Going From Research Mode to Land Purchase
At this point in the process, you’ve already done what most buyers never do:
- You gained access to the MLS
- You identified a promising parcel
- You performed a preliminary site feasibility study
- You even sketched a possible house layout
Now it’s time to buy the property and move forward with the design for your family’s house!
HIRING A REALTOR AND MOVING TOWARD A LAND PURCHASE
Go From 'Good Lot' to a Signed Purchase Contract
This is where you formally bring a realtor onto your team to help with:
- Negotiating the land purchase
- Structuring the land purchase agreement
- Coordinating due diligence
- Assisting with the lender during the land/construction loan process
- Managing the closing
A good realtor essentially becomes the transaction manager that keeps the deal moving forward.
Below is a step-by-step process experienced builders follow:
STEP 1 - Bring The Realtor Onto Your Team
at Land Purchase
Confirm Who Represents You
Before moving forward, clarify that the realtor is working for you as a buyer’s agent.
In most cases, the seller pays the commission, but you still want to formalize representation.
Typical agreement:
- Buyer representation agreement
- Commission paid through MLS listing
- Agent obligated to represent your interests
This ensures:
- Confidential negotiations
- Professional advice on price
- Help navigate contracts and deadlines
For a custom home project, a realtor should ideally understand:
- Land development
- Septic and well issues
- Zoning
- Construction loan timelines
STEP 2 - Review The MLS Listing In Detail
Confirm the Critcal Information
Even if you already looked at the listing, your realtor will review it carefully for:
Basic Property Details
- Parcel size
- Zoning Designation
- Tax map number
- Current taxes
- HOA restrictions (if any)
Utilities
- Public sewer or septic
- Public water or well
- Electric availability
- Natural gas availability
- Internet availability
Physical Site Considerations
- Floodplain
- Wetlands
- Easements
- Access and road frontage
A good agent will also pull the property history, including:
- Previous listing prices
- Days on market
- Previous failed contracts
This information becomes critical during negotiation
STEP 3 - Prepare Your Financing Strategy
For Land Purchase
Decide Between Three Common Financing Paths
Before writing an offer, you should know how you intend to finance the project.
Land Purchase Option 1 - Pay Cash For The Land
Advantages:
- Stronger negotiating position
- Faster closing
- No lender approval needed
Disadvantages:
- Ties up capital
Many experienced builders prefer this if possible.
Land Purchase Option 2 - Land Loan
Some lenders offer loans for raw land.
Typical terms:
- 30-50% down payment
- Higher Interest rate
- Shorter term (often 5-15 years)
Many lenders do not like raw land loans unless construction is imminent.
Land Purchase Option 3 - Construction to Permanent Loan
This is the most common strategy for custom homes.
The loan covers:
- Purchase of the land
- Construction costs (including soft costs)
- Conversion into a permanent mortgage
Advantages:
- One closing
- Lower down payment
- Simplifies financing
Disadvantages:
- The lender generally requires more documentation early.
STEP 4 - Meet With A Construction Lender
Get Land Purchase Pre-Approved Before Writing the Offer
Before submitting a contract, speak with lenders who specialize in construction-to-permanent load.
Typical documentation required:
- Income verification
- Credit report
- Net worth statement
- Preliminary house plans
- Rough construction budget
Because you have already sketched the house layout, you are far ahead of most buyers!
The lender mainly wants to verify:
- The finished home value supports the loan
- You can afford the payments
- The project is realistic
Ask the lender for a pre-approval letter, which strengthens your offer.
STEP 5 - Determine Your Land Purchase Offer Strategy
Analyze Comparable Sales
Your realtor will pull comparable land sales from the MLS
They are usually analyzed by:
- Price per acre
- Price per buildable lot
- Location and views
- Road frontage
- Utility availability
For land, comps are often imperfect, so the realtor’s local knowledge becomes extremely valuable
Consider Seller Motivation
Ask your realtor:
- How long has the property been listed?
- Has the price been reduced?
- Is the seller an individual or a developer?
- Are there multiple offers
- These clues influence your negotiation strategy.
STEP 6 -Write The Land Purchase Contract
The Land Purchase Agreement Is Your Protection
The realtor prepares the formal contract.
A well-written land contract typically includes several key clauses.
Purchase Price
This is the negotiated purchase amount for the land.
Your realtor may recommend:
- Initial offer below asking price
- Full-price offer if the property is highly desirable
Earnest Money Deposit
Typically:
- $1,000-10,000 depending on price
This shows the seller you are serious.
The money is held in escrow until closing.
Due Diligence Period
This is one of the most important clauses.
Typical timeframe:
10-30 days
During this period, you can verify:
- Septic suitability
- Soil conditions
- Well feasibility
- Survey accuracy
- Zoning compliance
Financing Contingency
This clause allows you to cancel if financing cannot be obtained.
Especially important when using:
- Construction loans
- Land loans
Closing Date
Typical land closing:
30-60 days
This gives time for:
- Financing approval
- Title search
- Survey review
STEP 7 - Conduct Final Due Diligence
Confirm The Site Can Actually Be Built On Prior to Land Purchase
Even if you already performed a feasibility review, the formal contract period is when you confirm everything.
Common steps include:
Soil and Septic Testing
If the property requires septic:
- Perc test
- Soil analysis
Survey Review
Verify:
- Property boundaries
- Easements
- Access rights
Zoning Verification
Confirm with the local jurisdiction:
- Setbacks
- Height limits
- Lot coverage limits
Utility Confirmation
Verify availability and connection cost for:
- Electric
- Water
- Sewer or septic
- Internet
STEP 8 - Finalize the Construction Loan
Submit Full Documentation to the Lender
Once the contract is signed, the lender moves forward with full underwriting.
Typical requirements:
- Detailed house plans
- Builder contract or construction estimate
- Appraisal of finished home value
- Land purchase agreement
The lender evaluates the future value of the completed home, not just the land.
STEP 9 - Loan Approval and Closing Preparation
Title Work and Final Loan Documents
Before closing, several things happen simultaneously:
Title company tasks:
- Title search
- Title insurance
- Settlement statement
Lender tasks:
- Final loan approval
- Construction draw schedule
- Mortgage documentation
Your realtor coordinates communication between:
- Lender
- Title Company
- Seller
STEP 10 - Closing on the Land
Signing the Final Documents
At closing, you will sign:
- Land deed
- Loan documents
- Settlement statement
- Title documents
Funds are transferred, and ownership is officially recorded.
Congratulations!
You now own the property where your custom home will be built.
What Happens Next?
After closing, the process moves into the design and construction phase:
- Final house design
- Construction drawings
- Permitting
- Builder contract
- Construction start
For many homeowners, buying land is the moment when the project becomes real.
For experience builders, it’s simply the first milestone in a carefully planned process.
FINAL THOUGHTS:
It’s time to get started on the plans. The interest clock is ticking!
