Sites for sore eyes

For more than 40 years, Armand LeTourneau has specialized in building custom-designed homes for other people. Then in 2001, the licensed building contractor bought a 3/4-acre Northridge lot for $185,000, invested $475,000 in construction costs and spent eight months constructing his dream home. That five-bedroom, 4,000-square-foot realization is today worth more than $1 million.

But builder-owners like LeTourneau are not the only ones looking to turn dirt into dollars. Soaring home prices and lack of inventory have fueled a market for residential land that has do-it-yourselfers competing with investors and developers for an ever-shrinking supply of buildable space.

“People are looking to land as a means of speculating,” said developer Jim Brewer. “Instead of putting their money into the stock market, they are buying land.”

Claiming a stake to build a dream might hold idyllic appeal for some, but the realities of selecting a site, financing the deal and breaking ground are complex.

Finding a buildable site is the first hurdle, said Bob Wood, a sales associate for Re/Max Olson & Associates in Northridge. “In the 1990s, you almost couldn’t give land away. But the market has come back and it’s hard to find suitable lots.”

Brewer, who oversees land acquisitions for Spiegel Development in Sherman Oaks, said residential land values in the San Fernando Valley have doubled to about $20 per square foot in the last three years.

Despite the tight market, buildable 5,000-square-foot lots are available near million-dollar homes in Calabasas Highlands for $100,000 to $150,000. In the San Fernando Valley, Wood said, 1/2-acre lots sell from about $250,000 in North Hills to more than $500,000 in gated communities. One-acre (43,560-square-foot) lots in Malibu Estates, Agoura and Thousand Oaks list from $500,000 to more than $1.5 million. One-acre and 2-acre lots in Lancaster and Palmdale, which sold for about $45,000 in 1999, go for $140,000 to $200,000. And prices for similar parcels in the San Diego area run the gamut from about $200,000 in east San Diego to $600,000 in Chula Vista.

In south Orange County, 4,000-square-foot to 6,000-square-foot lots start at about $300,000 and cost more than $500,000 in such coastal regions as Dana Point, according to Debbie Ferrari, a broker-associate with Prudential California Realty in San Juan Capistrano. Of the 79 residential-zoned lots available in Orange County earlier this month, 31 listed for more than $1 million.

As a general rule, Brewer recommended buyers not spend more than 35% of the completed home’s anticipated market value for a vacant, finished city lot -- one with utility hookups, sidewalks and other street improvements -- or more than 25% for raw, unfinished land.

But the lot doesn’t necessarily have to be empty. “If you’re a person looking for land to build a single house, you obviously want to get the biggest lot possible,” Brewer said. “But in some neighborhoods, there are no totally vacant lots, so then you’re looking for the biggest lot that has the most terrible-looking shack on it that you can scrape off.”

Not everyone agrees with that strategy. Bill Williams, a broker with Dilbeck Realtors, GMAC Real Estate, in Woodland Hills, said that in most cases, a teardown is just an expensive lot.

“I wouldn’t buy a teardown. It doesn’t make economic sense,” Williams said. “If you pay $400,000 or $500,000 for a property and tear it down but can search within 10 miles of that teardown and find a lot for $250,000 or $300,000, you’re better off buying the lot.”

Whether looking for a teardown or a vacant lot, a buyer can simplify the search by using an agent who specializes in land purchases. Still, expect to pay higher commission fees -- about 10%, compared with 5% or 6% for a traditional home sale, according to Wood -- for the extra work and time involved in a land deal, which typically has a 60-day to 90-day escrow and a 45-day disclosure period.

Of course, a buyer doesn’t always need a real estate agent or a for-sale sign to find a bargain. Lot spotted? Owner information is available by viewing local assessment rolls -- a public record of taxable property issued by the county office of the assessor -- or through detailed property reports from a title company or an online real estate public records and research information provider such as NETR Real Estate Research and Information, www.netronline.com.

LeTourneau regularly submits written offers to owners of unlisted parcels of land. The method requires legwork and patience, but Brewer said most people don’t know the value of land, so buyers who deal with owners one-on-one can often secure a suitable lot for a reasonable price.

What defines a suitable lot? For some buyers, it is a scenic ocean view or proximity to a first-rate school. And though selecting a good location will set the price of the planned home upon completion, school ties and a view won’t prevent a home from sliding down a hillside. So it’s crucial to investigate the history of the land and make the sale contingent on the findings.

Buying land is far more hazardous than buying developed property, according to Realtor Max Ricketts, co-owner of Naldo-Ricketts Realty in Blossom Valley.

“When you have a totally vacant piece of land, you want to inquire about why nobody has done anything with it. It may have some geophysical issues attached to it,” Ricketts cautioned. “But some people think, ‘That looks pretty,’ and then the land floods or they find out that someone had a gas station there before, and it costs $300,000 to get it cleaned up.”

Despite the potential for pitfalls, buying land is not all guesswork. A residential lot in a subdivision divided by developers has a history traceable through the local building and planning department, which oversees development and environmental issues, building codes, zoning rights, permits and improvements.

Moreover, a title search -- typically performed during escrow -- will reveal problems with easements, liens or other encumbrances that could prevent a buyer from securing a free and clear title.

“Check every part of the deal,” Williams said. “Because the one thing you don’t want to end up buying is a park.”

Buyers should make sure the land is zoned for the intended use, said Con Howe, director of planning for the Los Angeles Department of City Planning. “It’s not the city’s responsibility to tell residents everything they can do.”

For a snapshot of future growth patterns surrounding a vacant parcel, check the city planning department’s general plan -- a comprehensive, long-range guide to planned improvements for local lands.

Still, because environmental hazards and geological flaws are often hidden beneath the topsoil, Brewer said buyers should hire a soil engineer (a cost of about $2,000) to determine soil quality and content, which could affect foundation depth and building costs. Verify boundary lines, corners and lot dimensions with a land survey (about $2,000). And hire an arborist ($1,000) to determine the lot’s tree types and ensure that they can be legally removed. L.A. County’s oak tree ordinance, for example, requires owners to secure a permit before removing, replacing or relocating an oak tree 8 inches or more in diameter.

In addition to looking at geological and environmental surveys, experts say buyers should talk to an architect about setbacks, review zoning classifications, inquire about utility hookups and septic permits and find out if subdivision, deed or covenant restrictions could limit design choices and other construction options. And never take anything for granted. Even with a visible road to the property, buyers need to make sure they have legal access.

“If you buy a property with a major defect, the problem becomes your problem after the close of escrow,” said Mauricio Braun, chief operating officer for LGS Reports, a Calabasas Hills firm that prepares property disclosure reports. “From the seller’s side, one of the most important aspects of a land transaction would be disclose, disclose, disclose. And from the buyer’s side, before you buy, make sure you perform a very thorough due diligence.”

Buyers also should consider building costs and budgets. LeTourneau sold his Sherwood Forest home -- where he lived during the construction phase -- and moved into the Northridge residence in July 2002. But not everyone has the financial means to buy land and build.

“If something goes wrong halfway through the project,” LeTourneau said, “you could be stuck between a rock and a hard place.”

After budgeting about 25% of the cost of land, expect contractor fees to run about 15% of building costs, which average $120 to $200 per square foot, depending on the quality of the home.

When it comes to financing, Williams said most banks lend up to 50% on land loans. “With approved plans, the bank will loan 80% of the appraised finished value, which enables the owner to recoup architect costs and city fees and pay off the balance of the land,” he added.

Most land loans are designed for three to five years, according to Conrad Kantor, a senior loan consultant with Metrocities Mortgage in Sherman Oaks -- long enough for the buyer to close escrow and lay the groundwork for the architectural and construction plans. However, a single close-construction loan allows a buyer to pay for contractors and materials and then rolls into a typical mortgage when the home is complete.

Sadly, Wood said, 50% of his land buyers never break ground. “They think they can come out on the weekends and start framing the house. But for people who feel they can’t afford to buy a house, buying land and building a home is not a good alternative,” he said. “Sometimes a labor of love becomes an unyielding burden.”

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Researching vacant land

Who owns that piece of land? To find out, call or visit the county assessor’s office:

* Los Angeles County office of the assessor, Residential Ownership Department, (213) 974-3441 or (213) 974-3442; www.lacountyassessor.com

* Orange County assessor, (714) 834-2727; www.ocgov.com (go to Departments and select County Assessor)

* For assessor services and information in the city of San Diego, (619) 236-3771; or www.sdcounty.ca.gov/arcc/arcchome.html

For zoning information and community plans:

* City of Los Angeles, (213) 482-0000; www.ladbs.org/zoning/zoninginfo.htm or www.lacity.org/pln.

* City of San Diego, (619) 446-5000 www.sandiego.gov/developmentservices. To view the city’s general plan, www.sannet.gov/planning

* Orange County, (714) 834-5146; pdsd.oc.ca.gov

* City of Anaheim, (714) 765-5139; www.anaheim.net, go to City Departments and select Planning, then Home Page

* City of Irvine, (949) 724-6308; www.ci.irvine.ca.us/depts/cd/planningactivities

* City of Santa Ana, (714) 647-5804; www.ci.santaana.ca.us/departments/pba/default.htm

* Ventura County, (805) 654-2488; www.ventura.org/planning /index.html

For tree reports:

* American Society of Consulting Arborists, (301) 947-0483; www.ascaconsultants.org/directory/index.cfm (Select Tree Protection for Construction Projects and State to access local consultants.)

For soil reports:

* Visit the city of Los Angeles Building and Safety Department’s Testing Agencies Roster at www.ladbs.org. Go to the Approved Testing Agencies Roster for resources in Los Angeles, San Diego, Orange and Ventura counties.

Additional resource:

* “How to Plan, Contract and Build Your Own Home,” by Richard M. Scutella and Dave Heberle (McGraw-Hill, 2000)

-- Michelle Hofmann

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Michelle Hofmann is a Los Angeles freelance writer. She can be reached at michellehofmann@earthlink.net.