SUBDIVIDING

SUBDIVIDING

A subdivider builder or developer must understand the potential difficulties involved in subdividing and the
market for the project. The development plan must take into account state and local government regulation
(e.g., the Subdivided Lands Law, the Subdivision Map Act, the California Environmental Quality Act, zoning,
local general and specific plans and the effects of public opinion to the development).

Often, zoning and planning preconditions drastically reduce the potential of a property. Before a developer or
builder purchases property, he or she should consult with the local planning agency and private land use
specialists to evaluate the likelihood of final approval of a project and the probable time frames for
accomplishing the approval process.

A developer will use civil engineers, construction engineers, soil engineers, land use planners, building
architects, landscape architects, contractors, attorneys, title companies, bankers, real estate analysts, market
researchers, and cost accountants to formulate a plan consisting of the following:

l. physical layout of tract in engineered detail;

2. land use processing and approval schedule;

3. amenities to be provided;

4. initial financing and continuing financing until the last sale;

5. advertising and sales promotion.

To determine if the project will yield adequate profit, the developer must calculate:

1. cost of the land;

2. cost of government fees;

3. cost of off-site improvements (e.g., water mains, sewers, streets, gutters, curbs, sidewalks, and street
lighting);

4. survey, legal, marketing, financing and office/overhead costs; and,

5. the likely retail sales price(s) of the lots or units sometimes far into the future.

The developer’s educated guess at the rate at which the lots will sell (the absorption rate) will impact the
marketing, financing, and overhead costs, all adjusted for anticipated future price fluctuations.

The sum of all costs and expenses of the project is subtracted from the estimate of the retail sales price of the
lots to derive the estimated (pre-tax) profit along with factoring in the amount of time before profits will
actually be realized.

A developer may subdivide a large tract of land pursuant to a phased master plan designed to meet the
anticipated demand/absorption rate. These projects are more complex, with master governing restrictions and
more obstacles to state and local approval and generally take more time and therefore more uncertainty.

A broker may gain initial experience in subdividing by becoming involved in a more limited aspect of the
process. An owner of acreage might engage the broker as a subdivider, with the broker arranging the services
of skilled consultants (civil engineer, land planner, land use attorney, etc.) to accomplish subdivision of the
land. The broker and land owner may form a partnership: one contributing capital and land, the other
management and marketing (sweat equity).