Anyone sold townhouse paper lots to a builder?

Question

We have a 4-lot townhouse paper lot subdivision. Keeping the existing 3,100 sf house and subdividing the remainder flat land. This is four fee-simple townhouse lots, 2,300 sf each. Can build 2 stories up to 1750 sf with 2 car garage. We plan to refresh and resell the house and sell the four paper lots to a builder. A question for anyone who has done this: 1. What did the paper lots clear relative to finished home sales price? We are working on a few of these in Orange County locations. Thank you for your help...

Mark Andales · Answer

One thing worth paying attention to is the difference between having a proposed subdivision approved and having legally established lots ready for sale.

Before marketing individual lots to builders, it's worth confirming the status of the final subdivision map, any outstanding approval conditions, and whether the necessary map has been recorded. Utility arrangements, access, and remaining infrastructure requirements can also affect what a builder is willing to pay.

Having those details clearly documented upfront could make the property easier for a potential buyer to evaluate.

Alev Sharma · Answer

Joe, I don't think there's a clean percentage for this, because builders basically work backwards from the finished sale price. They take what a 1,750 sf townhome would sell for there, subtract building costs, site work and utilities, fees, a couple years of carry, and the profit they need to make (usually somewhere in the 12 to 20 percent range). Whatever is left over is what they'll pay you for the lot.

In SoCal I've usually seen raw paper lots go for roughly 15 to 25 percent of the finished price, and more if the plans are approved and permits are close to ready. Whether utilities are already stubbed to each lot makes a big difference too.

I'd have two or three local builders run their own numbers on it now. Where they push back will tell you which costs are hurting your price, and most of them will want all four lots in one deal anyway.

Jay Hinrichs · Answer

can t really know paper lot value until you have hard costs for the utls etc.

Rick Albert · Answer

Would you provide RTI (Ready to Issue Permits)? Where is the lot specifically? I haven't worked directly in this space but know developers who have. I think the challenge is the 1,750 sq. ft. is on the smaller side so the resale is going to be low but many of the costs like architectural and engineering is the same so you lose on economies of scale. With that said, there is a buyer for every property, it just comes down to price.

In terms of what the resale is compared to the initial dirt, I don't think there is a general rule but it would be pretty wide because the carrying costs are high (it could be a few years before you even break ground).

Happy to chat more about it.

In terms of what the resale is compared to the initial dirt, I don't think there is a general rule but it would be pretty wide because the carrying costs are high (it could be a few years before you even break ground).

Happy to chat more about it.

Anyone sold townhouse paper lots to a builder?

4 Replies