This post originally appeared on Burt M. Polson's Real Estate Journal and is republished with permission. Find out how to syndicate your content with theBrokerList.
Subdividing land is the essence of our real estate ownership system we are secure in today. Value, wealth and opportunity of land use are rooted in land development.
I am representing the owner of a ranch property in Napa. The property is less than three acres with a small house and large barn for sale just under $2 million.
Many years ago the site was in the rural country and over the years as Napa has grown and new subdivisions and parcels had been developed it is now surrounded by homes. This is a scenario we see not only occurring in Napa.
Zoning, RUL and infill
Growth is inevitable and to a certain extent a needed part of sustaining a viable community. Napa is unique in that we restrict growth through a Rural Urban Limit (RUL). This essentially is a border around the city. However it is not all inclusive of the incorporated city limits nor is all of the incorporated land within the RUL.
The RUL limits growth to predominantly infill land–land surrounded by other developed parcels. Napa does not have large swaths of undeveloped land to be developed for hundreds of homes to be incorporated into the city limits because our desire is to sustain the value of our agricultural land.
This has created demand in parcels within the RUL, which can be developed. The property I am representing would make a wonderful home, however the zoning and general plan allows for it to be subdivided potentially with up to eight homes thereby increasing its value.
The bundle of rights
The value in land is created not only by the size, location or what is on it, but also what you can do with it. We call this the bundle of rights. These rights also include the ability to sell, lease, transfer, restrict or encumber the land.
It was recognized many years ago that we needed to standardize the creation of parcels and protect these bundle of rights. Thus came the Subdivision Map Act requiring any new subdivision go through an extensive process controlled by local jurisdictions to split a parcel into smaller lots.
The first step is the tentative map and entitlements
The process before a developer can start building homes in a new subdivision is long, arduous and costly. It can take from six months up to three years for a developer to receive a final subdivision map, entitlements and financing in order to start construction.
Even before a developer purchases a parcel like I have for sale at the minimum will perform a feasibility study to determine exactly what he can do on the property. This can take a couple of months, but in many cases a developer will want to secure a tentative map and land use entitlements before closing escrow, which could take eighteen months or longer. The developer would not close escrow on the land until the tentative map is acquired. However, there are exceptions.