Worked example · Land
The split that looked good and wasn’t.
A worked example of a four-lot exempt split where every number was right and the deal still lost money. The error is made on day one, every time.
This is a worked example, not a client file. The numbers are illustrative and chosen because they are typical, not because they are ours.
Twenty acres on a paved county road. Zoning allows a minimum two-acre lot. The owner wants $240,000 and will carry paper. Finished two-acre lots in the same corridor have been trading around $95,000.
The arithmetic anyone would do: four lots at $95,000 is $380,000 against a $240,000 basis. Some survey and legal, a culvert or two, and you are looking at a comfortable spread on a six-month hold.
That deal loses money. Here is where.
One: the exemption was not free
Most exempt-split statutes limit how many parcels you can create, how often, and from what parent tract — and several reset the clock rather than the count. Create the fourth parcel and the fifth makes the whole thing a subdivision, which means a plat, a plan review, and an improvement standard for the road you were planning to leave as it is.
The fee is small. The month is not. Ninety days of review on a deal you modelled at six months is a quarter of your hold, spent before anything is sellable.
Two: frontage is not access
Four lots on a shared gravel drive is one legal access point serving four parcels. Many counties treat that as a private road and apply a private road standard — width, base, drainage, turnaround, sometimes a maintenance agreement recorded against every lot.
The comp had frontage. Your lots have an easement. Those are not the same product, and the buyer’s lender knows it.
Now the comparables stop being comparable. A $95,000 lot with its own county frontage is not the same asset as a $95,000 lot at the end of a shared easement, and the difference shows up as a discount, a longer marketing period, or a buyer who cannot get financed.
Three: the last lot pays for everything
Culvert, drive, survey, plat if you triggered it, legal, closing costs on four separate transactions, the carry across a hold that is now ten months rather than six. Call it $70,000–$90,000 in a corridor where that is unremarkable.
The spread you started with was $140,000. You have spent most of it, and the lots you are selling are worth less than the ones you comped. The fourth lot — the one that made the arithmetic work — is the one that triggered the review that caused the delay.
What would have caught it
- Reading the split ordinance before the LOI, not before closing. It is public, it is usually four pages, and it is the single highest-return document in the trade.
- Comping access, not acreage. Pull the comps’ deeds and check whether they front the county road or hang off an easement.
- Modelling three lots instead of four. If the deal only works at four, the ordinance is underwriting your deal, not you.
- Costing the road to the standard the county can require, not the one you hope it will accept.
A three-lot version of this deal, underwritten honestly, is thinner and it closes. That is usually the choice — not between a good deal and a bad one, but between a modest deal you can actually execute and an attractive one that quietly depends on a rule nobody read.