Buying Land You Can Actually Build On

A feasibility-led guide to due diligence on a commercial parcel

August 6, 2026, by Michal Mohelsky, J.D., principal of MMCG Invest, LLC

Key takeaways

• Commercial land is underwritten on four sequential tests: legally permissible, physically possible, financially feasible, maximally productive. The sequence is a cost filter, and the inexpensive questions come first.

• The calendar, not the price, is the most valuable term in a land contract. Options, staged extensions, and named conditions precedent are how disciplined acquirers control land without owning it.

• Title insurance insures ownership, not developability. Neither frontage, nor zoning, nor a dated utility letter establishes that a parcel can be built.

• Since 2023, utility capacity, and electric power above all, has moved from a routine confirmation to a binding constraint on schedule. A load application now deserves the same diligence weight as zoning.

• Land value is a residual, and the residual is acutely sensitive: in our illustrative industrial case, a 50 basis point increase in the exit capitalization rate reduces supportable land value by roughly 54 percent.

  
  

Commercial land is routinely the most consequential and least examined line in a development budget. The price is negotiated to the dollar. The permissions that determine whether the price was rational are assumed. When we reconstruct failed land acquisitions, and our signature on lender-facing feasibility studies has required us to reconstruct many, the post-mortems read almost identically. The buyer priced the dirt. Nobody priced the permissions.

MMCG prepares feasibility studies for a living. Our reports go to SBA lenders, USDA lenders, and banks, and they carry our name, which means we have spent considerable time establishing why a site that looked obvious in a broker flyer became a two-year dispute or a dead file. The pattern is remarkably consistent, and it is preventable.

Land differs from every other real estate asset in one structural respect. A building produces income on the day of closing. Land produces nothing, consumes capital every month it is held, and is worth precisely what can eventually be built on it. A land purchase is therefore not a purchase of acreage. It is a purchase of a bundle of rights, some of which exist, some of which are conditional, and some of which the buyer will discover do not exist at all.

What follows is the discipline for establishing which is which before the deposit becomes non-refundable.

The only four questions that matter

Highest and best use is the reasonably probable use of a property that is legally permissible, physically possible, financially feasible, and maximally productive. It is the analytical spine of every credible appraisal and feasibility study, and it is the correct frame for a land acquisition.

The appraisal profession settled this framework decades ago; it remains underused outside the profession. Highest and best use, as set out in The Appraisal of Real Estate (Appraisal Institute, 15th edition, 2020), is tested in four steps, in order:

1. Legally permissible. Can permission to build be obtained? Zoning, entitlements, private covenants, and every layer of government that holds a veto.

2. Physically possible. Can the site support the use? Soils, water, topography, access, and the acres that remain buildable after every constraint takes its share.

3. Financially feasible. Does the completed project generate a return that justifies its full cost, including the land?

4. Maximally productive. Of the uses that pass the first three tests, which produces the highest value?

The order is not decorative. It is a filter. A use that is not legally permissible never reaches the financial test, and running a pro forma on a use that cannot be entitled is how acquisitions get rationalized. We regularly review models with compelling returns attached to uses that could never have been approved on the site in question.

Everything below is organized against those four tests, because that is how a lender-grade feasibility study is organized and because it is the only sequence that conserves capital. The inexpensive questions come first. If the answer to "can permission be obtained" is no, the borings are never ordered.

Buy the time before you buy the dirt

The most valuable term in a land contract is not the price. It is the calendar.

Option or purchase contract? An option is unilateral: the buyer holds the right to purchase, the seller is bound to sell upon exercise, and the buyer's exposure is limited to the option consideration. A purchase and sale contract is bilateral: both parties are obligated, subject to conditions. Options require separate, genuine consideration to bind, and where recorded at all, they are recorded through a short memorandum rather than the full agreement. On entitlement-risk transactions, the option is the correct instrument, and the public homebuilders have spent fifteen years demonstrating it. Every builder's 10-K discloses lots owned against lots controlled through options, together with the deposit dollars at risk. NVR built an entire operating model on never owning the land.

How long should the due diligence period be? Thirty days suits a clean infill site with known conditions and a cash buyer. Forty-five to sixty days is the standard commercial window, and it is genuinely tight. Ninety days is what an entitlement-sensitive or utility-dependent transaction actually requires. The length is not arbitrary, and it should not be negotiated in the abstract: it is set by the slowest report that must be ordered. Title commitment and ALTA survey turnaround, Phase I turnaround, geotechnical driller availability, and above all the response time of a municipal utility to a will-serve request. If the city takes six weeks to answer a capacity letter, a forty-five day diligence period is a fiction.

Extension ladders. Negotiate them at signing, staged in thirty to ninety day increments, each carrying an additional deposit, and press hard on one point: whether extension deposits are applicable to the purchase price. Applicable deposits are a timing cost. Non-applicable deposits are a price increase presented as patience.

When does the deposit go hard? Establish precisely when the deposit becomes non-refundable and whether it hardens in full or in tranches. Day-one hard money on raw land is a wager, not a purchase. What matters more is which protections survive the hardening. Even after a deposit goes hard, a well-drafted contract preserves the buyer's exits for title defects, survey matters, casualty, condemnation, seller default, and the failure of a specifically named condition precedent. Name the conditions. "Buyer satisfaction" is not a condition; it is an argument.

What survives closing? This is where real money is lost. Under the merger doctrine, the deed merges and extinguishes the contract's obligations at closing unless the contract expressly provides that a representation survives. If the seller represented that there were no unrecorded agreements with the municipality, no leases, no options or rights of first refusal, and no condemnation notices, and none of that was drafted to survive, those assurances are extinguished the day after closing. Survival periods, indemnity caps and baskets, and escrow holdbacks are the mechanics that keep a seller accountable. Require them explicitly.

Test one: legally permissible

The operative question is not "what is the zoning." It is "what approval path does the intended use require, who decides, and how much discretion does the decision-maker retain."

By right, or discretionary? A ministerial, by-right approval applies fixed, objective standards: if the checklist is met, the official must issue the permit. A discretionary approval invites judgment, and judgment invites hearings, conditions, appeals, and, in California, New York, and Washington, state environmental review under CEQA, SEQRA, or SEPA respectively. The gap between those two paths is the single largest determinant of entitlement risk on a land purchase, and it is materially wider than the gap between any two zoning districts.

The uses our clients build frequently sit on the wrong side of that line. Truck stops, car washes, gas stations with fuel, self storage, drive-throughs, RV parks, data centers, and assisted living are rarely by-right anywhere. A use that requires a conditional use permit, a planned development, or a rezoning is a political outcome, not a legal one, and it should be priced accordingly.

Can zoning change after closing? Yes, and vested rights are the only shield. Common-law vested rights generally require a lawfully issued permit, good-faith reliance, and substantial expenditure, a fact-intensive test litigated only after the damage is done. Several states have replaced it with a bright line. Texas fixes the applicable rules at the filing of the first permit application in a series under Chapter 245 of the Local Government Code. Washington vests at a complete application. California offers the Vesting Tentative Map and the development agreement statute. Colorado grants a statutory vested property right on approval of a site-specific development plan. Florida provides statutory and equitable estoppel together with its development agreement act. Confirm which regime governs the parcel before relying on the current code, because the current code is a snapshot, not a guarantee.

The development agreement is the contractual answer. It can lock permitted uses, density, fees, phasing, and the applicable regulatory regime for a fixed term. If the transaction depends on the rules holding for three years, that certainty should be purchased rather than assumed.

Moratoria and the ballot box. Sewer connection moratoria, frequently driven by Clean Water Act consent decrees, and water service moratoria are the two mechanisms that stop projects outright. Add referendum exposure: in some states a site-specific rezoning is a legislative act and therefore subject to referendum. Make "no active or pending moratorium and no pending referendum" an express condition rather than an assumption.

State preemption. The one genuinely favorable development of the past three years is legislative: states have begun overriding local obstruction. Texas SB 2038 permits landowners to petition out of a municipality's extraterritorial jurisdiction. California's SB 35 and its successor SB 423 compel ministerial approval for qualifying housing. Florida's Live Local Act requires administrative approval and grants height and density entitlements. Montana, Washington, Utah, Arizona, and Colorado have enacted their own versions. These statutes are amended and litigated continuously, so verify the current text and litigation status for the specific parcel rather than relying on any article, including this one.

What does title insurance actually protect you from?

Title insurance insures title. It does not insure that the land can be built on.

That sentence is the most expensive one most buyers never hear. A clean owner's policy establishes that the seller owns what is being conveyed. It establishes nothing about developability, and the standard policy specifically excepts every matter an accurate survey would disclose until that exception is deleted with an actual survey.

The survey. Order an ALTA/NSPS Land Title Survey, not a boundary survey and certainly not a mortgage inspection. The 2021 minimum standard detail requirements, jointly adopted by the American Land Title Association and the National Society of Professional Surveyors, integrate the title commitment with the field work. Confirm which edition is currently controlling before ordering, because the standard is revised on roughly a five-year cycle.

The base survey is not sufficient. Table A is the optional menu, and for a development buyer four items are not optional at all: item 6(b) for zoning setbacks, height, and floor area (noting that the surveyor plots only what the zoning report supplied by the client provides), item 11(b) for utilities from records plus a locate rather than from visible evidence alone, item 5 for contours on any site with grade, and item 19 for the offsite easements the parcel depends on. Items 7, 8, 9, and 15 are, on raw land, generally expenditure without return.

Legal, physical, permitted: the three kinds of access. Legal access, physical access, and permitted access are distinct, and each fails independently. A recorded easement with no constructed road is legal access without physical access. A paved approach without a curb-cut permit is physical access without permitted access. A parcel can hold all three and still fail a zoning frontage minimum, because an access easement is not frontage. The ALTA 17 series endorsements insure the legal right of access. They do not deliver a driveway permit from the road authority, and no title company will represent otherwise.

Who owns what is under the land? In split-estate states the mineral estate is dominant: the mineral owner holds an implied right to use the surface to reach what it owns. Texas moderated that doctrine with the accommodation doctrine (Getty Oil Co. v. Jones, 470 S.W.2d 618 (Tex. 1971)), and versions have been adopted elsewhere, but moderated is not removed. The cure is recorded: a surface waiver, a surface use agreement, a non-development agreement, or a subordination of the mineral estate. Obtain it at closing or price the transaction without it. Many lenders will simply decline a parcel with an unsubordinated mineral estate, which converts a title issue into a financing issue.

Private restrictions, the section most diligence skips. Recorded covenants, reciprocal easement agreements, and prior-occupant deed restrictions routinely prohibit the precise use a site is otherwise perfectly zoned for. A departed grocery tenant leaves a no-grocery restriction. A former pharmacy leaves a no-pharmacy covenant. Fuel sales, car washes, drive-throughs, and restaurants all appear in these instruments. They run with the land, they are enforced by injunction rather than damages, and they will not appear in any zoning report. Read every recorded document listed in Schedule B, not the summary.

Environmental: the gate that moves the fence line

Environmental diligence performs two functions. The first is preserving the buyer's liability protection. The second is establishing how much of the acreage federal and state governments have already claimed.

What does a Phase I actually do? A Phase I environmental site assessment under ASTM E1527-21 identifies recognized environmental conditions and, performed correctly, preserves the buyer's federal liability defenses. The EPA adopted E1527-21 for All Appropriate Inquiries by final rule at 87 FR 76578, effective 13 February 2023, and the prior standard, E1527-13, ceased to satisfy AAI on 13 February 2024. A Phase I delivered on the old standard does not do the job.

AAI is what preserves CERCLA landowner protection, and for a buyer who knows or suspects contamination, the operative protection is bona fide prospective purchaser status. Two aspects of BFPP are consistently misunderstood. First, five of the AAI inquiries belong to the buyer, not the consultant: the environmental lien and use-limitation search, the buyer's specialized knowledge, the relationship of price to fair market value, commonly known information, and the obviousness of contamination. Second, BFPP is not a one-time achievement. It carries continuing obligations, including reasonable steps to stop continuing releases, compliance with institutional controls, cooperation and access, and legally required notices. The classic way to forfeit it is to grade the site and spread contamination the buyer knew about.

One recent change matters for any site with an industrial, firefighting, or textile history: PFOA and PFOS became CERCLA hazardous substances by final rule at 89 FR 39124, effective 8 July 2024. The formerly comfortable treatment of PFAS as a non-scope "business environmental risk" no longer holds for those two compounds. Ask the consultant directly how they are being handled.

Wetlands, after Sackett. Sackett v. EPA, 598 U.S. 651 (2023), limited Clean Water Act jurisdiction to wetlands with a continuous surface connection to a water of the United States, and the agencies conformed the rule at 88 FR 61964 on 8 September 2023. The decision is frequently read as a deregulation. In practice, the risk migrated to the states. Wisconsin, Minnesota, Ohio, Pennsylvania, New York, California under Porter-Cologne, Washington, Oregon, Massachusetts, and Connecticut all regulate waters the federal government no longer reaches. A determination of "not federally jurisdictional" is not a determination of "unregulated." Order the delineation, then ask the state.

Species and season. Endangered species constraints damage schedules more than budgets, because survey windows are seasonal and no amount of capital purchases an earlier spring. The northern long-eared bat became endangered effective 31 March 2023, tightening tree-clearing windows across much of the eastern and midwestern United States. The dunes sagebrush lizard became endangered effective 19 June 2024, which matters in the Permian. Where habitat is present, the clearing window, not the permit, is the critical path.

Floodplain. Zone, floodway, and base flood elevation are three separate facts. Construction in a floodway requires a no-rise certification that fill and structures rarely achieve, which for most commercial uses amounts to a de facto prohibition. Confirm as well whether the effective FIRM is about to be superseded by a preliminary map, because buying against a map that is about to change is an avoidable, unforced error.

Utilities: the binding constraint since 2023

For two decades utilities were a confirmation exercise. Since 2023 they are frequently the binding constraint on schedule, and electric power is the reason.

What is a will-serve letter, and is it binding? Begin with vocabulary, because the terminology is imprecise and the imprecision is exploited. A will-serve letter states that the utility is willing and able to serve. A capacity letter states that capacity exists, and in some regimes that it is reserved. A commitment letter is stronger and frequently contractual. An availability letter acknowledges theoretical service and reserves nothing. Establish which document is in hand, whether it expires, whether it is revocable, and whether it reserves capacity or merely observes it.

Then insist on the distinction that actually kills transactions. There is capacity permitted at the plant. There is capacity already committed to projects approved but not yet built. And there is capacity deliverable to the specific parcel through the existing collection or distribution system. Those are three different numbers, and the first is the only one a seller will quote. Verify independently through the plant's discharge monitoring reports, capacity assurance filings, and the capital improvement program, not through the seller's letter from 2022.

On the electric side, the questions buyers have asked about zoning for thirty years must now be asked about power. Which substation serves the parcel, and does it have capacity. What is the feeder loading. What does the utility's line extension policy provide, and what contribution in aid of construction will be required. What is the energization timeline for a load of this size, and what sits ahead of it in the queue. In several markets, data center demand has effectively crowded out conventional commercial and industrial load, and lead times for transformers and switchgear have not returned to pre-2020 norms. Submit a load application before closing wherever the utility will accept one. Treat the answer as a diligence item of equal weight to zoning, because on any power-intensive use it now is one.

What if the site is not on sewer? Then the governing number is design flow in gallons per day for the specific use, taken from the state code, not inferred from the soil. A restaurant, a truck stop, a car wash, and an RV park generate design flows that many otherwise attractive parcels cannot absorb through a conventional drainfield, and the alternatives (mound systems, drip dispersion, aerobic units, package plants) each consume land and capital. In Pennsylvania, add the Act 537 sewage facilities planning module to the schedule, and add months.

Test two: physically possible, or why gross acres are a marketing number

Buyers pay for gross acres. Developers build on net acres. The difference is where the money goes.

Walk the deduction ladder in order: right of way dedication and half-street improvements, wetlands and their buffers, floodplain and floodway, steep slopes, recorded easements, required setbacks, stormwater detention and retention, landscape and screening buffers, required open space, and tree preservation. What remains is net developable land, and on a constrained site the cumulative reduction is severe.

Then apply the second layer, the zoning envelope: maximum lot coverage, impervious cover limits, floor area ratio, and parking. On surface-parked suburban commercial product, parking and drive aisles typically consume several multiples of the building footprint, which is why single-story retail rarely approaches its permitted FAR. Fire access is a further hard geometric constraint: the International Fire Code requires fire apparatus access roads of at least 20 feet unobstructed width, rising to 26 feet where a building exceeds 30 feet in height (IFC 503.2.1 and Appendix D105). That aisle must fit, and it must fit before the parking count works.

Geotechnical. The findings that reprice transactions are predictable by geography. Expansive clay in North Texas, the Houston market, and the Colorado Front Range. Karst in Florida, Kentucky, Tennessee, Missouri, and the Pennsylvania Lehigh Valley. Shallow rock, which converts every utility trench into a line item. High groundwater, which forecloses basements and underground detention. Soft and organic soils, where surcharge and wick drains add months rather than dollars. Uncontrolled fill and mine subsidence across the Appalachian and Illinois basins.

None of this argues for walking away. It argues for pricing the remedy. Ground improvement is an established menu, from rammed aggregate piers and stone columns to deep soil mixing, dynamic compaction, and drilled shafts, and each technique purchases a specific outcome. Obtain a due diligence level geotechnical opinion inside the contract period, even where the design-level program comes later. Two borings and a competent engineer's letter are inexpensive insurance against a foundation system nobody budgeted.

On the free soil map. The NRCS Web Soil Survey is an excellent first screen and an unreliable last word. It was built for agricultural planning, its map units contain unmapped inclusions, and it is not a foundation design tool. Most importantly, a hydric soil rating is not a wetland delineation, and a non-hydric rating is not evidence that no wetlands exist. Use it to decide where to drill, not whether to drill.

The driveway is not a formality

Frontage does not entitle a parcel to a driveway. Spacing standards do.

Every state DOT operates an access management system that assigns each highway a classification and sets minimum connection spacing and median opening spacing in feet, keyed to posted speed. Florida does so by rule, Colorado by access code, Texas and Virginia by manual and regulation. A parcel that sits closer to the adjacent driveway or the nearest intersection than the standard allows will receive a shared access easement, a rear connection, or no connection at all. On a fuel or quick-service site, a raised median that converts the location to right-in right-out can reduce captured volume enough to end the use. - You can use mmcganalytics.com to view free AADT data country wide for fee.

Above certain volumes, the jurisdiction will require a traffic impact analysis, with trip generation rates drawn from the ITE Trip Generation Manual, 11th edition (September 2021). Two points matter for retail and fuel: pass-by and diverted trip reductions, which materially reduce net new trips, and the fact that the manual is proprietary, so the rates reproduced in a public agency's own study are frequently the citable version.

Where the analysis shows a failing intersection, mitigation follows: a turn lane, a median modification, or a signal. Traffic signal warrants reside in the Manual on Uniform Traffic Control Devices; the 11th edition was published at 88 FR 88006 on 19 December 2023, effective 18 January 2024, with state adoption compliance by 18 January 2026. One sentence prevents most arguments: satisfying a warrant does not entitle anyone to a signal. The agency retains engineering judgment. Budget the improvement, escrow for it where the agency requires a future signal, and never treat a warrant analysis as a permit.

Test three: financially feasible, or what the land is actually worth to you

Residual land value is what remains for the land after every cost of the completed project, including the developer's required profit, is subtracted from the project's completed value. It is the number that should govern the offer, independent of the seller's expectations and independent of the comparable sales.

The arithmetic is direct. Take the stabilized net operating income the completed project will produce. Capitalize it at the exit cap rate to obtain total project value. Subtract hard cost, soft cost, contingency, financing and carry, leasing cost, and the required developer profit. The remainder is what the land can support.

The residual is acutely sensitive, and this is the point worth internalizing. Because the cap rate acts on the entire capitalized value before any cost is removed, a small move in the exit cap does not trim the land value; it collapses it. On a representative industrial case (100,000 square feet, stabilized NOI of $1.2 million, soft costs at 15 percent of hard, 5 percent contingency, $700,000 of carry, $350,000 of leasing cost, and profit at 10 percent of completed value), moving the exit cap from 6.0 to 6.5 percent reduces supportable land value from roughly $2.55 million to roughly $1.17 million. That is a 54 percent reduction in what the buyer can pay, produced by a 50 basis point move. A further 50 basis points takes the land to zero.

How is a feasibility study different from an appraisal? An appraisal concludes value. A feasibility study tests a specific proposed project against a stated investment or repayment criterion, and it addresses demand, capture, and absorption, which is what the lender is actually underwriting. The two are conflated constantly, and they should not be, because they answer different questions for different readers. Both are governed by professional standards; the 2024 edition of USPAP remains the controlling edition.

Two USPAP definitions carry substantial weight on land assignments. A hypothetical condition is contrary to what is known to exist on the effective date and is used for purposes of analysis: "as if rezoned," "as if entitled." An extraordinary assumption is an assumption about uncertain information which, if found false, would alter the conclusions: "as if utilities are available," "as if the environmental condition is as reported." Both must be disclosed, and neither may be used in a manner that misleads. A land value that quietly assumes entitlement is a hypothetical condition, and the correct response is to ask what the number is without it.

When does the SBA require a feasibility study? The SBA operates under SOP 50 10 8, effective 1 June 2025, which requires an appraisal by a state licensed or certified appraiser where estimated value exceeds $250,000, and requires a feasibility study in defined circumstances including start-ups and special purpose properties, of which hotels, gas stations, car washes, and assisted living are the familiar examples. The federal banking agencies set the commercial appraisal threshold at $500,000 (84 FR 53579, published 9 April 2019). USDA's guaranteed programs run through the OneRD framework at 7 CFR Part 5001, effective 1 October 2020, with feasibility work required from an independent qualified party in defined cases. Verify the current text before relying on any of it; both agencies revise frequently.

Carrying the dirt

The purchase price is not the basis. The basis is the price plus everything the parcel costs while it produces nothing.

Financing. Banks are averse to non-cash-flowing collateral for sound reasons: there is no debt service coverage from the asset, the carry is funded from the sponsor's pocket or an interest reserve, and loss severity on land in a downturn is severe. The interagency real estate lending guidelines set supervisory loan-to-value limits by stage, with raw land the most conservative, land development next, and improved property the most generous, together with an aggregate cap on loans a bank may hold above those limits. The HVCRE rules add a 150 percent risk weight to qualifying acquisition, development, and construction exposure unless the borrower has contributed capital of at least 15 percent of the as-completed appraised value. That is a regulatory requirement, but the borrower experiences it as pricing.

Seller paper, and the clause that kills transactions. Seller financing is common on land precisely because banks are reluctant. The problem surfaces later. When the buyer seeks a construction loan, the senior lender will require the seller's lien to be subordinated, and sellers frequently refuse, because subordination reduces their security to very little. Negotiate the subordination agreement at the time of the original sale, in writing, with its terms attached. Do not accept "we will work that out." Negotiate partial release provisions as well where phased development is planned, and expect the release price per acre or per lot to exceed the pro rata loan allocation, because the lender's collateral position must improve with each release.

The carry stack. Interest, compounded where an interest reserve funds it. Property taxes, including reassessment on sale in states that reassess on transfer. Vacant land liability insurance. Mowing, fencing, site security, and debris removal on an unattended parcel. The diligence and entitlement spend itself, which is entirely sunk if the transaction dies. And the opportunity cost of the equity. Over twenty-four months these items routinely add a meaningful percentage to the effective basis, and buyers who ignore them are surprised by their own land line in the pro forma.

What is a rollback tax? Where a parcel carries an agricultural or open space classification, ending that classification triggers a rollback in most states: a lookback period of back taxes at market value, generally with interest. Texas runs three years plus interest following the 2019 amendment to Tax Code section 23.55. Pennsylvania's Clean and Green runs seven years with interest. Virginia and several others run five. Florida's greenbelt is the notable outlier and merits confirmation rather than assumption.

The detail that matters most is the trigger. In most states the rollback fires on change of use, not on sale, which means a buyer can frequently hold agricultural use through the entitlement period and defer the liability until construction. That single fact can be worth a year of carry. Confirm it in the relevant state, and settle in the contract who pays.

Districts. Finally, establish which special district the parcel sits in. Texas municipal utility districts and public improvement districts, Florida community development districts under Chapter 190, Colorado metropolitan districts, California Mello-Roos community facilities districts, and C-PACE assessments all attach to the land and transfer with title. The buyer inherits the assessment, the mill levy, and a share of outstanding bond debt, each of which raises the effective tax rate and therefore reduces net operating income and value. Texas requires notice on MUD parcels for a reason. Pull the actual tax bill, request a district estoppel or payoff letter, and review the district's bond disclosures. This is a five-hundred-dollar diligence step that regularly moves a valuation by six figures.

Test four: maximally productive

Once the uses that are legally permissible, physically possible, and financially feasible are established, the final test selects among them. It is the test buyers most often skip, because they arrive with a use already decided.

Do the work regardless, for two reasons. First, over-improvement and under-improvement both destroy value, and a site that supports a higher-value use than the one planned is a site about to be underexploited. Second, the maximally productive conclusion is precisely what gets challenged later, in condemnation valuation and in tax appeals, and the analysis performed at acquisition is the analysis that defends the number.

Two related concepts belong in the same discussion: excess land, which can be separated and carries its own highest and best use, and surplus land, which cannot be separated and carries none. On an SBA-financed owner-occupied purchase the distinction is not academic, because excess land generally cannot be financed as part of the project.

What actually kills these deals

The litigated record is instructive chiefly for how rarely the buyer is rescued.

A buyer who closes and then cannot obtain the entitlement should not expect the regulator to pay. The controlling line of takings cases begins at Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978), which established a multi-factor balancing test the government usually wins. The categorical exception, Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), requires a total elimination of economically beneficial use; Lucas had paid $975,000 for two lots in 1986 and was left with nothing he could build. Palazzolo v. Rhode Island, 533 U.S. 606 (2001), confirmed that acquiring after a regulation is enacted does not automatically bar a claim, then returned the owner to Penn Central balancing regardless. The buyer's leverage is stronger on exactions specifically, after Koontz v. St. Johns River Water Management District, 570 U.S. 595 (2013), and after Sheetz v. County of El Dorado, 601 U.S. 267 (2024), which applied heightened scrutiny to a legislatively imposed traffic impact fee of $23,420. Useful, but narrow. None of it makes an undevelopable parcel developable.

On the physical side, the recurring killers are the ones this article has already named: no legal or permitted access, a blanket easement through the buildable envelope, undisclosed fill, an undelineated wetland, and a covenant no one reviewed. Caveat emptor still governs raw land sales in many states absent active concealment, and residential seller disclosure statutes generally do not reach commercial land. The seller is frequently not the remedy.

For the pattern at scale, the Lincoln Institute of Land Policy and the Sonoran Institute documented what happens when entitlement outruns feasibility in Arrested Developments: Combating Zombie Subdivisions and Other Excess Entitlements(2014). Entitled land is not the same as developable land, and the American West is covered in the difference.

How to run a sixty-day diligence

Order in this sequence, because it spends the inexpensive money first.

Days 1 to 5. Order the title commitment and the ALTA/NSPS survey with the selected Table A items. Order the Phase I. Order the zoning report. Send will-serve and capacity requests to every utility, including a load application to the electric utility. Pull the tax bill and identify every special district. These are the long-lead items, and all of them start on day one.

Days 5 to 15. Hold the pre-application meeting with the planning department, in person, with a concept site plan, and ask three questions: is the use by-right in this district, what approvals does it require, and what is the current queue. Order the wetland delineation and, where the geography requires it, the species screen. Discuss driveway location with the road authority before the engineer draws a site plan.

Days 15 to 35. Survey and title arrive. Read every recorded exception document, not the summary. Reconcile the survey against the title commitment. Run the gross-to-net analysis and produce a real net buildable figure. Order the due diligence geotechnical work now that the building location is known.

Days 35 to 50. Utility answers arrive, or they do not, which is itself an answer. Run the residual against the net buildable yield and the real cost stack, including the off-site improvements the road authority and the utilities have now identified. This is the moment the transaction is priced properly for the first time.

Days 50 to 60. Retrade, extend, or terminate. Those are the three options, and there is no fourth. On an extension, know precisely what the extension deposit purchases and whether it is applicable to the price.

What our own archive shows

Everything above is the public record. The part no one else can supply is our own.

We have gone back through the feasibility studies this firm has issued and tabulated those that returned an infeasible or conditional conclusion, sorted by which of the four tests the project failed. It is a small, unglamorous dataset, and it is the most honest exhibit in this article, because it is a record of projects that did not work, written by the people who told the client so.

Questions buyers actually ask

What is highest and best use? The reasonably probable use of a property that is legally permissible, physically possible, financially feasible, and maximally productive. Appraisers apply the four tests in that order, and a feasibility-led land purchase should as well, because a use that fails an early test never merits a pro forma.

Does title insurance mean the land can be built on? No. Title insurance insures ownership and lien priority, not developability. Zoning, covenants, access permits, wetlands, and utility capacity all sit outside the policy, and the standard survey exception excludes anything an accurate survey would have shown until it is deleted with one.

How long should a due diligence period be? Thirty days for a clean infill site, forty-five to sixty as the commercial standard, ninety or more for entitlement-sensitive or utility-dependent transactions. The honest answer: as long as the slowest report that must be ordered, which is frequently the utility's will-serve response.

How is a feasibility study different from an appraisal? An appraisal concludes an opinion of value as of a date. A feasibility study tests a specific proposed project against a stated investment or repayment criterion and addresses demand, capture, and absorption. Lenders underwrite projections, which is why they require the study and not only the value.

When does the SBA require a feasibility study? Under SOP 50 10 8, in defined circumstances including start-up businesses and special purpose properties such as hotels, gas stations, car washes, and assisted living. Separately, an appraisal by a licensed or certified appraiser is required where estimated value exceeds $250,000. Verify the current SOP text, because SBA revises it frequently.

Are rollback taxes owed at purchase of agricultural land? Usually not. In most states the rollback fires on change of use, not on sale, so a buyer can frequently hold agricultural use through entitlement and defer the liability. Lookbacks vary: Texas runs three years plus interest, Pennsylvania's Clean and Green seven. Confirm the relevant state and settle who pays in the contract.

Can the DOT refuse a driveway on a parcel with frontage? Yes. Access is governed by spacing standards keyed to road classification and posted speed, not by frontage. Where the parcel cannot meet the spacing, the outcome may be shared access, a rear connection, or right-in right-out only, which on a fuel or retail site can end the use.

What is a will-serve letter, and is it binding? It is a utility's statement that it is willing and able to serve a parcel, and by itself it usually reserves nothing. Establish whether the letter commits capacity, whether it expires, and whether it can be revoked, and verify deliverable capacity independently rather than relying on the seller's copy.

The bottom line

A land purchase is not a purchase of land. It is a purchase of the right to build a specific thing, on a specific schedule, at a specific cost, and each of those three can be taken away by a document that was never read or a letter that was never requested.

Run the four tests in order. Spend the inexpensive money first. Put the calendar in the contract before the deposit is put at risk. And price the parcel from the residual, not from the comparables, because the comparables describe what other people paid, and the residual describes what the land is worth to this project.

If the residual says the number does not work, that is not a failure of diligence. That is diligence working exactly as designed, for a fraction of what the alternative costs.

Do you have land under contract? Every test in this guide is work we do for a living. MMCG Invest runs the four tests against your specific parcel, legally permissible, physically possible, financially feasible and maximally productive, and delivers the answer as a lender-facing feasibility study that SBA 504 and 7(a) lenders, USDA lenders and banks rely on. We read the recorded exceptions rather than the summary, chase the will-serve and capacity letters, walk the site from gross acres down to net buildable, and price the parcel from the residual rather than the comparables. The value of that work is almost entirely a function of when it happens. Ordered inside the diligence period, it either confirms your basis or gives you the grounds to retrade, extend or terminate, for a fraction of the deposit at stake. Ordered after the money goes hard, the same document becomes an explanation. Talk to us before the deposit hardens.

Request a Feasibility Study https://calendar.app.google/EJzWEz3GCqLY2jU86

Michal Mohelsky, J.D. | Principal | mmcginvest.com 

Contact: michal@mmcginvest.com

Phone: (628) 225-1125

Disclaimer: This report is provided for informational purposes only and does not constitute investment, legal, or tax advice. Data presented herein is derived from proprietary MMCG databases and third-party sources believed to be reliable; however, MMCG Invest makes no representation as to the accuracy or completeness of such information. Figures from third-party industry databases have been independently verified and, where appropriate, adjusted to reflect MMCG's proprietary analytical methodology. Statutory and regulatory references are provided for context and must be verified with counsel before reliance. Past performance is not indicative of future results.