In the Zone

Very few consider how important current zoning can affect your transaction, even fewer are familiar with the different types of zoning and what they allow for.  In addition to the type of properties that can be built, zoning ordinances also allow for height restrictions and setback restrictions.  Setback themselves were initially used for structural purposes, but are now primarily used in planning / zoning ordinances, planning for sidewalks, front yards, open air exposure, etc.

Zoning was widely asked about at the height of real estate when developers and investors were interested in what could be built and potential return would be.  Everyday consumers could still be affected by zoning depending on what their planned use will be; this could impact buyers of single family homes, vacant lots and multi-units especially.

Recently, I advised on a scenario wherein a buyer wanted to purchase a two flat with the strong possibility of building a third unit as an investment in the unfinished basement.  They were hoping the additional unit would add value to their tentative sale in the future.  Zoning ordinances would dictate if that garden unit could be built– certain floor to height requirements need to be met, egresses built and if the unit was significantly above grade, the square footage would be affected by FAR (floor area ratio).  Determining square footage is calculated based on lot size and FAR value.  On several occasions, I have seen that zoning allows for the additional unit but the ceiling height is not acceptable; in these situations the basement needs to be “dug out” which would increase ceiling height, but is an expensive process and needs to be considered carefully.

Owners of single family homes could also be affected by zoning as well; as the potential pool of buyers could include rehabbers or builders.  Owner of a custom or upscale home may not fit this scenario, but rather owners of homes that have not been significantly upgraded or have significant damage, could sell to a developer who would either rebuild the home (new or rehab), or tear down the home to convert into condos which is affected by zoning.  Granted, the demand and financing of new development projects is not what is was a couple of years ago, I am seeing developers work for individual clients looking to build custom homes.  Smaller development projects still occur where the property was purchased in a distressed sale, and there is enough leverage to account for cost of build out and associated costs.

Pricing of vacant lots is largely determined by zoning, as the price would be dictated by what could be potentially built and value thereof.  Depending on area and demand, many lots price themselves on the value of what could be built on-site, minus cost of materials for such development and adjusting for developer’s margin.  This can become highly speculative, and is largely affected by the current pricing, absorption rate and available financing.  Additional costs such as utilities, sewer and encumbrances could also affect value.  Years ago during the height of the market, many investors were picking up vacant lots.  Many picked lots based on area; others on zoning.  Value will be determined by both.

Height restrictions and setbacks would also affect the ability to install roof top decks, front façade balconies.  Additionally, landmark status could also affect what could be rehabbed or built.  Zoning information in Chicago is public, and information regarding specific builds should be researched thoroughly.

Sherwin is a REALTOR® in the Chicago & Suburban area with @properties. Questions can be forwarded to Sherwin Sucaldito

”In The Zone” by Sherwin Sucaldito is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.
Based on a work at realtyevolved.net