How to Buy Vacant Land in San Francisco to Build a House

Many Americans dream of homeownership. Sadly, skyrocketing housing costs and limited supply of homes on the market have thrown a wrench in the plans of many prospective home buyers. In California, the housing market is particularly prohibitive. The median price of a single family home “hit $814,010”in April 2021. In May of 2020, the median price for single family homes in California was only $588,070. To bypass the housing shortage while creating their dream home, some California home buyers in San Francisco have pivoted. Instead of purchasing an existing home, they have chosen to purchase vacant land on which they will build a new custom home construction. To learn everything you need to know about how to buy vacant land in San Francisco to build a house, follow below.

What to Keep in Mind When Looking for Vacant Land in San Francisco

Building a new custom house in the San Francisco Bay Area is a dream for many. With its rolling hills, gorgeous coastline and incredible architecture, the San Francisco Bay Area is a paradise for everyone from nature-lovers to tech buffs. From the high cost of raw land to the complex permitting system, there are many factors involved in purchasing land in San Francisco that are unlike doing so anywhere else. Follow below for eight things to keep in mind when looking for land to build your new home in San Francisco.

1. Land in San Francisco is Costly Compared to Other US Cities

In their article “5 Reasons It's So Expensive to Build Housing in California” for KQED, Erin Baldassari and Molly Solomon note that the price of land in California is one of several factors “driving high housing costs.” According to Baldassari and Solomon, “land is just more expensive in California than other places.” Unfortunately for buyers, “in the Golden State, the cost of land is about 12% of total construction costs, compared to about 5% in other states.” As of September 2021, full-service real estate brokerage site Redfin reported that there were twenty three plots of land listed for sale on their platform in San Francisco. At that time, the median listing price of these plots of land was $1.35M. The size of these plots of land ranged from 2,000 square feet to 5.7 acres or 248,292 square feet.

2. Most Available Lots in the Bay Area Are Not Connected to Utilities

According to SF Weekly, “in the Bay Area, building a house means purchasing bare land.” This means that most plots of land “don’t have any of the services you’ll need.” Buyers should consult with their design-build firm, construction crew and real estate agent or attorney before considering off-grid properties that are far from infrastructure and utilities. Thankfully, with rain capture systems, solar power and passive house design, constructing a custom house on an off-grid site is absolutely possible.

3. There Are Seasonal Building Restrictions in San Francisco

As in many other municipalities across the United States, there are a number of seasonal building restrictions in San Francisco. Writing for SF Gate in the article Jordan Guinn explains. According to Guinn, construction crews are only allowed to “grade hillside lots from approximately April to November, depending on how much rain [San Francisco] gets.” Other season building restrictions -- such as those related to wildfires during high-risk months -- could impede swift construction of new builds.

4. Neighbors Might Be Able Alter Your Designs

Jordan Guinn explains how neighbors can actually alter your architectural plans in San Francisco. Guinn notes that in San Francisco, “there is a public process for neighbors to speak their minds” and impact where, how and in what style a house can be built. This phase is called the “the planning commission and entitlements phase.” Part of this process functions somewhat like a town hall.

Though this is inconvenient and could change both aesthetic and functional elements of your build, “it does not mean they can completely kill” your project. Owners of neighboring properties do have a say in how much light pollution your property produces, how the build might contribute to soil erosion and whether structures might block views from their properties. In some cases, local laws might even mandate the color you are allowed to paint the exterior of your home because “they want homes to blend into the natural setting.”

5. The California Government Does Not Require an NHDS for Raw Land

Most property sales in California require the seller to complete a Natural Hazards Disclosure Statement or NHDS and to make this statement readily available to prospective buyers. Section 1103 of the California Civil Code requires that sellers inform prospective buyers if their property is located in one of six designated hazards zones. These zones include those at “special” risk of flood, dam inundation, building fire and/or wildfire. Owners must also disclose if their property is located on a earthquake fault zone and poses a seismic hazard to structures or residents.

However, some property sales are exempt from including an NHDS in their listings. According to the post “11 Tips for Navigating the NHDS (Natural Hazards Disclosure Statement)” from the Tahoe-Sierra Board of Realtors website, “transactions of properties containing 1-4 dwelling units (also known as “residential 1-4”) generally require an NHDS.” These exemptions include “bankruptcy or foreclosure sales, transfers involving probate, and transfers between co-owners.” The Tahoe-Sierra Board of Realtors also notes that “if the property is commercial, vacant land, or residential 5 plus, the form does not need to be filled out.” As such, prospective buyers shopping for land in San Francisco should research the property’s risks of natural disaster before moving forward.

6. Buyers Pay Most Closing Costs on Land in California

In the state of California, buyers pay many of the closing costs associated with purchasing vacant land. The article “Who Pays What When Selling Land?” for SF Gate elaborates. For those who are unfamiliar with land purchase closing costs, there are four primary fees involved. These are escrow charges, title charges, transfer taxes and recording fees. Escrow charges are imposed by the title company in return for “holding the funds, providing a place for the closing and having one of their staffers calculate the cash flows in the transaction.”

Title charges are fees that cover “the basic owner’s title insurance policy” and the title search required for this insurance policy.” Transfer taxes are imposed by the state of California whenever a property changes hands; these fees are usually “$1.10 per $1,000 of value.” Lastly, recording fees are imposed whenever “deeds are drafted as part of a land sale.” It is in the interest of the buyer to have these deeds drafted as his or her ownership of the property is then “entered into the public record.” According to the article, buyers usually pay title charges, escrow charges and recording fees in full. They usually split transfer taxes with the seller.

7. Financing a Land Purchase is More Complicated than Applying for a Mortgage

Unfortunately for buyers, financing a land purchase is often more complicated than applying for a mortgage -- unless the buyer has cash in hand. Zach Wichter explains how most buyers finance their land purchases in his article “What property buyers should know about land loans” for Bankrate. Wichter writes that “if you’re eyeing a piece of land to build a house on or to use for business purposes, you probably won’t be able to get a regular mortgage to finance the purchase.”

Buyers usually finance land purchases through land loans. However, banks are less likely to lend money to landowners because “‘owners of raw land are much more likely to stop making payments and walk away from the property in the event of a financial event in their lives.’” Because of this, “land loan lenders require a substantial down payment — ranging from 20 percent to 50 percent of the purchase price — and charge higher interest rates.” Land loans also usually “have significantly shorter repayment terms than a 15- or 30-year mortgage, as well, or other requirements, like a cap on the amount of acreage.” To learn more about land loans, skip to the section entitled “Figure Out Financing.”

8. San Francisco Has Some of the Strictest Building Codes in the US

San Francisco is notorious for its complex permitting system and strict building codes -- even in underdeveloped residential areas. Jacob Passy elaborates in his article “These cities have the toughest laws for home builders — and the highest property prices” for Market Watch. Passy references a paper compiled by researchers at UPenn and Harvard who examined how local zoning laws have changed between 2006 and 2018. According to the data they collected, the researchers found that the San Francisco metropolitan area has “the most use regulations.”

Los Angeles, California was ranked fifth on the list. Building codes in San Francisco have changed so significantly over the last few decades that “54% of existing San Francisco homes are in buildings that would be illegal to build today.”

How to Find the Perfect Building Lot for Your New San Francisco Home in Five Steps

In our article “How to Buy Land for Your Los Angeles Dream Home,” we listed thirteen steps prospective homeowners should take when searching for the perfect plot. Many of these steps also apply to buying land in the San Francisco Bay Area. Some are even more significant when purchasing land in San Francisco than they are when purchasing land in LA. For example, San Francisco’s complex permitting process, building codes and neighborhood feedback period make building on raw land more difficult than doing so in Los Angeles. To learn more about finding the perfect plot of land and navigating the building process in San Francisco, follow below.

1. Hire a Real Estate Agent and Attorney

First, we recommended that shoppers seek the help of a professional real estate agent, who can help buyers navigate building restrictions and codes, feasibility studies and more. Hiring an experienced local real estate agent is especially vital in San Francisco because the city has some of the nation’s strictest building codes and most complex permitting processes. To this effect, buyers might also consider hiring a real estate attorney.

Not only can a real estate attorney help negotiate and close the land sale, but he or she can also review any paperwork to ensure the buyer is legally within their right to build on the land as they wish. According to attorney Jedediah Mannis in his article “Do I Need a Special Real Estate Agent to Buy Vacant Land?” for NOLO, real estate attorneys can “obtain helpful information not provided by the seller's agent.” They may even be able to reveal information commonly outlined in natural hazard disclosure statements, which are not required in California when selling raw land.

2. Look for Permit-Ready Properties

When looking for raw land in San Francisco, be sure to prioritize permit-ready properties. Permit-ready properties in the Bay Area are those that are close to utilities, zoned for residential development and accessible by construction crews. With the help of their real estate agent and attorney, buyers might even be able to find land that has already been tested, surveyed, mapped and graded.

Buyers who are unable to find land that is level and/or close to utilities should at least ensure their site is accessible for construction crews. Properties should be accessible either by public roadways or by private roads, the titles of which are transferred to the buyer when the land is sold. If the plot you are considering is sandwiched between other properties, your real estate agent and/or attorney should be able to determine if any access easements apply.

3. Consider Time and Cost to Build

Preparing raw land for new construction can be complex and costly -- particularly in the San Francisco Bay Area. Buyers must produce architectural plans, geological and archaeological reports, feasibility studies and more just to apply for the permits needed to break ground. In their article “How Much Does It Cost To Build A House?” for Forbes, Rachel Abraham and Samantha Adams outline each and every expense homeowners should include in their construction budget. These include “off-site living expenses,” “purchasing a plot of land,” “water and sewage inspections,” “house plans or architectural fees,” “construction management fees” and “building permits and local fees.”

They also include excavating the site, laying the foundation, framing the structure, installing roofing and siding, paving the driveway and preparing the landscaping. Homeowners must also budget for interior material and labor costs such as those related to installing the HVAC system, plumbing, electrical, insulation and more. As for the time it takes to build a new home, buyers must prepare for hiccups that could protract their timeline. For example, material and labor shortages, permitting delays, shipping issues, weather and more could all impact a project’s timeline.

Unique Time and Cost Constraints of Building in San Francisco

As mentioned above, building a new home in the San Francisco Bay Area is a unique experience. Local laws allow neighbors to voice their opinions on new builds, meaning that their input could alter your plans and delay your construction project. In his article “How hard is it to build in Silicon Valley? Here’s one example” for the East Bay Times, Louis Hansen explains. According to Hansen, “the time-consuming, and entirely legal, local defense of the status quo gives property owners a powerful voice in shaping their communities.” Unfortunately, the rights afforded to owners of existing homes “limits the region’s already dire housing supply [and] drives up costs for new construction.” Additionally, some areas of San Francisco have seasonal building restrictions. For example, grading hillside lots is only allowed during certain periods of the year when torrential rainfall is unlikely.

The complex permitting process, high cost of labor and shortage of materials can all impact your new custom home build. Writing for the East Bay Times, Louis Hansen notes that “the typical single-family residential development in the state took an average of 17 months to win approval, but noted some projects take more than a decade.” Sadly, in San Francisco, permitting and construction delays “can tack on 30 percent to the price of a new home.” As such, each of these elements -- and several others -- must be considered when building a new home in San Francisco.

4. Figure Out Your Financing

Lenders are often hesitant to offer traditional mortgages to landowners because the value of land is more speculative than the value of a developed property. Without a house already constructed on the property, there is nothing “to act as collateral for the land loan.” While developers and wealthy buyers often purchase raw vacant lots with cash, this is not always the most feasible or advisable option.

Thankfully, there are a few additional financing options available to those hoping to buy and develop land in San Francisco. Danielsson identifies the four land purchase financing options as “seller financing,” “financing from local banks and credit unions,” “USDA loans” and “home equity loans.” Before proceeding, however, buyers must be able to provide prospective lenders with information about the plot’s “surveyed boundaries...zoning and land-use restrictions on the property, as well as access to utilities and public roads.” They should also keep in mind that the required down payment and interest rate will depend heavily on their planned use of the land. According to Danielsson, plots lacking access to utilities and no clear path forward to development are unlikely to secure favorable loan terms.

5. Research Susceptibility to Natural Disasters

As mentioned above, California landowners are only required to provide prospective buyers with natural hazard disclosure statements when a habitable structure already exists on their property. Those with raw, vacant land are not required to inform prospective buyers of flood, wildfire, landslide or other natural disaster risk. Unfortunately, many vacant lots in the San Francisco Bay area are located on hillsides or along the coast -- both areas of which are prone to disaster.

In a recent article for Insider, Hilary Brueck noted that “the San Francisco Bay Area may be one of the most disaster-prone parts of the country.”

The Bay Area is prone to earthquakes -- as it is home to “seven ‘significant fault zones’” identified by the US Geological Survey. Flooding due to heavy rainfall is common and “San Francisco is also sinking into the ground at a rate of about 10 millimeters a year.” Lastly, wildfires frequently threaten the San Francisco Bay Area -- as in many other areas of California -- though the city is rarely touched by flames. Given these risks, buyers should do their homeowner before purchasing a build plot in or around San Francisco. Thankfully, the strict building codes in the SF area protect homeowners from many of these risks.

How to Research Natural Disaster Risk Across California

The “California’s Fire Hazard Severity Zones” fact sheet from the California Department of Forestry and Fire Protection is another helpful resource. For flood risk, check this searchable database from FEMA’s Flood Map Service Center. For earthquake risk, consider this map from the California Geological Service. Landowners should keep in mind that few insurance policies cover earth movement like landslides and mudslides.

How Much Does it Cost to Build a House in San Francisco?

Before scoping out and purchasing a vacant lot in San Francisco, prospective buyers should determine how much it will cost to actually build a home on that plot.

According to the Home Builder Digest article, the San Francisco Bay Area recently bumped New York from first place in a list of “the most expensive places in the world to build.” The cost of a custom home build is generally broken down into two categories -- soft costs and hard costs. Soft costs are not “directly related to construction” and instead include “the cost of land,” permitting fees, utilities, certifications and “architectural and design fees.” Hard costs, on the other hand, “include anything related to the physical building of the structure and labor costs.”

Cost Breakdown

Buyers in the San Francisco Bay Area should expect to pay anywhere from $180 to $1,100 per square foot for their plot of land. Home Builder Digest notes that higher end neighborhoods of SF will be closer to $1,100 while those on the outskirts of the city will fall closer to the lower bound. However, lots in less populated neighborhoods of the Bay Area could be more costly to develop. For architectural and design fees in the Bay Area, buyers should expect to spend anywhere from $30,000 to “hundreds of thousands of dollars,” depending on the complexity of the design and suitability of the site.

Other soft costs like permitting can “range between 6% and 19% of the total project budget.” Total expenditure for building permits depends heavily on “geologic hazards and environmental constraints and local regulations and building codes.” As for actual construction, Bay Area homeowners can expect to shell out $700 to $800 per square foot for mid-range custom homes and far above $800 per square foot for luxury custom builds.

Developing Raw Land in San Francisco with Element

Working with a full-service design-build firm can help prospective buyers eliminate many of the headaches and complications related to purchasing land in San Francisco, California. With a multidisciplinary team of architects, designers, engineers, builders, contractors and local experts, design-build firms like Element Homes can navigate the entire process for you. From finding the perfect lot to applying for permits, Element understands exactly how to help buyers move into their brand new custom home. Learn more about one of the best design-build firms in the San Francisco Bay Area here.

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