Buyers looking to escape the city life are seeking solitude outside city limits. But local real estate agents warn there may be a few unexpected differences in the buying process for those rural homes that come with land.
Cory Meals, a real estate agent with RE/MAX Signature Properties in Sherman, said that more people are moving into North Texas looking to up-size their lots.
“I think that as more and more people move here from the Metroplex, they are wanting to up size to two or three or 20, 30 or even 200 acres,” Meals said. “The common thing that I’m hearing is that it’s getting more and more crowded in Sherman and the Metroplex especially as they work to build more houses. People appreciate privacy.”
Sara Jerome, with Kusch Land and Realty, agreed with that sentiment, saying more people are looking outside of the city limits for a home.
“They are wanting 11-15 acre tract with an ag exemption,” Jerome said of an appraisal technique that substantially lowers the taxation of the land. “Ten of the home’s acreage has to be dedicated to agriculture. This can be horses, cattle, honeybees, chickens, etc. Having an ag exemption is really helpful with taxes. It’s like pennies on the dollar.”
According to the Texas Comptroller’s office, the Texas Constitution and Tax Code allows certain kinds of farm land to be appraised based on the land’s agricultural products rather than market value. This is called an agricultural exemption.
Meals added that buyers looking toward a more rural home are often doing so to avoid restrictions.
“I’ve realized that people who buy rural properties like privacy from neighbors,” Meals said. “But they are also looking for freedom from governing agencies, city ordinances and restrictions from an HOA.”
Jerome cautions buyers to be aware, however, that even properties that are outside city limits may still come with deed restrictions.
“A lot of properties will restrict what can be built on the land with deed restrictions,” Jerome said. “They will state whether a mobile home can be built or the minimum size of the home. The other thing is if it’s new land, they will need to work with the county to build a driveway. Buyers need to watch out for being landlocked.”
Becoming landlocked occurs when a property owner has no access to the property. Jerome advises that buyers make sure an easement has been deeded to the owner to combat this.
Meals said that knowing what is real property versus accessories can also be difficult when dealing with rural homes.
“I think there’s a couple of things that are different when buying rural property,” Meals said. “Financing is a little different. And knowing what is considered real property and what’s not can be hard. It’s the difference between what’s staying and what’s going. Things like tractors and outbuildings may not be clear.”
Another thing Meals said can be unclear is the property lines on a large piece of land.
“When dealing with large tracts of land, it’s very difficult to know where the property lines are without a survey,” Meals said. “Tracts of land that haven’t been sold in 30 or 40 years usually won’t have a current survey. That’s one thing to look out for. And surveys on a large piece of land cost a lot more than a survey on a lot and block home.”
Jerome agreed, saying surveys are more complex because there are usually no fence lines or landmarks to mark the boundaries.
“Another thing to watch out for is that most rural properties don’t have city or co-op water,” Jerome said. “School districts are big and it’s not guaranteed, if you are on the edge, what city’s schools you will be districted for outside city limits. If you are going to have animals, fences are also important. If you are going to have horses, you use slick wire, cattle uses barbed wire and those with no animals often use white vinyl fences.”
Meals said it’s really important to get buyers in front of a mortgage lender to look at the property and buyer. He said there are a few options when doing a loan on a home with land but it depends on the buyer’s qualifications and the specifics of the property.
Local lender Jeremy Lewis with DBA Grayson Home Loans said lending can vary based on a wide range of factors.
“Most lenders want to finance less than 10 acres with the house,” Lewis said. “They always want the value to be in the house not the land. They know there is value in the land but you would need to use a local bank for a larger section of land or value of land especially if they’re going to tear the house down and rebuild.”
Lewis went on to explain that lending also varies for those who intend to build rather than purchase a pre-existing home.
“On a land loan, the majority of the time, you contact the local bank rather than a lender,” Lewis said. “They will require 20 to 25 percent down payment. Then they will need to do an interim loan or build loan with a lender. Eventually, once the house is complete, they would refinance into a permanent loan, which would be on a 15-30 year note.”
Lewis said that the No. 1 one thing to keep in mind when purchasing a rural property is to make sure that the home isn’t dilapidated and therefore without much value.
“Rule of thumb is that they want the house to be worth 70-75 percent of the appraised value of the property,” Lewis said. “Lenders really want the value to be in the house, not only in the land.”
Meals encouraged buyers who are interested in buying a rural home to meet with a local lender and get preapproved immediately.
“If they’re thinking about buying a rural property, there’s no time better to buy one,” Meals said. “Prices are getting more and more expensive. They’re going up and the longer they wait, the higher the prices will be.”