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Better Business Bureau ®
Start With Trust®
In Metropolitan New York, Long Island, and the Mid-Hudson Region
Buying Land
There are more than five thousand land developers in the United States, ranging in size from "Mom & Pop" developers to corporate giants. They are engaged in the sale of land for a variety of purposes, including resorts, theme parks, vacation retreats, second homes, new and retirement home sites and recreational camp sites. Much of this land is undeveloped and most of it is purchased primarily for investment purposes.

The vast majority of developers and land sales companies are honest, reputable businesses. Nevertheless, while all industries have some unscrupulous firms and individuals, the land development industry has attracted more than its share. This is due to the characteristics of land itself. No two pieces of land are exactly alike...the location, physical features, soil composition and zoning make each lot, tract, or parcel unique. Additionally, the present value is normally not known by the prospective purchaser. It is often impossible to know when a salesperson is exaggerating or lying outright. Prospective purchasers of any type of land should always INVESTIGATE BEFORE YOU INVEST.

Can You Afford to Buy Land?

As fundamental as this question appears to be, it is far too often overlooked. A study of case histories reveals that the inability to continue to make monthly payments and the need to raise cash to meet financial crises are the two major causes of complaints. If you purchase land, plan to be prepared financially to keep it for a long time. Choosing A Developer

Dealing with a developer who is well regarded and financially sound is of critical importance. Unfortunately, the size of a developer is not a good yardstick for measuring reliability. The fact that a company is large, well known and even publicly held is no guarantee that it is the right company for you to buy from...or even that the company is a good land developer. Regardless of the developer's size, one of the best, cheapest and easiest ways to determine its reliability is to talk to people who have done business with it.

It is the practice of many developers and builders to perform basic engineering and survey work, install certain preliminary improvements throughout a portion of the subdivision, and a lot the first phase of the development. Then, sales programs commence in anticipation of success and continued favorable financing, which in turn permits the further planning and completion of the various phases of the development. You should be aware that errors in judgment and/or factors beyond the control of the developer might preclude the continuation of planning and development. This is especially important when you consider that many developments consist of thousands of lots, and the prospects of substantial development in the near future are remote.

Don't Be Rushed!

Land developers use a variety of techniques in order to have an opportunity to show you their developments. Some give lavish dinners or get-togethers, some solicit by telephone, some send salespeople to your home and some offer free gifts or reduced rate "vacations" to attract you. There is certainly nothing dishonest about any of these approaches (unless they are presented in a deceptive fashion), but the fact remains that some are often conducted in a high pressure atmosphere. NEVER sign a contract if you feel pressured. Any reputable company wants you to know exactly what they offer. So when you receive the promotional materials, a copy of the contract and a copy of the Property Report or offering statement (which in most cases must be filed by the developer with the federal government), tell the salesperson that you want to study the documents at your leisure. Don't fall for the common salesperson's ploy: "What are you going to know tomorrow that you don't know today?" You may learn enough from a careful reading of the documents to prevent you from making a costly mistake. Remember, if it is really a great deal today, most likely it will still be a great deal next week.

Recreational Facilities and Other Amenities

The existence or even the promise of golf courses, tennis courts, swimming pools, equestrian trails, etc. are often major selling points of land in many developments. There are a number of things you should consider in evaluating such facilities. Specifically, do such facilities already exist? If not, what assurances are there that they will be built? Will they be adequate for all the people who are expected to live in the community? What provisions are there for expanding and adding new facilities and who will bear the costs? If you intend to build, will a septic tank or private well be permitted by law? What will be the "hook-up" or connection charges for electric, gas, water and phone service? What is the developer's past performance on completing promised improvements? What will be your legal liabilities with regard to future assessments? Are there any dues or fees for using the facilities? To what extent will you be paying some of the cost of amenities that will be of little or no value to you personally? Remember, particularly if you are living on a fixed income, an increase in membership dues or association fees might force you to give up your membership in and enjoyment of the facilities.

Land as an Investment

In recent years the most frequently cited complaint against land developers has been alleged misrepresentation by salespeople of the quick and substantial profit to be made from the purchase of land. Indeed, much of the fantastic growth in the sale of subdivided lots has been generated by the claims of many developers that buying land on an installment basis provides an opportunity for people of average means to get in on a "piece of the action." Tens of thousands of lots have been sold on the premise that they can be held for a few years and then sold at a big profit. With few exceptions, this premise is wrong. It is true that many have made fortunes from buying and selling land. However, most of the big money in real estate has been and continues to be made by developers who acquire large tracts of land and then subdivide them into smaller lots, or by investors who can afford to buy large tracts of land to hold for a long period of time.

If you are considering purchasing land from a developer primarily for investment purposes, keep in mind the following:

  • You usually pay a premium price for the lots because they are now part of a development, usually with promised improvements.

  • If you purchase land by means of an installment contract, you will be paying interest for the life of the contract as contrasted with receiving interest, which some alternative investments would provide.

  • Developers must pass along their promotional costs to buyers. These promotional costs may add 40% or more to the price of a lot. Therefore, it may be difficult for you to net from the resale of your lot as much as you paid for it.

None of this is to say that there are not a number of developers selling land on an installment basis which might result in a good, long-term investment for you. But you should proceed with caution because there are hundreds of developers selling subdivided land today as an investment, which will result in disillusionment and monetary loss for buyers at some future point in time.

Property Reports

The Property Report is based upon and is part of a detailed filing called a Statement of Record filed by the developer with the Office of Interstate Land Sales Registration (OILSR) of the Department of Housing and Urban Development (HUD) in Washington, DC. This filing is required by the Interstate Land Sales Full Disclosure Act, a Federal law passed by Congress for the protection of lot purchasers. The reports contain detailed information on the availability of such basic necessities as electricity, water, gas, waste disposal system and telephone service. The reports also tell you how far it is to the nearest hospital, to public schools and to shopping facilities. The Property Report can tell you more about what your property is like now and what is likely to be like in the future than most salespeople will. But you must read it! No salesperson is going to stress the negative aspects of buying property from him or her.

A land buyer who looks to OILSR for protection or assistance should understand clearly what the agency does not do. It does not pass judgement on the quality of land offerings or the fairness of the selling price. It does not inspect subdivisions or verify statements made in the Property Report unless it believes them to be inaccurate. It does not require subdividers to post bonds guaranteeing improvements. Except in cases where subdividers fail to register or otherwise comply with the law, OILSR cannot prohibit sales of land no matter how overpriced or unfair the offering may seem. Finally, the agency does not approve advertising.

When you buy property registered with OILSR, you must be given a copy of the Property Report. If you do not get a copy before you sign the contract, you can cancel the contract and get your money back. If you are not given a copy of the Property Report at least 48 hour before you sign, you may still be able to reconsider your decision and get your money back (as long as you did not waive this right when you signed the contract). Of course, the best procedure is to get the Property Report beforehand and carefully study it at your leisure.
 

Checklist

  • Never rely on the oral promises of a salesperson. If oral promises are not written into the contract, the developer is not bound by them.
  • Take your time. Do not allow yourself to be pressured into signing a contract without reading and studying it thoroughly.
  • Read the Property Report. If one part is particularly technical or difficult to understand, you should get it clarified, but do not let this keep you from reading the rest of it. It contains vital information!
  • Prospective purchasers are urged to visit and inspect the property before entering into any agreement to purchase. You should ascertain for yourself whether or not the property meets your personal requirements for the desirability of the property. However, you should not forget that there are a number of important things that a personal inspection will not reveal. It will not tell you if the property is fairly priced, nor will it reveal problems such as building restrictions, zoning regulations, or title clearances.
  • Consider retaining a lawyer knowledgeable about real estate if you are planning to make a sizable financial commitment.
  • Evaluate recreational facilities and other amenities: their development, obligations, and costs.
  • If you are buying land primarily as an investment, you should compare the risk factors and profit potential with other investments such as stocks, bonds, mutual funds, or savings accounts.
  • Check on the reliability of the land development company by writing directly to the Office of Interstate Land Sales Registration, Department of Housing and Urban Development, Washington, DC 20410.