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How Real Estate Annexation Can Affect Investors

For owners or investors, is it better for property in an unincorporated territory to be annexed by a neighboring city? Learn the pros and cons.

[Updated: Feb 04, 2021] Dec 04, 2020 by Lena Katz
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Being part of a specific town or city can give a bump to a property’s profile, but it also can increase taxes and utility bills. However, property owners in unincorporated territory don’t usually get to make the choice: municipalities and counties do, through a process called real estate annexation.

What is real estate annexation?

Real estate annexation is the legal process by which incorporated municipalities expand their jurisdiction to encompass formerly unincorporated adjacent territory. Sometimes a municipality will also annex from a neighboring city. The power to annex either a territory or a part of another municipality is governed by state law.

Why would a city or county annex?

When a state’s population is growing and homes are being built, cities and counties outgrow their existing borders, and annexing adjacent land -- especially land that’s being developed or thriving with new developments and residents -- is a sensible growth strategy. The bureaucratically arduous process of annexation law is something that local governments are empowered and equipped to navigate, although the exact process varies by city and state.

How does annexation affect the landowner?

There are upsides and downsides to being annexed by a municipality. The upsides are mainly to do with centralization of services. If your property is within a certain city, you have water and trash pickup taken care of; plus there’s a centralized system for other utilities, as well as other services such as street maintenance. If you’re in unincorporated territory, all of this is a question mark.

Another potential major advantage is that the value of a property can increase if it becomes part of a city with overall high property values. And, some people who live in unincorporated areas right near cities feel like they’re already affected by the city jurisdiction, so why not become officially part of it and get to vote in city elections so as to have a say on issues and representatives.

The downsides are, unfortunately, also often financial. Along with being part of a city comes potential increased property taxes, utility charges, and special assessments. Other downsides are a product of the layers of city government, like additional regulations around building permits and fees.

Beware of 'double trouble'

In most cases, landowners in unincorporated territory already have utilities set up and aren’t ever thinking that annexation will set them up with a whole new group of utility and service providers for which they’ll be billed. It's very common for these owners to accumulate double bills -- those for the preexisting utilities and then the new ones for the city that has annexed the property.

How could annexation affect a property buyer?

It’s worth noting that annexation could cause as many complications for a potential buyer as an existing landowner. This is because there are now two places to check for open and expired permits, property tax owed, and special assessments. There may also be outstanding fines from the new jurisdiction that the existing landowners may not have tracked because they were used to dealing with the county.

That being said, there are also potential advantages that would encourage a buyer. For example, a city may have more favorable zoning practices than the county does. The buyer may have a plan for developing more structures on the property and know that the city would support such development.

What if you want your property annexed?

Some landowners and investors want a property annexed because they feel the benefits outweigh the additional costs and municipal regulations. It's possible to proactively seek annexation or expedite the process by filing a petition with the municipality as well as with county commissioners. The exact process varies by city, but a good first step is to speak with the city’s attorney or a city planner if possible.

Real estate annexation: the final word

For as long as populations and local real estate markets grow, there’s always the eventuality that land on unincorporated territory will be annexed by cities bursting at their seams. Some people avoid it by moving as far as possible from civilization. If your property gets annexed, the best path is to understand what new city regulations and expenses come with it, as well as what increased values will benefit you and potentially make the annexation a net positive.

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