August 30, 2012

Ocracoke Real Estate:
What to consider if you want to buy a lot and build


There was a point in time when house prices were high enough that buyers would consider purchasing a lot and building their dream home. Rather than having to make repairs or remodel someone else’s dream, folks would undergo the sometimes daunting task of starting from scratch.

The buyer’s sweat equity was an option for savings in the building project. Hands-on, hard-core shopping for material prices was one way to bring construction in under budget. Depending on the architecture and the interior choices, the purchase of land and the cost of construction together would often cost less than buying a ready-made house.

That was then. I am looking over a comparables sheet, and it looks like there have been 11 lot sales on the island since 2007. Five of the 11 are waterfront lots. Access to the water is what Ocracoke is all about.

This category of land sale is the easiest to market and maintains a higher value. It is the interior lots that exemplify my point. Six lots, in five years, indicate a greater interest in homes. With the prices on homes dropping, it has been hard for new construction to compete.

The impetus for this article was a request from a prospective buyer. These folks were primarily interested in looking at vacant lots and designing their own home. They were curious about the critical issues to consider in this process.

In this market, I believe that the proposed lot purchase needs to be viewed through the lens of comparable sales. 

Here is what I mean. Nowadays, insurance companies are using $150 per square foot of heated space as a replacement value on their fire policies. We had used values as high as $200 per square foot when the market was hot and a homeowner had high-end tastes. If the proposed dream home is 2,000 square feet, you are generally looking at $300,000 to build the home. At this point, the buyer might want to tack on an additional percentage to cover the unknowns that always seem to pop up.

When you add the value of the house to what was paid for the lot and any expenses for septic and water, your total should not exceed the price of a recently sold, ready-made house of the same size and amenities. With home prices dropping, the savings margin, in starting from scratch, is dwindling. A buyer may choose to go further out on a limb with regards to a discrepancy between their project total and recent sales, but they need to do it knowingly. At the very least, a buyer should use this formula as a yardstick.

The preferred characteristics of the land are the next step in the sorting process. Aspects such as a location, “in the village” vs. in one of Ocracoke’s suburban subdivisions and access to the water or a view of the water or marsh are often the first major preferences to be considered.

Falling in behind these are other factors which would apply to any lot purchase.

The amount of square footage in the lot will determine how much of a buffer you will have from the neighbors on either side. A minimum lot on the island is a postage stamp size of 5,000 square feet. With side setbacks, which are 8 feet in the Ocracoke Development Ordinance, there could be a span of 16 feet between houses.

It is important to know whether the lot has a septic permit or an installed system. A permit would require the buyer to have a system installed at a price between plus or minus $8,000 to $30,000, depending on the choice of system. The world of septic is a newspaper article unto itself.

Whether the lot has an existing water meter or one would need to be purchased might prove to be an additional expense to the lot purchase. A three-bedroom, two-bathroom impact unit would run about an additional $5,000.

The consistency of the surrounding neighborhood may be an aesthetic issue for a buyer, but might also have an effect on a resale value. If there is not a state maintained access road, the buyer will need to work with the neighbors to keep up the road.

Another consideration that is important to keep in  mind when buying a lot has to do with covenants. A restrictive covenant is inserted into a deed and is defined in the N.C. Real Estate Manual as “a private deed restriction which limits the uses to which real property can be put. Restrictive covenants specifying the type of use that can be made of the property, setback and sideline requirements, minimum square footage, architectural design, and numerous other specific limitations on land use are commonplace.”

These deed restrictions run with the deed, so as properties are bought and sold, the development in that subdivision should be consistent with these limitations. There are subdivisions on Ocracoke that have recorded and enforceable restrictions on the development that can occur in those tracts of land.

Some subdivision covenants are more restrictive than others. The more restrictive covenants will always take precedence over the more general and less strict Ocracoke Building Ordinance. Covenants do not come with an enforcement officer. The developer, the landowner, and, I believe, a prior landowner are given the right, by the deeded covenants, to take a non-compliant neighbor to court to force the use of the deed restriction.

There are some lots on the island which have unrecorded covenants or no covenants at all and must rely on the restrictions laid out in The Ocracoke Development Ordinance to control density and use.

Covenants can be a double-edged sword. On the one hand, there are more rules telling you what to build and where, but a neighborhood with strong enforceable restrictions has a consistency in the quality of the development and that will have an effect on the property values in that subdivision.

Obviously, there is a limited pool of vacant properties to choose from on Ocracoke. Once buyers start to carve out what is important to them in a lot purchase, there will be one last set of possibilities to weigh before deciding on the ultimate location for the dream home.

Ocracoke is subject to the jurisdiction of the federal U.S. Army Corps of Engineers, the North Carolina Department of Environment and Natural Resources, and the N.C. Division of Water Quality. These agencies have legal authority to protect the waterfront and the marshes on the island.

I would take the safe route and make, as a condition of any contract to purchase, inspections by these three agencies and their subsequent letters stating “no jurisdiction.” It would be a sin to have purchased the property and to have begun building, only to have DENR fly over and issue a stop-work order. If a waterfront lot is purchased and a dock is planned, it would be wise to include the permitting of the proposed dock in that contingency to the contract.

After having made all of these choices and taken the time to perform your due diligence, please make sure to consider having the lot surveyed. Before doing the work on the ground, the surveyor does his homework at the deed office and will include any easements or line discrepancies which exist.

With the new flags in the ground, after the current field work is finished, purchase some 4-inch PVC pipe and some cement and make those flags permanent. A 2-foot section of PVC driven into the ground and filled with cement will suffice. You will always be happy you took the time.

I have also had a surveyor plot the location of the trees on the lot, the location of the septic system, and to include what is called the MBL or Maximum building line so the buyer can get a visual of how a building can be placed on the property.

Make sure you request a title search and title insurance from your closing attorney, as with any real estate purchase. And, lastly, work with an agent you can trust to be aware of these considerations. Most agents on the island have taken a buyer or two across these hurdles.

((B.J. Oelschlegel has lived on Ocracoke Island for more than 30 years and has worked in the real estate business for almost as long.  She is a broker with Ocracoke’s Lightship Realty and a real estate columnist for The Ocracoke Observer. You can reach her by e-mail at [email protected])

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