Mistakes To Avoid in Land Development

Mistakes in Land Development

It’s a good idea for a guy in land development to take an inventory of past mistakes to gain perspective and avoid making them again in the future. Sometimes we also observe the mistakes of others, which is a great way to learn without the associated personal pain.

I try not to look at mistakes as failures since if you don’t make them in land development, you’re probably not trying hard enough. Over time I have seen certain stupid things that require special mention. Read on to learn and avoid.

Buying land:

There are certain core areas where the biggest mistakes happen and one of them is in purchasing land.  It’s just so much easier to be optimistic as a prospective buyer. You have money, or a way to get the money, so you have power. Since you have power you’re the big shot in the deal, but just be an intelligent big shot my friend!

There was a guy near Forks, Washington that had some gorgeous land in a river bottom that he sold to some out-of-state-sucker-with-money years back. It was pristine in the summer, with alluvial soil and well wooded with cottonwood, alder and cedar. I drift-fished the river that ran through the center of it for salmon and steelhead for many years. I was there a lot and saw it happen.

The problem was that the river source was in the Olympic Mountains and the river only ran about 15 miles before it hit the Pacific Ocean. There was no dam or upstream flood control. When it rained in the winter, which it kinda has a way of doing in Washington, the entire bottom land flooded. Enter the guy from California that bought it for a steal, built an unpermitted cabin on it and watched it all wash away the next winter. 

Trusting a complete stranger:

A family owned a working farm next door to one of my projects. It was homesteaded back in the late 1800’s and had been in the family that long. I got to know them since I did the family a favor a few years prior. It was a son and his wife in their 60’s and his mom and dad in their 90’s. Really nice folks, but they were truly “country simple”. 

They had some merchantable timber on the property, probably about 20 acres out of the 160 they owned. One evening I stopped by for a visit since the door was always open. John (the son) asked me straight away about some guy who showed up and wanted to buy his timber. The guy offered to get the forest practice permit, handle the logging show for him and then make payment with the stumpage proceeds, less his cut of the action.

I pressed him hard not to do it, since in the Pacific Northwest (and elsewhere) there is a fraudulent game called “cut and run”. In short, the thief handles the permitting (maybe), cuts only what’s permitted (if lucky), sells the timber (for sure), then fudges on the stumpage and eventually pays the landowner a fraction of what was cut and sold (or nothing at all). These guys are nowhere to be found afterward.  

It happened just like that and if you think that’s bad, read the rest. His family wound up with a 10-year moratorium for illegally harvesting timber in the no cut zones and violating the permit in several other ways. They also got to pay double the estimated stumpage illegally cut and sold. In short, they paid out more than they took in and got stuck with a 10-year moratorium on development. It was really sad to see.

Taking of land:

I worked for an investor that bought a nice waterfront piece with a house that needed some work. It was in a quiet spot on a small peninsula with about 10 other homes that had been passed down to heirs for a couple of generations. Everybody else in the community knew each other and they were tight as ticks. 

My investor closed and started to take a look at his property lines. Notice that he closed first and then looked at property lines later… He discovered that the neighbor to the east had a fence built about 10 feet across the property line. One thing led to another and I was eventually called in as the referee. It turned out that the encroaching fence had been there for about 20 years, well past the time the neighbor needed to perfect an adverse possession claim. 

My investor lost and the neighbor won, so the fence remained where it was. But it gets worse. The encroaching neighbor knew everyone in the community and since my investor had made such a stink about the encroachment with all of them, the relationships had become so toxic that he wound up selling the house and moving away. I guess this points to the fact that it’s always a good idea to check the survey and flag the property lines prior to closing. Duh!

Unpermitted construction:

“Build first / pay fine if caught / then apply for permit” is the rationale for this activity. In the Pacific Northwest we call these guys “cowboys” and they truly make it harder for everyone else. There was a guy that ran a big part of his development business this way. His theory was that if you get red tagged for something and it goes to the county code enforcement department it was actually easier, faster and cheaper than the cost in time and money for legally applying for and waiting on a permit. 

Depending on the degree of the infraction he was partly right. Aside from blatant and large-scale violations that would send him to court, he massaged things so that he could punch in a short road inside a wetland buffer, take the code enforcement hit and move forward. He knew that the code enforcement staff in our county were evaluated on how much time it took to resolve violations. Usually his infractions were not worth doing anything other than hand-slapping and moving on. 

Besides the fact that illegal construction is…well…illegal, he suffered from an absolutely awful reputation with county staff and it came out in the wash. For his legally permitted applications the planning department and hearing examiner ran him ragged. I doubt if he saved anything overall in the end. 

Relying on verbal promises:

There are specific requirements for contracting in real estate (see my post on Contracts). Two areas that you see a lot of problems come up in is failing to produce a legally binding contract and relying on verbal promises. You need an attorney or qualified agent for the binding contract part, but let’s look at what relying on verbal promises does. 

But first a look at amnesia - the partial or total loss of memory. It must be a common affliction in real estate since if a verbal promise is made and there is a problem, everyone remembers it differently or not at all. The usual offenders are guys that want to look like big shots, but they are typically newbies that are only acting like big shots. Therefore, when something comes up that should be added as an amendment to the existing contract, they just verbally agree on it. The war starts when it doesn’t get done and nobody ever remembers it the same way. Experienced land developers do not rely on verbal promises, they put it in writing and get it fully signed around by the involved parties.

Review:

The dumb mistakes outlined here are easily avoidable by using common sense, but from what I have seen over the years in real estate “common sense isn’t that common“. Contracting wisely, avoiding haste, not blindly trusting and thinking things through in advance are good ways to avoid dumb and costly errors.

When you think about it there is almost nothing in land development that happens fast, which means there is almost always time to think things through while considering the consequences of future actions.