What are Costs of Land Purchase – Who Pays?

With so little residential land for sale in Anchorage, the costs of these purchases and sales aren’t as familiar as residential and condo transactions. Here’s a primer highlighting differences.

Surveys and plats: The plat is a publicly-recorded drawing showing the lot lines of a subdivision, as approved by the Municipality of Anchorage or other local authority. It includes streets and common easements, such as utility corridors, drainage, landscape screening and so forth. It does not in itself show the location of every corner of a particular lot. (If there is a survey marker on a lot corner, however, the plat will so note.) This means that buyer and seller need to negotiate the cost of a “staked survey” if the buyer wants a surveyor to locate the corners and put a marker on each. The cost is usually about $200 per corner, which can mount up if the lot is not a simple rectangle. While knowing exactly where corners are is highly desirable for fencing, the plat usually has enough information for the buyer of a residential lot. That’s the reasoning behind the business tradition in Anchorage that survey work beyond simply receiving the plat is a buyer cost.

Soils testing and septic/well approvals: Any buyer of residential or commercial land needs to know if soil conditions are adequate for the buyer’s purposes. Can approval be obtained for a septic system in a particular location? Where can a well be drilled? What difficulties and challenges might soils present when putting in a building foundation? If a seller has no past engineering or excavation reports from past activity to disclose as part of the sales process, it is left to a buyer’s due diligence to find out what the buyer would like to know. These expenses can be considerable because the process necessitates engineering services, excavation for test holes and consultation with government authorities. Buyers and sellers in Anchorage need to be aware and negotiate these costs as part of the contracting process. A common formula is for the buyer to pay for due diligence expenses, with the seller giving the buyer’s engineers, surveyors and contractors free access to the property, with a promise to restore the land as much as possible when done.

Assessments: A lot may be encumbered by assessments for pending road, drainage and utility work. If the work has been contracted and underway, the assessment may be a lien on the property because it has been levied. Past work may still have part of an unpaid lien if owners past and present have been paying off the lien in annual installments. Sellers are typically aware of pending assessments even if they have not been levied because they have been notified as part of the planning and implementation process. Assessments have an impact on property value and for that reason must be disclosed as a normal part of marketing. A title report and search of public records will reveal assessments levied, but not one that is just pending. Buyer and sellers need to determine what’s the case and negotiate who pays, or how to split them. A common formula is for sellers to pay off assessments that were levied in the past. Buyers commonly pay for pending assessments that have been disclosed, partly because the amounts often aren’t known until the work is contracted, and also on the theory that the buyer gets the future benefits of such improvements some time after the seller is no longer the owner.

Lenders and financing: While it’s common for residential lot sales to be all-cash transactions, some are financed. AKUSA Federal Credit Union, for one, offers lot purchase financing with 50% down in most cases. Private lenders such as friends and relatives can also be a source of financing. Other buyers may have a credit line against their other assets, such as investment property or even a personal residence. Credit lines produce cash for a lot purchase without the need for a lien to be placed against the property because it’s the buyer’s own money. However if a commercial or private lender is making the loan and wants the lot pledged as collateral, then the loan creates a lien. This means title insurance for the lender will be required, in addition to the usual owner’s title policy that protects the buyer’s interest. The business tradition in Anchorage has been for sellers to pay for owner’s title insurance, and buyers to pay for the ALTA policy. Where the lender requires an appraisal, past practice has been to tag the seller with this expense. However the more recent trend has been for the buyer to pay, on the theory that the need for an appraisal is only because of the buyer’s choice to obtain financing from a lender which requires one.

Easements and access: Not every land parcel has physical or legal access. Physical access means there’s a legal route to the parcel from a public street or right of way. But the actual roadway might not exist. Legal access has to do with whether a parcel is land-locked. If the only way to legally get to the property is across some other parcel, then an easement must be established. So if you are buying Lot 2 and you have to get there by crossing some part of Lot 1, then the owner of Lot 1 has to give permission in the form of an easement. This may involve a survey to define where the easement is, and legal assistance to describe the easement in a form such that it can be publicly recorded and become part of the land. Where there are access issues, buyer and seller must negotiate what’s to be done, if anything, and the costs involved. There are no clear guidelines as to who pays in such matters. The relative benefits to the parties, who needs to provide the easement, and the rest of the package of price to be paid and other costs, are ingredients of this negotiation.