Contracts to Purchase Vacant Land
Vacant land contracts typically include the following clauses or sections:
The parties, usually referred to as Buyer and Seller
Property description
Terms of payment
Closing costs and prorations
Possession
Title
Default and Remedies.
These sections are very similar to a residential purchase and sale agreement. Some sections may be treated differently, such as warranties, where the buyer may be agreeing to "as is" condition. In a contract for unimproved land, the Seller may not agree to provide any warranties or even sign a title insurance policy. This means the Buyer will not have a title insurance policy covering the property, which is an important form of insurance. A title insurance policy provides assurance to the Buyer that the only claims to the property is by those established prior to the closing date. Such claims may include a lien, encumbrance or claim that affects a property’s title . Without the title insurance policy, the Buyer cannot be assured that the Seller has good and marketable title to the property. Title insurance will provide protection to the Buyer if the deed is ever challenged during the period of title insurance coverage, which typically provides coverage to the Buyer and their heirs for the term of ownership of the property. If there is an existing mortgage on the property before the closing, the Seller may want the sale proceeds from the transaction in a sum sufficient to pay off the mortgage. The balance of the sale proceeds, if any, would be held and disbursed after the deed is properly recorded. Failure to properly apply the proceeds of the sale to pay off liens against the property can lead to a lawsuit against Seller for breach of contract, and initiated by the Buyer for specific performance if the Seller refuses to pay off the mortgage.
Key Provisions to Incorporate
When creating a vacant land purchase contract, there are certain fundamental clauses that must be in place to ensure the document’s effectiveness and the security of all involved parties. The purchase price is one of the most important clauses to include in a vacant land purchase contract. It should detail the final price for the land, including any reasonable variable costs, such as excavation work that would make the land more valuable. In other words, it should cover the cost of the land in a clear, specific manner. The deposit clause refers to the amount of money to be paid when the contract is signed, which will be held in escrow by a third party. This payment shows the commitment of the buyer, who can expect it back if they choose not to go through with the deal. A due diligence period clause provides time for whoever is buying the property to conduct a thorough review of the land condition. The buyer may need to hire several professional services to evaluate the land characteristics – so having a clause explaining the timelines and extent of these evaluations is necessary. The closing terms clause points to the necessary documents required from both parties when the sale is made. It also includes the timeline for when the transaction will be closed. Having this in the vacant land purchase contract is vital to protect all parties from late fees, penalties or unexpected fees that could arise from a delayed closing. No matter the purpose of the vacant land purchase contract, it’s essential it contains these clauses so both the buyer and seller know exactly what to expect during the sales process.
Conducting Due Diligence in Your Land Purchase
Due diligence is a crucial part of acquiring land as it can uncover potential issues, helping buyers avoid costly mistakes down the line. If you’re looking to purchase vacant land, you need to have a clear understanding of the due diligence process.
One of the first steps in due diligence before purchasing vacant land is to perform a land survey. A land survey will provide detailed information about the property boundaries, identify any easements, and uncover any zoning issues. This information can be used to determine whether the land you’re looking at is suitable for your intended purpose. If the land is a plot of raw land that is not divided in any way, then it might be useful to conduct a land survey as the information will help determine the size of the land and if the property actually belongs to the seller. If the land survey is over 10 years old or there have been modifications, it’s a good idea to create an updated land survey of the property.
Since land surveys can be time consuming and costly, you may want to consider an unrecorded easement search. An unrecorded easement search will show if there are any easements on the property which can affect how you use your land. An easement is the right to use or cross over someone else’s property and can be granted through a legal document. There are several different types of easements including a right-of-way easement which allows other parties to cross over one property to access another, a utility easement which allows companies like phone lines and internet providers to run the necessary wiring and signals, amongst others. If there are any easements on the property, then a land survey will show where the easement exists on the property. If there are no easements, then a land survey isn’t necessary.
Environmental assessments must also be completed before purchasing land. Environmental assessments identify any environmental conditions or restrictions that might apply to the property. Multiple types of environmental assessments exist but most common is a Phase 1 environmental site assessment. If the assessment shows some contamination on the property, then additional testing may be needed to determine how serious any risks or issues may be. Assessments can be conducted with minimal unanticipated costs to the buyer.
If your land is zoned correctly for your intended use, then you can apply for a building permit. Each municipality has their own regulations for what type of structures on each plot of land is allowed. If the land is not zoned properly for your intended use, you can request that the city or town change their zoning designation for the area.
Legal Review and Common Mistakes
Whether you’re the buyer or the seller, it’s essential to have a real estate attorney review vacant land purchase contract prior to signing. Given the complexities of the law as it pertains to real estate, the contract to purchase should be drafted or reviewed by an experienced attorney. In doing so, you will minimize any loopholes or misinterpretations in the contract .
Some of the most common mistakes I’ve seen that lead to litigation include: not including sufficient legal description of the parcel being purchased, failing to attach financing to the purchase contract (without financing, this is just a cash deal!), not including a survey, failing to check the zoning of the parcel and not including zoning contingencies into the contract, and/or if there are easements that run with the land, failing to disclose the same. Finally, mineral rights and water rights should be addressed; if the property has any.
Tips for Effective Negotiation
When it comes to entering a vacant land purchase contract, negotiation plays a critical role in reaching mutually-agreeable terms. Your first step should be to review the land sale agreement with the intention of identifying the specific aspects that would be most advantageous to you as a buyer. In many cases, the goal would be to obtain the land at a price that is significantly lower than its current market value. However, you should also carefully scrutinize aspects that may not be primarily financial but still offer your best possible outcomes. For example, you might want to determine whether the seller is willing to take fewer installments. After careful examination and consideration of the purchase contract, make an initial offer with strategically deliberate considerations of counteroffers. Often, the buyer will make a low offer, hoping for a series of high counteroffers that will ultimately land somewhere within the middle. This approach is especially effective when you’re dealing with a desperate or naive seller. For a powerful tactic that has made negotiation skillfully successful for many buyers in vacant land transactions, consider making an offer that includes all terms. Without the ability to issue counteroffers for individual terms, the seller must either accept or turn down your offer in full. Even if your offer is initially rejected, the seller may issue counteroffers that are closer to your goals than they would have been if you had made counteroffers for each term.
Finalizing the Purchase
Your seller has accepted your offer on that lovely piece of raw land for sale. Congratulations! However, it’s important to remember that the contract is still not binding. Just because you’ve reached an agreement with the seller doesn’t mean the journey is over. Like any real estate closing, closing the deal on a piece of vacant land requires a little due diligence on your part. Before you sign on the dotted line, make sure you understand the terms of your deal and how it will affect your investment. Closing vacant land requires you to use the appropriate contracts and determine if contingencies such as survey and financing are needed. Once you’ve done that, then you’ll be in a much better position to close the deal.
The closing process will be overseen by an escrow agent. This person acts as a neutral third party who holds both the deed and the money until all the conditions of the sale have been met. The length of time between opening sound escrow and closing it varies , but in most situations, the transaction should close within 30 to 60 days of the preliminary paperwork being completed. In Nevada, the period is much shorter. With the exception of Utah, states generally allow 30 to 60 days to complete the closing process. Escrow helps ensure that the closing process is handled in an orderly manner, and also protects the interests of the buyer, seller, and lender (if applicable). There are a number of closing costs that may require payment, including a brokerage commission, attorney’s fee, title insurance policy, and the escrow agent’s fee. There may also be a number of legal fees, depending on the circumstances of the purchase. It will be necessary for you as the buyer to cover these fees, which are included as part of the escrow agent’s accounting process. Before closing the deal, it is a good idea to have your attorney review the documentation to ensure that everything is in order.