Building Your Home In a Subdivision
Choosing a place to build your home is one of the most important decisions you will make during the entire home building process. The location can end up driving a lot of other factors like the style of home as well as the price you end up paying.
While some people prefer to live in a remote location on acreage, many people find the idea of living in a neighborhood or subdivision is very appealing. A subdivision offers community and in many cases convenience.
It is important to understand that from a building standpoint, not all subdivisions are the same.
Different Types of Subdivisions
If you are thinking about building your dream home in a subdivision, it’s important to understand that there are different types of subdivisions. The way these subdivisions are set up will determine what type of house you can build, how much you will spend and in many cases who can actually build your house.
The most common type of subdivision today is the “Production Home” subdivision. In this scenario, a developer creates a subdivision and then proceeds to sell individual lots to a predetermined group of homebuilders. These builders commit to purchase a set number of lots and build a model home from which to sell their homes in that community. The developer, in turn, restricts the number of competing builders in that community and will only sell lots to those builders.
If you want to build a new home in this type of community, you are limited to a handful of builders and their plans. If there is a particular lot you are interested in, you would need to work with the particular builder that owns that lot.
In most cases, this works out just fine but in some cases, the builder may not have a plan that works for a particular buyer. In these cases, the buyer can talk with another builder in that community about purchasing or trading the lot for one in the preferred builder’s inventory but if it’s a great lot, the chances of the initial builder agreeing to this are slim.
The primary benefit of the production subdivision is economy of scale. Since the builders are essentially staying on the same street, they can move trades or workers from one house to the next. This saves time and money which contributes to the affordability of these homes.
If you find a home you love in this type of neighborhood, consider yourself lucky. The production neighborhood provides an economical, convenient way to get into a brand new home. In most cases, the builder will carry the financing until the home is ready and your expected closing day is fairly predictable.
If you can’t find your dream home in a production neighborhood, you may need to look into a custom or semi-custom community.
Custom and Semi-Custom Subdivisions
The second type of subdivision is the custom or semi-custom subdivision. In this scenario, the developer will sell the lots to individual homeowners as well as to builder clients. If the lot is sold to an individual, they will usually end up choosing a builder, designer, and other professionals to work with on the project.
Another scenario and one we don’t recommend is one where the lot owner ends up acting as their own general contractor for the building project.
Another possibility in a custom lot subdivision is one where the builder buys the lot. The builder will most likely choose a plan for the lot and price the whole package out before putting a sign on the lot in order to attract an interested buyer.
If you have a distinct style and layout in mind, purchasing the lot outright from the developer is a good idea. This puts you in control of the final product.
The custom or semi-custom community affords a lot more flexibility in terms of design, style, and amenities but this flexibility comes at a price. For starters, the home buyer will most likely need to take care of the lot purchase. It is more difficult to qualify for the lot and construction loans than it is is the production home scenario.
Another difficult aspect of building in a custom home subdivision is cost. In many cases, the design guidelines and requirements for a subdivision can drive up the cost of building your home.
Most Custom and Semi-Custom Home communities have design guidelines, requirements, and standards. These will be found within the covenants for the community. These design standards will specify everything from minimum square footage requirements to color and exterior cladding materials.
In many cases, these requirements can drive the cost of a building project through the roof. Expensive exterior stone accents and high-end roofing materials are two good examples of design requirements that can add tens of thousands of dollars to the cost of a home without really impacting the livability of the home.
The square footage requirements will also drive the final price of the home as well. In many cases these requirements will specify the required square footage for either the entire structure or for specific parts of the property. For example, if you build a ranch style home, the requirements might state that you must have a minimum of 2,800 square feet on the main level. Depending on the type of foundation required, this house could end up being close to 6,000 square feet. This is fine if you want a home this big but if you were looking to build something smaller, the time to find out about these requirements is before you purchase the lot.
It is important to read and understand the design guidelines before you purchase land in any subdivision but especially a custom home development. It’s important to maintain an appropriate relationship between lot acquisition cost and final project cost.
Most modern subdivisions are going to have some sort of Home Owners Association or HOA. These subdivisions will most likely have a set of restrictive covenants as well. Covenants are set up to maintain some sort of consistency in a neighborhood in terms of how the neighborhood looks and what you can and cannot do in the neighborhood.
While some people appreciate the structure of a covenant protected neighborhood, others get upset at the idea that there is some type of restriction on their property and how they can use it. If this is you, you should avoid a covenant protected community at all costs.
Part of the process of closing on a piece of property is your agreement to obey and adhere to any and all covenants present in that community. The HOA or governing entity in the neighborhood has the right to enforce the covenants. This enforcement can start with a simple note but extend as far as levying fines for non-compliance and filing liens against your property for non-payment of these fines.
We’ve all seen the news stories of the disgruntled homeowner fighting the HOA for their right to do something the covenants prohibit. This is certainly not something you want to be involved with, it’s much easier to find a lot in a community that doesn’t have covenants or better yet, covenants that are in line with your lifestyle.
The best way to avoid problems with an HOA and covenant violations is to read the covenants before you buy.
Fees, Dues, and Assessments
Many subdivisions are going to have homeowners association dues. These dues pay for things like common area maintenance and common amenities. It’s important when buying in a subdivision the understand how much your homeowner’s dues are going to be and what they pay for.
You’re going to want to do some investigation into the HOAs reserve fund as well. The reserve fund is set up to cover any unexpected maintenance or repair expenses. In a community that has shared amenities like a Community Center, Fitness facility, or a pool, these expenses can be pretty significant. If the reserve fund isn’t sufficient to cover any potential repairs, the HOA can levy a special assessment on the owners within the community to cover any gap between repairs and the reserve fund. This can be a nasty surprise for homeowners, especially when they have no idea it’s coming.
It’s wise to look at the financials for the association of any subdivision before you buy. It’s also a good idea to talk to neighbors about how the HOA operates. This information shouldn’t necessarily stop you from buying buy will give you an idea of what to investigate before purchasing.
Building your home in a subdivision can be a great experience and living in this type of community can bring years of happiness. You just need to do a little homework before purchasing and building in this type of community.