Value in the Land

Unlike a residential real estate transaction, a "value in the land" deal is subject to some very different terms - such as a longer time frame for closing the transaction. This can cause some consternation on the part of a seller. Here are my actual responses to questions from a land seller, regarding this:

 

We changed our minds and want to back out of our agreement. You may not back out of the contract you signed now, or you would be in default of your agreement. It is a legal agreement, and you have no contingencies. If the buyer were to ask for anything new (an extension on closing date, for example}, you would be under no obligation to approve that. The cash buyer also has NO contingencies remaining after the feasibility period and must close on time, or he is in default of his contract.

Isn't this unusual to have a six month closing? No, this is very typical for a land deal.

Shouldn't we have gotten more money to cover our costs (taxes, insurance, etc.) Yes, in fact you are receiving more money than you would have gotten with a shorter closing. If you wanted to close in 30 days, then the Buyer would be paying taxes, insurance, utilities AND FINANCING (HOLDING) COSTS, and this would have been factored into the price they were able to offer you. In fact they did state that they could close earlier, but they would have to offer less money. You are getting a fair market price for the value of your land.

How do we know we are getting fair market value? Given the exposure you got with a double listing and the length of time on market, this is the best offer you received. In fact, I had discussions, after this offer was received,with two other brokers who were willing to offer much less than the offer you have on the table. In my professional opinion, my review of other comparable sales indicates that this was a very reasonable offer for this parcel. (Keep in mind that I am purchasing a 10,000sf parcel myself in South Seattle with a much higher density zoning - NC3P40 - for just $350K).

They are shopping this around to other builders and developers. Why is this relevant, as long as they close on time and pay you the agreed upon price in genuine US currency? In fact, this particular buyer has a history of doing these types of developments. Speculation about their financing or development plans has no bearing on their ability to deliver on the contract they signed with you.

We should have thought more about this before we signed. Seller remorse is not unusual, but I am here to reassure you that you are getting a very good price and reasonable terms on this sale. We discussed the length of time for closing and the reasons for it - and were able to negotiate a counter offer that included forcing them to pay their earnest money to you IMMEDIATELY AFTER SATISFACTION OF FEASIBILITY.

What if they don't close? You get to keep the earnest money, and sell it again.

What if we back out and default on our contract? I cannot give you legal advice and you would need to consult your attorney for professional guidance on this.

 

And that's how a land deal works!

 

Happy Investing!