What Is the Benefit of a Lot Reservation?

From the time a land developer purchases a tract of land until he/she is able to sell lots in a fully approved and platted subdivision, there are multiple steps and obstacles to overcome. That approval and construction process may take anywhere from six months (if you are lucky) to two or three years if you get caught up in an appeal. Meanwhile, there may be considerable interest in the lots to be created and so a developer may choose to accommodate those interested parties by allowing them to commit to certain preferences. That’s called a reservation or an option to purchase a lot when it is completed. The depositor will have the opportunity, before a proposed lot is completed and for sale  to submit an offer to purchase within 15 days after receipt of written notice from the Developer of its availability. The purchase price and terms of purchase must be acceptable to developer and she/he must provide a current public offering statement for the specific lot. The last step  may be eliminated if there is not an Homeowners Association.

A deposit, which may vary depending upon the size of the lot and the wishes of the developer, may be withdrawn at any time by the Depositor and the developer must return the deposit. Once the lot is legally and physically complete, the developer and Depositor (would be buyer) enter into a purchase agreement.  However, the Depositor (buyer) has 15 days after receipt of a public offering statement to revoke the contract and get his/her earnest money returned to him.   By the option/reservation agreement, the developer does not warrant or guarantee any time frame when the Lot will be available for sale or that the Lot will be of  any particular size or configuration. The depositor’s sole recourse is to withdraw the deposit by giving a written request to the developer. The decision to accept any offer shall be in the sole discretion of the Developer unless the offer is on the terms and price  provided to Depositor by the developer. What is important to remember is that the depositor (would be buyer) has exclusive rights to purchase the lot when it becomes available but he/she also has the right by demand to the return of his/her deposit. In other words, he/she has nothing to lose.

This type of agreement is intended to create a priority for the Developer to deal with those who have the greatest demonstrated interest in the project. The reservation/option  is not an agreement to purchase or convey real property. The would be depositor (buyer) has in his/her sole discretion  the right to demand his/her deposit back. Deposits under these circumstances are usually in the $1,000 to $5,000 range for a single lot.  This option gives potential buyers a head start in finding a lot to have their home built on.   It is also a benefit to the developer when securing financing for the roads/water/sewer for his/her lender to understand when there is considerable buyer interest in the project. As a personal example, I was in a  southern California loan committee on the day oil went negative during the pandemic.  Without over 50 percent of the lots reserved by a variety of builders, I doubt Sandhill Reserve, which is Anchorage’s most popular new home community, would have been approved.  

With today’s shortage of available new subdivisions, a buyer will benefit by placing a reservation/option on a lot, assuming the developer is willing to accept. In many instances, the reservation is an ‘exclusive hold’ on the depositor’s preferred lot while they negotiate with a builder to have a home built.  That builder in many instances, may also be the developer of the land.  Most new construction homeowners  need time to work out the details of their new home, likewise, the builder also needs time to get his/her pricing right.