Land Development Values - Identifying Serious Sellers
Sooner or later, everybody who buys real estate sells it. If you’re a developer (as that term is used in the articles in this Land Development Values series), then you’re a seller just temporarily wearing a buyer’s hat. You should start your land buying and selling cycle by focusing your time, effort and money only on parcels owned by people serious about selling. This may seem to be a no-brainer, but if you don’t know what separates the real sellers from the rest of the pack, you’re likely to fail repeatedly in your attempts to put together a viable real estate development deal. How can you recognize real sellers? Look for these essential qualities.
An Open Mind
Most people form their expectations and base their actions and decisions on their perceived reality. While this may not be the “real” reality, it is their reality. A seller’s perceptions color every aspect of a potential land deal. The asking price is just the tip of the iceberg because price is only one manifestation of a seller’s expectations. To be successful with them, remember that you’re dealing with a whole package. That package can consist of misperceptions, misunderstandings, incomplete or erroneous information, and just plain emotion. Your mission is to clear up the muddied waters by using facts to persuade them. You can only do this with sellers who keep an open mind and are willing to recognize that their preconceptions and expectations are at odds with reality.
Suppose you’re interested in buying 5 acres owned by Sam who wants to sell it for $500,000. The land parcel sits on a high-traffic street but is zoned for housing on half-acre lots. You believe that the best (i.e., most profitable) use of the property would be development into a small office building, not housing. Sam doesn’t care how his property is developed. He just wants his price. Before you even get to the point of submitting an offer, you should explain to Sam (face to face) why your purchase needs to be contingent on the municipality approving a change of use, what’s involved, and how long you think it will take to get a decision. If Sam persists in believing that he can sell his land parcel without having to agree to these terms, maybe it’s because you weren’t persuasive enough. On the other hand, perhaps he’s not ready to become a real seller and may never be ready.
Yes Means Yes
You are far better off getting a “no” from land sellers than getting involved with people who keep changing their minds, particularly after they’ve signed the sales contract. If they wake up one day with a case of seller’s remorse, you will be the one who suffers. They will try to take advantage of any opportunity that would allow them to get out of the deal. So you must make sure that you don’t default in any of your obligations under the contract because if you do, the seller won’t cut you any slack. If you ask for any extension of time to satisfy contingencies in the contract, you can assume that the seller won’t be willing to give it to you.
Sellers who are emotionally attached to their properties may even deliberately fail to perform their contractual obligations (knowing they run the risk of being sued by you) just to end the transaction. Anything could cause them to change their minds, and you may not be able to figure out what’s going on. Stop dead in your tracks as soon as you begin to get a feeling that the land owner you’re in contract with is a weathervane, not a seller, and consult your attorney about your options.
Team Effort
Serious sellers of parcels for land development recognize that it takes a team effort to get the deal to closing. In a sense, they are partners with you, and they need to be cooperative and do whatever is necessary to assist you when you ask for their help. They should also understand that you may not have any control over some issues (e.g., those over which the municipality and other governmental entities have exclusive jurisdiction).
The best way to cultivate a spirit of cooperation is by establishing credibility. So do what you said you would do and do it when you said it would be done. A successful partnership requires a degree of trust. Complete trust may not be necessary or even possible between you and the land owner. However, you can create a relationship that has a sufficient amount of trust to enable you to work with the seller in overcoming any obstacles that pop up on the road to closing.
At last, there is a resource for people interested in buying or selling land. Check out Nancy Chadwick’s real estate investing and land development guides, articles and books at http://www.LandBuyingandSelling.com/
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