The Process for Buying Land with Cash in 11 Simple Steps

Once you know what restrictions are in place for the plot of land, you must also look into whether permits come with the land. If you want to build anything on the land, there are permit obligations you must tend to. You may need permits for:

• Sewer. If you plan to build on the plot of land, know if there’s enough sewer capacity for a connection to be made. If the property is far from the nearest sewer line, your best option might be to go with a private septic system.
• Utilities. This is important if you need a public water hookup or access to the electrical grid.
• Road access. Different factors will affect how much it costs to pave a road through the land, or whether it’ll be allowed at all. If the land is covered in trees, they need to be cleared first. If the land is near a conservation area or has endangered animals, construction work is often limited or outright restricted.

“Usable land is a huge issue,” says William Barker, a real estate agent in Omaha who’s sold 72% more single-family homes than the average area agent. “Does a river cut through it? Is there a lake or a bunch of trees? Trees can destroy the value of the land.”

The average cost to remove a single tree is around $435. When looking at land to buy and build on, take into consideration whether you need to clear trees or not. Clearing a few trees might be manageable, but if you need hundreds of trees cut down, you’ll be looking at an exorbitant price tag.

“There are a lot of misconceptions around what land is worth,” Barker continues.

“Before you buy, just be sure to be diligent and do your research. Even though you’re paying with cash, follow the same procedures a lender would require to avoid any surprises.”

Barker recounts he once had a client who was sitting on land for their retirement that was worth millions of dollars. “An ecological survey was conducted on the land, and they discovered an endangered species of insect called the Salt Creek tiger beetle. Because of the endangered species, he couldn’t do anything with the land and lost millions in investment.”

Step 3: Get your financing in order

Because you plan to make a cash offer, you’ll want to get a few documents in order.

First, the seller is likely to want to see proof of funds. You must show them that you can cover the down payment and closing costs. Proof of funds should be on an official letterhead from the institution where your funds are. The date, name of the account holder, and the balance of funds should all be listed.

Other examples of documentation for proof of funds that a seller might accept include a bank statement, a copy of a money market account balance, or an open equity line of credit.

Since you’re buying with cash, you have far more leverage than other buyers. Cash sales close faster and the deal is less likely to fall through since you don’t need the bank’s loan approval. Moreover, you have fewer home sale conditions because you can do away with financing and appraisal contingencies.

Highlight such benefits when negotiating a lower price and better terms with the seller. With the help of your agent, ask for favorable closing dates or seller concessions.

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Step 4: Make an offer to the seller in writing

In a real estate transaction, a verbal agreement doesn’t hold up. Any details that might affect the value of the land you wish to buy should be put down in writing.

The most common type of contract used to make an offer is the real estate agent’s Bid Offer form. You can find samples of a Bid Offer form online.

When drafting the contract, include the price of the land, its location or parcel number, and contingencies. It’s likely you’ll still have a few lingering questions about the land when you make your offer. Contingencies are meant to help protect you. It’s only after your offer is accepted that you’ll want to invest time and money into answering certain questions.

Contingencies mean that if anything unsatisfactory turns up during the inspection period, you can back out of the deal and even get your earnest money back.

Once the offer is accepted, the next form you might use is a Sales and Purchase Agreement (SPA). Both forms are legal, binding documents.

Remember, in some states, these forms can be combined into one contract. You can then get locked into an obligation to buy under the seller’s terms. So, if you aren’t using a real estate agent, be sure to do your research and read over all paperwork with great care.

Step 5: Deliver the deposit

When you make your cash offer, you’ll also include earnest money.

Earnest money is a deposit that goes into an escrow to show you’re a serious buyer. If you walk away from the deal for any reason not listed under the contingencies (this should illustrate how important it is you use contingencies to protect yourself!), the seller gets to keep the money.

Step 6: Get environmental tests done

Environmental testing is as important as getting a home inspection before you buy land. You want to know if the soil is contaminated, and an environmental test can tell you if there’s earthquake damage or sinkhole possibilities.

The report likewise includes an assessment of the moisture content of the soil. If you plan to build on the land, you want to ensure the ground is stable enough to support the structure you’re planning.

Step 7: Look into a survey

“It’s important to have a land surveyor look at the plot of land before buying so you don’t run into any surprises,” says Chris Meinen, owner of Smith & Oakes, Inc. He has over two decades of experience in the industry.

Once you have a land survey done, you’ll know exactly where the boundaries are. Surveyors will mark the corners of the land with a rebar that lays flush with the ground. If they find any buried pipes, surveyors also use monument markers, such as a wood stake, to mark the location.

Meinen says a survey helps the buyer not misinterpret how much acreage they’re actually buying. “Certain parts of the land might not be usable — for example, because of public road right-of-ways. So, 40 acres might really only have 39.5 acres that are usable.”

Step 8: Check over the title

Just like with a house, liens can be placed on land for various reasons, such as outstanding taxes.

Before you purchase the land, make sure it has a clear title. A title search will cost between $100 and $250, but it is well worth the investment.

A title search can determine whether there are any special assessments, restrictions, or easements on the property. Sometimes, a third party can have a right to use part of the property. This third party could be a utility company that has the right to install poles for power lines.

Step 9: Inspect the property one last time (walkthrough)

While you aren’t actually walking through anything like you do a house, before you buy, you’ll want to tour the land.

Exploring the property on foot will not only help you understand its shape but will give you a chance to confirm any findings from the land survey or title check. You wouldn’t buy a house blindfolded, so why wouldn’t you look over the land with your own eyes as well?

Step 10: Get ready to pay

Once everything has been met to your satisfaction during the inspection period, it’s time to pay the seller.

The most common method of payment in a cash deal is a cashier’s check. Personal checks aren’t acceptable when it comes to large amounts of money exchanging hands. A cashier’s check helps alleviate any concerns of legitimacy by having the funds issued by a bank.

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Step 11: Finalize the deal at the closing

After you’ve delivered the cashier’s check, it’s time to at last get your hands on the deed.

One option is to close at the registry office, where the deed will be recorded. You can also choose to close at a title company.

If you don’t have a real estate agent helping you through the process, you might want to consider hiring an attorney to look over the contracts for you first. In some states, the attorney can even handle filing the deed for recording.

However, it’s advisable you work with a top real estate agent through the transaction. A real estate agent who specializes in land deals will know how to protect your best interests in a contract.

“The biggest drawback to buying land is there are hidden risk factors,” Barker says. “Working with a real estate agent will help you navigate through the process and, ideally, avoid any problems.”

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