Have you been looking for a lot to build on but haven’t been able to find it? Are you frustrated by the multiple offers you have submitted that haven’t been accepted?
Well you aren’t alone. We are too, and we’ve felt like this for a few years now. There was a recent article written in the Wall Street Journal that talked about the phenomenon that is the northern Virginia tear down market. Over the last 10 years, it has definitely become more challenging to find a lot and more expensive.
When I think back to when I started working for Dad in 2001 (oh my – 15 years ago!), most of the clients we worked with owned the lot they wanted to build on. And most of those lots were empty. In fact, only about 30% of the lots we were building on back in the early 2000’s were tear downs.
But in 2005, we started seeing an incredible shift from building on mostly empty lots to mostly infill tear downs. One of the main reasons for this is people realized they wanted to stay put, tear down, and rebuild. They loved their neighborhood. They were entrenched in their community. They didn’t want to move. They just wanted a better home.
So what else has changed? I believe there have been two major shifts in the market here in northern Virginia in the last 15 years that have made it more difficult to purchase a building lot.
Shift #1: Spec Builders
One of the reasons you are likely getting outbid in the lot war is because you are competing against spec builders. These are large builders buying the “lot” to rebuild and sell. They often come in with cash, no contingencies, a quick close (less than 30 days) and with a bid over asking. We only do two-four specs/year (the big guys are doing over 20), and we’re getting outbid by these guys as well.
But these larger builders weren’t always so interested in the tear down market. Many of them jumped into the spec infill market when the housing market crashed about 10 years ago. They saw the spec market as an opportunity for much needed cash flow, and they haven’t left. I believe this influx of large spec builders also caused the second big shift in this market.
Shift #2: Lot Prices Are Ridiculous
The cost to buy a tear down in and around the beltway is ridiculous. If you had told me 15 years ago that lots would sell for what they are actually selling for, I would have said you were crazy. But it’s happening. People are paying more for lots than they ever have. And I get it. They want a new home in their neighborhood of choice. But where does that leave the rest of us, and what are we to do if we want to build a home of our own?
The first thing we need to do is stay in the game. Don’t give up on finding your lot. It’s out there. Here are some tips of what to do when you do find a lot you want to purchase (please also review my posts about Buying A Lot and how to conduct a Study Period which cover important logistics)…
Make a fair offer. In this market, you aren’t always going to be able to get a “deal.” If the lot is in a prime area (northern VA) you need to be fair in what you’re offering, or you will lose out to better offers. I spoke to someone recently who underbid (under asking) on a prime building lot in Falls Church City. I wasn’t surprised when they were outbid. If it’s in a good location (this was), don’t underbid. Expect to compete. If you like the lot and you can see your family living there, offer what you’re willing to pay for it. You may have only one chance to bid if there are multiple offers.
Consider offering the seller an incentive. Unless you are planning to move into the property before you tear it down, you won’t have any use for the lot for at lease a couple of months (until you are close to pulling building permits). Would the seller benefit from a free rent back? Be creative in offering something the seller may see as an advantage over other offers (quick settlement, cash, etc…).
Realize you’re paying a ridiculous amount for dirt but the overall investment will be worth it. If you are stuck on a certain neighborhood or school district, you may not have much bargaining power if you are competing against other buyers. I know it’s hard to imagine paying over half a million dollars (or more!) for a property you plan to demolish but if it fits most of your requirements, try to think of the end product. Once your new NDI home is built, the overall investment will be there. Since most of our clients experience substantial instant equity when the house is done. Meaning they owe less on their new NDI home than what they paid. That’s the beauty of building a custom with NDI on your own lot.
So don’t get discouraged about finding a lot. If you are diligent and aggressive (if you aren’t, find a realtor who is!), you will find it. And remember, we are here to assist you where we can.
Dream Big. Build Smart.