By Evan Zener, Metro Land Pro with RE/MAX Equity Group — Oregon Land Specialist
Most development land is priced based on its highest and best use, the most valuable thing that could potentially be built on the property. But that value is based on assumptions that need to be verified before a buyer can justify paying that price.
That’s what the time between contract and closing is really for. It’s the process of taking assumptions and turning them into answers.
This article walks through the major stages of that process and why each stage exists. Not every project follows this exact timeline. Simpler or more predictable projects may move much faster, but this is generally how larger development deals work.
The Contract Framework
The contract creates the framework that allows all of the verification work to happen. At the point of signing, the buyer has agreed to a price, but the assumptions behind that price still need to be proven out.
The contract gives the buyer time to research the property, determine whether the project is feasible, and work through the entitlement process to obtain the approvals needed to build.
Until those approvals are obtained, there is still risk that the project may not be allowed as planned. The number of lots may be reduced, infrastructure requirements may be greater than expected, or the city may require improvements that add significant cost.
Much of that work requires significant time and money. Studies, engineering, surveys, and city review are expensive, and buyers won’t make that investment without first having the right to purchase the property.
The Feasibility Period
Feasibility is the first phase of work after the contract is signed, and it’s where the buyer evaluates whether the project makes sense before committing serious money. On larger development sites, this phase can take six months to a year. On smaller projects, sixty to ninety days is common.
At the beginning of this phase, the buyer will typically deposit earnest money into an escrow account held by a neutral third party while the property is being evaluated.
This is where title gets reviewed, surveys get ordered, engineers begin studying the site, and more formal discussions with the city often begin. The buyer and their consultants evaluate things like sewer and water availability, access, topography, stormwater requirements, environmental constraints, and other factors that could impact the project. As part of that process, they order the studies, reports, and early concept plans relevant to that specific property.
The goal is to identify major issues early, before the buyer spends more money and gets further into the process.
Once the buyer is satisfied with what they’ve learned, they’ll typically waive feasibility and continue pursuing the project. This is often when the initial earnest money deposit becomes non-refundable or is released to the seller, and in some contracts additional earnest money is deposited as the project moves into the next phase.
Entitlements
Entitlements is the stage where a proposed development moves through the city’s approval process. This phase often takes a year to eighteen months, and some projects take longer. Projects involving annexations, zone changes, major utility extensions, or other unusually complex approvals often require additional time.
The goal is no longer simply evaluating the property. The goal is obtaining approvals for a specific development plan.
During this stage, the proposed development becomes much more defined. Roads, utilities, stormwater systems, grading, and other infrastructure are designed and reviewed, giving everyone a clearer understanding of what the city will approve, what improvements will be required, and what the project will cost to build.
It’s also common for projects to change during this process. A concept plan that originally showed 50 lots may ultimately support fewer. The city may require infrastructure improvements that weren’t anticipated, stormwater requirements may consume more land than expected, or environmental constraints may limit the amount of usable acreage.
One thing I’ve noticed over the years is that it’s usually easier to lose lots than gain lots. It’s also very common for additional costs and requirements to emerge. In many cases, those requirements would have been difficult to predict before working through the approval process with the city. That’s exactly why this stage exists.
Because this process doesn’t always stay on schedule, it’s common for development contracts to include extension provisions. Those extensions are often granted in exchange for additional earnest money or other compensation to the seller.
Closing
Closing typically happens once the buyer has obtained the approvals needed for the development they’re planning.
The specific milestone that triggers closing varies from project to project. Some buyers are comfortable closing after land use or preliminary plat approval, when the city has approved the overall development layout or lot count. Others wait until engineering approval, when the roads, utilities, stormwater systems, and other infrastructure have been fully designed, reviewed, and approved.
By this point, the buyer has a clear understanding of what the property can support and what it will cost to develop. That’s what puts them in a position to justify paying for what they’re buying, and that’s often what triggers the closing.
Why These Deals Take Time
Development land deals take time because the purchase price is usually tied to a future development outcome. Before a buyer can justify paying that price, they need to know what will actually be approved, what the city will require, what the project will cost, and whether the numbers still work.
That is what the time between contract and closing is really about. The buyer is taking the development scenario that supported the offer and working through the process required to prove whether that scenario actually holds up.
Need Help?
If you own land and you’re wondering what a realistic development timeline might look like for your property, that’s something I help landowners understand before they ever go to market. Every property is different, but knowing the likely timeline, where delays can show up, and what has to happen between contract and closing can help you prepare before you’re in the middle of it.
Evan Zener — Metro Land Pro with RE/MAX Equity Group
Licensed Real Estate Broker in Oregon
503-208-5298