This entry was posted on Tuesday, February 12th, 2008 at 8:48 pm and is filed under Due Diligence. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Selling Land and Real Estate Due Diligence
Many of the readers of Property Development Source.com are not interested in developing real estate. They would rather simply buy and sell land and leave the land development to someone else.
So many of these readers have asked me the same question, “How can Property Development Source.com help me buy and sell land for maximum gain?”
Well, when it comes to buying land I think the answer is obvious. Without proper due diligence and a site evaluation there is no way to really know what the development potential of a property is. And thus, it is impossible to determine an accurate value or price for the land you plan to buy.
The advantages of conducting due diligence when you are selling land is a little less obvious. So let’s look at a few of the ways it can help.
1. Determining an appropriate asking price
Once you have done your research you are in a far better position to know what a good asking price would be. This is important because if your asking price is too high many potential buyers may not even bother submitting an offer. (99% of all real estate agents use the wrong techniques to estimate the value of raw land.)
2. Eliminate low ball offers and unqualified buyers
When you provide interested buyers with a property package that provides them with all the information they are going to need to it shows that you are not someone to be taken advantage of. Your package makes it clear that only serious offers will be accepted.
3. Gather more interest from the buyers you really want
Many of the bigger developers and companies have people who do nothing but look for properties. These people are extremely busy and will often skip over properties that require to much effort during the initial evaluation. A complete property package will get these buyers attention because you have done the initial work for them.
4. Give your asking price more validity and you more leverage in negotiating
Many buyers like to get a contract signed by the seller and then start chipping away at the price by finding things wrong with the property during the due diligence period of the contract. By putting everything on the table up front in your property package you significantly reduce the effectiveness of this tactic and give your starting price more validity and you more leverage.
To further illustrate my point, here is a story of the way many people go about selling property. Notice how the seller is constantly negotiating from a position of weakness during the whole story.
Jane Q. Farmer owns about 6 acres of rural land outside a major metropolitan area. The city is expanding in the direction of her property and she is nearing retirement so she decides its time to sell. She assumes, and wrongly I might add, that she only has 2 options for selling her property – sell the property herself (i.e. putting a sign on her property with her phone number and hoping someone drives by), or hire a real estate agent to list the property and sell it for her.
Jane isn’t in too big a hurry so she decides to simply put up a sign and wait to see what happens. Well, Jane has some luck and after a week or two she gets a phone call.
Steven Developer calls the phone number and starts asking her about the property and what Jane’s asking price is. Well, Jane doesn’t really know what the property is worth or what price she wants (just that she wants to get as much as possible, whatever that is). She had asked some of her friends what they thought the property was worth, but her friends aren’t any smarter about land than she is.
So out of fear of making a mistake and telling Steven a price that is too low, she just tells him they haven’t set an asking price but are accepting offers. This only delays the problem.
A few days later a contract offer from Steven comes in the mail offering $150,000 for the 6 acres. Jane has no idea if this is a fair offer or not but it is way lower than what her friends had told her the property was worth so she decides to do nothing.
Two days later Steven calls back and Jane tells him she felt the offer was too low. Steven replies that with the odd shape of the property and the current zoning he doesn’t think he can build more than 5 single family homes on the property and $30,000 a lot for raw land is a more than fair price.
That sounds reasonable to Jane but she’s still uncertain so she declines the offer and tells Steven goodbye.
Over the next 6 weeks, Jane relives this same scenario 3 or 4 more times. Most of the offers were for similar prices between $100,000 and $200,000. One was for $450,000 but the contract for that offer was very long and there was talk about the sale being contingent on rezoning which Jane didn’t understand so she passed on it.
Finally, Jane got tired of the stress of the whole ordeal and when the next offer came in for $175,000 she took it just to get it over with.
In reality, if Jane had done some basic due diligence and site planning, she would have known that the property was worth considerably more than $175,000.
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February 12th, 2008 at 8:53 pm
I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.
Chris Moran
February 13th, 2008 at 1:37 am
Chris,
Thank you. I am glad you feel there is some good content here.
To be honest, the site is so new I haven’t even tested the RSS feed yet. I am not that web savvy, so if it isn’t working please let me know.
Bart
February 23rd, 2008 at 10:51 pm
Bart,
I’m excited to see such an interactive site on development. I own a large track of land and I am thinking of subdividing some of it to service the debt. Appx 30 acres of 107. This is my first time so I am putting together a team of professionals to help. Your check list has gotten me started but I look forward to more info in the future. Michelle
February 24th, 2008 at 12:09 am
Good Luck Michelle,
please make sure you think about the future development of the entire 107 acres when you sell off the first 30. (You want whatever the buyers do with the 30 acres to increases the value of the remaining.)
Also, you may already be doing this but I want to mention this for anyone else who might read this.
If you own land and don’t have plans to develop it anytime soon, then please stay aware and active with your local planning department. From time to time they will revise and review your areas comprehensive plan and future land uses. These are great opportunities to increase the value of your land simply by showing up at the town meetings and voicing your opinion. (At the very least, you will help protect your land from losing value as your planning department makes changes.)
Bart
April 4th, 2008 at 2:34 pm
Thanks Annette.
I am always glad to hear from people who are getting value from the site.
bart