Top 10 Things Brokers Should Know About Land Transactions

The land asset class in commercial real estate (CRE) is a unique and versatile sector, presenting both challenges and opportunities. As brokers navigate land deals, they must be well-versed in numerous aspects that can influence the success of a transaction, from zoning regulations to development potential. Understanding these key areas is essential for advising clients and closing deals effectively. Below are the top 10 things brokers should know about the land asset class.

1. Land Use and Zoning Regulations

One of the most critical aspects of land transactions is understanding zoning laws and land use restrictions. Each piece of land is subject to local zoning ordinances that dictate what can be built there, such as residential, commercial, industrial, or agricultural use. Brokers need to understand how to navigate these regulations and advise their clients on potential rezoning opportunities, helping them unlock the land’s full development potential.

2. Environmental Considerations

Land transactions often require a thorough environmental assessment to identify any issues that could impact future development. Brokers should be familiar with Phase I and Phase II Environmental Site Assessments (ESAs) to help their clients understand potential risks such as contamination, wetlands, or endangered species. Understanding these environmental constraints early can save clients time and money in the long run.

3. Topography and Soil Quality

The physical characteristics of the land are crucial for determining its suitability for development. Topography, soil quality, and drainage all influence construction costs and feasibility. Brokers need to understand how to assess these factors and communicate their findings to developers or buyers. Land with steep slopes, poor soil, or drainage issues may require costly site preparation, impacting the overall investment.

4. Infrastructure and Utilities

The availability of infrastructure—such as roads, water, sewer, and electricity—can significantly affect a land deal. Land with ready access to utilities is often more valuable and easier to develop than land requiring new infrastructure. Brokers should understand local utility access, easements, and any potential costs associated with bringing utilities to the site. Landlocked properties or those with limited access to main roads may require additional permits or negotiations.

5. Entitlement and Permitting Process

The entitlement process is a key step in turning raw land into a developed property. This involves obtaining the necessary permits and approvals from local government authorities. Brokers should be familiar with this process, including subdivision approvals, building permits, and environmental impact reports. Brokers who can guide their clients through the complexities of entitlements will be invaluable, especially in areas with stringent regulations.

6. Development Potential

One of the biggest opportunities in the land asset class is unlocking a property’s development potential. Brokers need to assess whether land can be subdivided or developed for higher-density uses. Identifying potential changes in zoning or infrastructure improvements can significantly increase the land’s value. Understanding future development plans in the area and working closely with local planning departments will help brokers advise their clients on the land’s potential.

7. Financing for Land Deals

Financing land deals can be more challenging than financing stabilized CRE assets. Lenders often view land as a riskier investment because it generates no income, and the time horizon for development may be uncertain. Brokers should understand the nuances of land financing, such as land acquisition loans, bridge loans, and seller financing. Helping clients secure the right financing terms can make or break a deal, especially for speculative land investments.

8. Risk Management

Land transactions inherently carry more risk than developed properties, making risk management crucial. Brokers need to help clients navigate risks like zoning changes, environmental hazards, or market shifts. Insurance coverage, such as title insurance and liability insurance, is essential in protecting both buyers and sellers. Brokers should work closely with attorneys, environmental consultants, and local governments to ensure all risks are properly mitigated.

9. Land Valuation

Valuing land is more complex than valuing developed properties, as it requires a deep understanding of the factors influencing potential future uses. Brokers need to assess comparable sales (comps), development costs, and the highest and best use for the property. For instance, agricultural land may have different value metrics than land for commercial development. Land values can also fluctuate depending on nearby infrastructure projects, zoning changes, or market trends.

10. Technology for Site Visualization

The use of technology is rapidly changing how brokers present land to potential buyers and developers. Tools like VidTech’s 3D modeling services and video inspection services can help brokers showcase land and its development potential in ways that traditional methods cannot. These services allow clients to visualize the land, understand its topography, and even explore the surrounding market in 4K video. This enhanced visualization leads to faster decision-making and reduces the need for multiple site visits, especially when buyers or investors are not local.

Conclusion

The land asset class offers both opportunities and challenges that are distinct from other CRE sectors. Brokers who understand the key aspects of land transactions, from zoning and environmental considerations to financing and development potential, can guide their clients through the complexities of buying and selling land.

With the addition of advanced tools like VidTech’s 3D modeling and video inspection services, brokers can bring land deals to life, helping clients make informed decisions and streamline the site selection process. By mastering these areas, brokers can set themselves apart and succeed in the competitive world of land transactions.