I learned that you can sell off two parcels and keep the third. In Maine, you may continue to sell one parcel every five years without being classified as a Subdivision. If I owned 40 acres I could sell off two five acre parcels at the outset and then in five years, sell another five acre parcel. I could continue this into the future until all the land is gone. On the other hand, to create a subdivision up front I would have to meet surveying, soil testing, access and road requirements which would be big expenses. By subdividing over time those requirements do not apply.

Buying individual parcels that may otherwise fall between the cracks can allow a custom builder to tap creative juices. This should be done with care to avoid pitfalls. One client of ours bought a lovely wooded parcel for his dream house. He put in a road, septic, well and foundation. Having spent more for the improvements than for the land, he was shocked to find a seller’s long lost relative appear from California and claim a dower right that had never been cleared. The attorney doing the title search had overlooked this long-term claim. Resolution was a legal settlement paid for by the Title insurance company that covered all the buyers exposure (land purchase and improvements) and found in favor of the long lost relative’s ownership. The Buyer was protected financially and received full reimbursement, but now has the task of finding another parcel.

Another client purchased one hundred acres off the beaten track for a reasonable price. He put half the land on the market to re-coup his total land outlay and sold fifty acres for the cost he paid. This allowed him to build a bigger house which he sold well on a substantial piece of property.

A third client purchased land in a “subdivision” which included five acres and rights to a common area on the water. In the loan application, the bank’s appraiser totally missed the water connection and used comparable properties in the woods to value the land. The norm for water access houselots in the area ( and this one even had water views ) is about double the price of non-water parcels. The owner re-viewed the appraisal and insisted on a second opinion. The second appraisal gave credit for the specialness of the tract and the builder was able to borrow a larger amount to build a house the property deserved.

When choosing a site, a target market is the first step. Review the likely price range and make a list of the possible buyers. Compare your buyers to the active market in your area. This is a simplification because in real estate there are always surprises, but your matrix may look like this:

	Up to $250,000	$250,000-600,000	Over $600,000
20-40
40-60
60 and over

4-5 years ago, the average house in Maine cost about $150,000. It was challenging to build a house for resale because existing homes were undervalued. A recent study shows that house prices in Maine have increased by 70% in the last five years. As existing houses increase in value, the cost of raw land and new construction become viable solutions.