There is no doubt that this market is hot. On the upside, land buyers are seeing some of the lowest interest rates this industry has ever seen. On the downside, so many buyers in the market lead to slower closing times.
Why is that?
The industry has seen a tremendous number of sales in the last year. There are a few things that can contribute to these delays. With each financed sale, title work must be performed. Often, surveys must also be performed to verify property boundaries or create new ones if subdivision is the case. Finally, for each financed closing, an appraisal must be performed. In the land industry, the appraisal can get very detailed. These appraisals are often done by specialized appraisers that produce 50-100 page reports, depending on the details of the property. If the property includes timber, a timber cruise will need to be performed by a licensed forester as part of the appraisal. In most areas, these appraisals are taking 6-8 weeks, if not more. With a large backlog of clients and fewer licensed professionals to complete the work, it creates yet another shortage in our economy.
So what can be done to help with this situation?
On many properties, a valuation can be performed to avoid long appraisal times. In order to qualify for a valuation, a property must not have a home and must be less than $500,000. A valuation is an estimation of the property’s worth based on comparable sales in the area. To complete a valuation, an expert looks for similar properties, also known as comparable sales, that have sold in the same area within a set period of time. These properties must have similar characteristics as well. For instance, if the property being sold, also known as the subject property, has a significant portion that is located within a flood plain, then the expert would find comparable sales that also had a significant amount of flood plain. These properties are compared and averaged to determine the value of the property for the valuation. In situations where appraisals and surveys are required, many lenders have been opting to cast a wider net for more bids at an earlier point in the loan approval process; this has helped lenders engage licensed professionals quickly when the loans are approved.
When you are ready to begin your land loan journey, contact us. We are happy to explain more about the land lending process and walk you through your next steps. Continue to follow our blog for more helpful information on land and financing.