How Real Estate Values Are Created: Part 2
Determining the value of what you can get for your house, building, land, etc… is pretty much a complex formula.
For the most part, you’ll be working with your sales agent or broker and using recent comparables otherwise known as “comps.”
Comps are the recent sales in the area that are similar to your property.
For example, if you have a 3 bedroom, 2 bathroom house on an acre of land, they’ll look at comps that match your property, then factor in some other things such as location, zoning, condition, and other things like does it have a driveway, swimming pool, guest house, etc…
Other questions you’ll have to ask yourself are:
- Do I want to maximize the sale price?
- Is my goal to sell the property and get to closing within 60-90 days?
- What terms and conditions (contingencies) am I willing to give the buyer?
- Am I a motivated seller or am I just interested in throwing a fishing line out there to see who would bite?
- Is the highest and best use of my property something other than what it is now (one house on three acres)?
- What is the category of buyers likeliest to purchase my property – is the target buyer a homeowner like me or is it a developer or builder?
An offer is like a set of scales with price on one side and terms and conditions on the other. Offers are not just about price because price is relative to the rest of the offer.
The terms and conditions that you’re willing to give a buyer impact what you can get for the parcel. Although this is particularly true with development property, the contingencies (or lack of them) also have an effect on the price that’s ultimately negotiated.
The sellers need a longer settlement date because they’re moving into a home that’s being built. In accommodating the sellers on the closing date, the buyers may gain some leverage in negotiating a more favorable price.
Conversely, sellers who afford home buyers with mortgage, inspection and other contingencies should realize the top sale prices for their properties.
The development property’s value is greatest when the seller agrees to contingencies that give the buyer the opportunity to explore “what if” scenarios.
However, sellers should not blindly grab the offer that has the highest price without doing some investigation both about the buyer and the development scheme that’s being proposed. The buyer may want to pursue a pie-in-the-sky idea or one that’s only remotely possible of being approved by the municipality.
It could be damaging to the sellers to take the property off the market only to have the deal fall through months or years down the road because the buyer couldn’t satisfy the “what if” contingencies in the purchase contract.
If you do make additional money using the property for whatever reason, the value of your property is obviously worth more.
Here’s a guy making an extra $350,000 a year 1.5 acres of land.
Farming on your land will require that you adhere to certain agricultural laws and regulations so be sure the you’re in compliance with them
If you want to maximize the sale price but don’t want to wait months or years to get to closing or a lot of risk, you may be looking at selling only to home buyers. Undoubtedly, if you have to sell fast, then your ideal buyer is someone interested in living on the property.
On the other hand, if you didn’t care how long it took to get to closing or what contingencies you gave the buyer because it was more important to you to get the highest price, then you should probably explore the developer or builder market.
Before you go running off in search of a builder to purchase your property, however, you should hire a real estate attorney who’s experienced in representing owners or buyers of real estate for development.
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