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Char the Explorer’s Guide to Due Diligence
Do your own due diligence! Some might say it’s those words sellers hide behind but what does it really mean?! It means you better research for yourself the property you are buying! The issues that should be researched depend upon what your investment purposes are for buying the land. Here are a few ideas to think about in no particular order:
Are there any comps available? If you are purchasing property expecting to resell it elsewhere for a profit, your research should include comps (comparables) of sold properties. Don’t get misled by advertised prices whether it be other websites or realtors. Sometimes they are a good indication but other times I find they are way higher priced than the actual sold comps.
What is the zoning on the property?
Does the zoning meet your needs?
Can you put in a septic or is there sewer in the street?
Can you install a well or is their public water in the street?
Is the property big enough to install both a septic and a well?
Does the county or state have a minimum acreage size requirement to build?
Does the county allow alternative options like holding tanks or advanced treatment systems? Don’t be afraid to pick up the phone and ask your questions. The internet can also be a great source of information. Be careful about where your information comes from. It is so important to make sure you are talking to the correct person which means understanding the county structure. Here is a guide I wrote to assist you in navigating your way through the county courthouse. (insert guide to county courthouse)
Rural Properties: How close is the power, phone, gas or water to the property? I often see “in area” or “in subdivision” used. While certainly it is a great way to let a customer quickly know if this is going to suit their needs be sure and see if there is a further explanation some where of what that really means. Does it mean power; phone, gas and water are a mile down the road, at the beginning of the subdivision, or next door? If you have plans on bringing utilities to the property make sure you find out the costs. If the seller doesn’t know be sure and research it yourself to make sure the property suits your needs. You need to call the local power company not the county to find out how close power runs to a property. A quick search on the internet will often tell you the company who services the area. If power isn’t readily available you should research alternative options. The internet is filled with information on alternative energy such as wind, solar, hydro and generators. More and more I see beautiful homes in very rural areas with solar panels that can barely be seen.
We have a wonderful customer, Karl, who purchased a beautiful 40 acre piece of land from us in Deming, New Mexico on the side of the Florida Mountains. He has shared the building of his home, Kunuka Manana, with us through his online photo album. It’s built around one of the big rocks on the property! He is using solar panels and took me on a tour of the home in the middle of building it – very cool!
I think the publication Backwoods Home Magazine offers great articles for people seeking self-reliant living. I have read great articles like what its like to live with no services far from the county road and be snowbound all winter and how to maintain your own dirt road. They can be found online at backwoodshome(dot)com
What type of deed is being offered? This greatly influences what you can do with the property in the resell arena. If a warranty deed is being offered and title insurance is available you are most assured of a safe investment. If a property was purchased through a tax sale usually a title company will not insure it for a stated amount of years unless you quiet the title. Often a special warranty deed or quit claim deed will be used to resell those properties. That certainly doesn’t deter many investors that don’t need to have it insured. It is still a marketable title. You can always search a title to see its history and make sure there are no liens or encumbrances against it. Make sure you search back far enough though! I have paid to quiet a title on a valuable piece of property before and my profits far outweighed my cost of quieting the title. Make sure you understand what type of deed is being offered to guarantee the title suits your future needs.
Are the taxes paid current? This can be easily obtained through the treasurer’s office.
Are there any or POA (property owners association) dues? Some subdivisions have set up property owners associations that collect money to take care of the infrastructure, roads, etc. If one exists you usually need to contact them, not the county, to know if the dues are paid current. Some POA’s have the right to foreclose on properties for lack of payment. The assessors office will often know the name and contact person for the POA.
Whose name is the property in? What research has been made to determine whose name it is in? Not always are the assessor’s records correct. While we have found they are usually correct we do come across occasional errors between the records of what was filed in the clerk’s office and what the assessor’s office says. It can take a while for the assessor’s office to update their records once a deed is recorded at the recorder’s office. It is the recorded documents that determine ownership.
What type of search did the seller do on the title?
What size is the property? Usually this is either stated in terms of acres or how many square feet a building lot is. Make sure that it is big enough to build on first of all! We have came across lots so small that the county required at least five of them adjoining together in order to receive a building permit.
Are the pictures of the property or of the area 100 miles away? There can be huge differences between plush green forests and dry desert within miles of each other!
Is there a dedicated easement to the property? What is the cost of putting in the road if the easement has not been improved? Who takes care of the roads – you or the county? What condition is the road to the property in?
Are there any improvements or structures on it?
Are there any encumbrances against it?
What fees are you being charged by the seller and what do they cover?
Understand what the advertisement says. STOP AND TAKE THE TIME TO READ THE ENTIRE PAGE!!!
We were invited to EBay’s top sellers private dinner with the mucky mucks of eBay a few years ago that took place during their annual conference. We were seated at a round table with other sellers as well as ebay employees. We all were discussing what we sold on ebay as we got to know one another. One of the ebay employees said he saw the government was even selling land on ebay now. I said really I had never seen that. He said yes they were liquidating government properties on ebay. I said no I don’t think so. To this day I still have not seen a government agency hold a tax sale on ebay. Yet it is filled with several different listings with words like government land for sale and foreclosures for sale.
I remember the first time I saw those words in the real estate category and thought wow I can buy those properties right here on ebay now. And indeed some of it is true. For instance I sell land on contracts. If the buyer doesn’t make their payments we foreclose on the contract and I put it back up for sale. I suppose in that instance I could advertise foreclosure. Today I saw someone with the words foreclosure in the title of their auction. I looked at the listing and it says in bold letters in red at the bottom of it FORECLOSURE, FORECLOSURE, FORECLOSURE. I wonder if they are trying to convey to me that this is something they purchased at a foreclosure, something they have foreclosed on themselves, or it is a foreclosure like the ones you buy at the steps of the county courthouse. It even talked about a foreclosure deposit.
So be sure and due your due diligence when you see these types of terms being used. If it is a foreclosure, research what laws are applicable in that foreclosure arena? Often the seller themselves will know that situation if they purchased it through a foreclosure themselves. Don’t be misled by advertising words. At times real estate can look like smoke and mirrors. I have found there really are no mysteries to land. Deeds are filed to transfer ownership of land and there are different types of deeds with different types of warranties. Make sure you understand the terminology so you can have a successful buying experience.
Hopefully we have covered most of this in the listing for you. At times we don’t know all of the answers and let you know that you will need to do further research yourself. We work extremely hard to make sure our customers receive an outstanding land buying experience. We spend many hours on the road looking at land to bring you quality land as well as many hours researching titles to guarantee to you a clean title. Ultimately though, it is your own responsibility to know the suitability of the property based on your own judgment and inquiry.
It looks like due diligence is all about research!
Char the Explorer : )
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