A small unimproved parcel of land will probably use an Unimproved Land contract while a larger tract of land with buildings on the property is most likely to use a Farm and Ranch contract, which allows for price changes based on surveyor results. Throughout the process, Buyers need to be careful where they step – especially around cows.
Thorough due diligence and consultation with relevant professionals are essential for Texas land buyers to make informed decisions and mitigate potential risks associated with purchasing land. Buyers are ultimately responsible for what they choose to purchase. Let’s examine some ways to avoid pitfalls along the way to land ownership.
Zoning and Land Use
How a Buyer intends to use the land is a vital decision before anyone looks for land. Will there be animals, a mobile home, a house, two houses, a workshop, a business, a camper trailer, an industrial truck, or any farm equipment? Each of these can be a potential problem for the land buyer.
Zoning regulations can vary widely between urban, suburban, and rural areas. Be clear about the use of the land to find the right land.
Texas is a vast state with diverse landscapes from swamps to deserts, so buyers should consider the specific region and its annual rainfall, proximity to amenities, employment opportunities, schools, transportation, paved roads and other important facilities.
Deed Restrictions
Deed restrictions are conditions set upon the land to future landowners. Most of these conditions are limitations of use. The most common deed restrictions do not allow mobile homes, secondary homes on the same property, no large trucks or trailers, limited animals, or a restriction of animal size.
Topography and Soil Quality
The land's topography and soil quality can significantly impact its potential uses, such as agriculture, development, or recreational activities. Buyers should assess these factors along with a “soil sample” (test) to determine the suitability of the land for their intended purposes.
Access and Easements
Access to the property and any existing easements for roads or utilities should be clarified to ensure that buyers have legal access to their land and that there are no encroachments or restrictions that could affect their use of the property.
Mineral Rights
Mineral rights can be sold separately (severed) from land or conveyed with the land. Many sellers may want to retain some or all of their mineral rights when they sell the land. This is part of the negotiation process of buying the land.
More frequently, a seller doesn’t know if they even own the mineral rights. A “Landman” must be hired to investigate and determine who owns the mineral rights under any specific plot of land. This isn’t a cheap project, which is why most people don’t know if they own the mineral rights under their land. Most landmen are part of the AAPL (American Association of Petroleum Landmen).
If another person or entity owns the mineral rights under the land you purchase, the mineral rights are considered “dominant,” and the landowner must give the mineral rights owner access to extract their products including surface products such as soil, sand and water.
There are two broad categories of water rights in Texas: groundwater and surface water.
Groundwater is “water percolating below the surface of the earth” according to the Texas Water Code. If there are no other agreements, landowners own the groundwater beneath their property. A severed groundwater right is also the dominant estate in Texas.
Surface water collects on top of land. When a piece of land has a creek, river or lake on the land, the water itself is not necessarily owned by the landowner. According to Texas A&M AgriLife Extension, “The State of Texas owns surface water and a permit from the Texas Commission on Environmental Quality (TCEQ) is generally required to divert state-owned surface water.” A TCEQ permit allows the holder to use a designated amount of water for a designated purpose.
Cash or Financed?
Cash is always king in real estate. Cash makes the entire transaction easier. Without lenders involved, the buyer can accept the property in any condition, can close as soon as the ink is dry on the contract and can often negotiate extra concessions from the Seller.
All deals – including cash and Veterans Administration (VA) loans will require about 2.5% of the sales price for closing costs.
Financed
Buying land through a lender has higher hurdles than a cash purchase. The lender will most often require the borrower to pay 20% down on a 15-year mortgage. Additionally, not all lenders are willing to make land loans. Buyers will need to find lenders willing to finance land loans.
The land must also appraise for the sales price or less. Otherwise, the buyer will be required to pay the difference in cash – even if a significant down payment was paid.
Many land lenders will also require the land to be more than 10 acres. A few credit unions will allow loans for less than five acres, but most land lenders are interested in 10 or more acres.
That said, agriculture tax exemptions can occur on as little as five acres anywhere in the state of Texas if the land has active bee hives. However, most counties will require at least 10 acres for an “ag exemption.”
Exempt or Not
As mentioned above, land can be exempt. I’ve written an entire post about exemptions, but the most likely use of land is for an ag exemption. The land must be “productive” to earn an ag exemption. Furthermore, it must be productive for at least five years before it is granted an exemption by the county.
Buyers should check with the county Central Appraisal District (CAD) to determine if specific land already has an exemption or will qualify for one.
Surveys
Most urban surveys are based on a Lot and Block system and platted at the city. Meanwhile, rural surveys are more likely to use a Metes and Bounds system, which measures distances from specific stakes or landmarks.
Obtaining a survey of the property and verifying its boundaries is essential to ensure that buyers are purchasing the correct parcel of land and to avoid any boundary disputes in the future.
Utilities
The most common utilities are electricity, natural gas, water, sewage, cable and internet connectivity. Land that has access to all utilities will often cost more because buyers will otherwise need to pay utility companies to bring those utilities to the property – at a cost per linear foot.
Depending on the governing jurisdiction, electricity, water and sewage may be required before a certificate of occupancy is authorized. If a water well, septic tank or propane tank are needed due to a lack of infrastructure, ensure it’s legal at that location according to all controlling governmental entities.
Water can be supplied by a city, a water district, a water well or even a water service. City and water districts often have the lowest starting cost. Depending on the land, a water well can be extremely expensive and could be illegal. You can know more about water here.
If water isn’t currently at the property, a water line may need to be installed across another property owner’s land. This will create a need for the Buyer to acquire a Right of Way Easement from each landowner between the Buyer and the water supply if a water line doesn’t already exist.
Sewage
Rural areas may require a septic system to handle sewage. If a septic system currently exists on the property, an Information About On-Site Sewer Facility form will be required to convey the land. Sewage is often handled by the city in urban areas. Many cities will not allow septic systems.
Environmental Considerations
Buyers should conduct environmental assessments to identify any potential hazards or restrictions on the property, such as flood zones, wetlands, endangered species habitats, or contamination from previous land uses.
Future Development Plans
Buyers should research any potential future development plans or infrastructure projects in the area that could impact the value or use of the land.
Mark M. Hancock, GRI, MRP, AHWD
REALTOR, New Build certified
214-862-7212
DFWmark.com
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