Developer says, "what's your number?"

Discussion in 'Homesteading Questions' started by cast iron, Apr 28, 2006.

  1. cast iron

    cast iron Well-Known Member

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    We are in a rapidly growing area. "High density" housing is all the rage around here. High density housing is two story houses placed 6' apart with almost non-existent yards. Developments have been going in all around us for some time.

    There is a development going to be built across the road (we own the road) and they would very much like to expand the boarder of this development and include the properties on our side of the road. There are three properties on our side of the road. Property #1 is about an acre. Property #2 (ours) and #3 are 1/2 acre lots. Our property is probably the nicest as far as privacy goes. Nice backyard with forest etc. #3 is out on the main road and may very well end up loosing his front yard when they widen that road. Developer has been sending us letters and calling for the last year or so and we have ignored him up until now.

    He calls yesterday and says they are finalizing plans for the development and wants to know "what my number is?". Wants to know what we would be willing to sell for. I'm tired of the lack of information on this project and request a face to face meeting with him yesterday afternoon. He tells me the following:

    1. Shows me maps of the acquired properties so far and what is left to acquire. Also shows me the development layout map and how it would come up to the other side of our road (there is no access to the development from our road, just a fence along our road for the development perimeter). I requested copies of both maps and surprisingly he gave them to me. After he gave me the copy he took it back to look at it and ensure there was no confidential info in all his chicken scratches on it. (seems like a very disorganized person)

    2. He says they have been paying between 680 and 700K per acre, and "if you do the math", 1/2 acre comes out to 350K.

    3. He claims he has an agreement from property #1 for a sale, if... see #4

    4. He says they are only interested in this deal if they can get all three pieces of property on our side of the road, otherwise it is not worth it for them to pursue as it messes up the boundaries of the development (it won't be an even rectangle) and that messes up the internal layout of the development.

    5. He claims that he has had limited discussion with property owner #1 and that property owner #1 has only told him that 350K was not enough for him.

    6. Sewers will come from down below the development (on a hill, we are on top). Unknown exactly how or if this will impact our road (has easement for utility's)

    7. Estimated time-frame = 18 months to closing. Unknown how long to vacancy.. maybe 24 months?

    Other financial data:
    a) county assessment was $224,000 last year (this is not the same as market value)
    b) zillow real-estate website estimates the current market value $331,834
    c) 2005 median price for the entire county = $300,000 (although our area is a bit different than the rest of the county as it is one of the few that allow this high density housing business)
    d) Depending on what the sale price would be we stand to make about 250K profit on the place at the absolute minimum.

    So, that's what I know now....

    Of course that's only the financial side of the decision process. There are many other issues like:

    1. Our current place has bit left on the mortgage and will be paid for. We have no other debt and would like to not take on any other mortgages in our future.

    2. While this house is older, the property is quite nice - private, lots of large trees, nice backyard with two custom ponds that have fountains, waterwheels, goldfish etc. Lots of parking, including a big place to park a large RV. And most important to me, there is a large, very nice detached shop building - fully insulated, water, septic, electric, cable tv, internet, the whole nine yards.

    3. Unknown what we could sell for later if we stayed put. My gut feeling tells me we could not sell for what the developer may be willing to pay right now. The popular theory is even if people don't sell to the developer now, they can sell later on in the general real-estate market for just as much. I don't buy that theory. What I see happening with the people who stay and then try and turn around and sell a short time later is they overvalue their property and can't sell it. Why would the typical buyer coming to our area (typically employed in high tech, software, medical, engineering, bio tech etc) pay $350K for a 30 year old house with a nice shop, no hoa rules etc. When they can pay $450K for a nice new house with no yard to upkeep in a fancy development with hoa's?

    4. Wife has a 6 minute commute to a job she really likes and seems to have opportunity for continued advancement.

    5. My commute is even shorter.

    6. Wife and my sister are best buds. My sister lives about 7 minutes away.

    7. After this year my son has two more years of high-school in this district. While I'm no fan of public schools, the district we are in is a huge draw to this area. It is one of the best in the state, and the reason we moved here in the first place.

    8. We own 14 acres (paid for) in another county (more farm land type area) near my wifes relatives, that we have tentatively planned on developing and moving to "sometime in the future". However, this is completely undeveloped land right now, and there may be some difficulties with development - it won't be a straight forward deal. It may turn out after we have had a chance to thoroughly go over the acreage that we can't or don't want to build there. In which case we might buy another place (with an established house and infrastructure) in that area. In other words, building on the 14 is not a sure deal right now. Many unknowns.

    9. Employment opportunities are far fewer near the 14 acres than where we are now. Salary levels are of course lower also.

    10. We would like to come out of this "transaction" (if we do it) with the mortgage paid off on this place and be able to purchase another place free and clear.... and there-in lies the problem if we decide to sell but want to stay in the area.. see #11

    11. While I have not pursued it with vigor yet, I suspect it would be almost impossible to find a place that had the amenities and benefits of our current place in this area for price that we could afford....

    So, I'm thinking our number is actually quite high, given #10 & 11....... the worst that could happen is a counter offer, or they could just say no, in which case we stay here.

    Gonna have a sit-down with my wife this weekend and discuss.

    Wayne
     
  2. mpillow

    mpillow Well-Known Member Supporter

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    Tough call...from where I sit....we do seem to be bubbling of late though.

    I would ask more (there is no harm in staying) like $100k more....make it a win win situation....its comfortable they say no and an extra $100k gives you some options if you get it and move out to the 14 acres.... :shrug:
     

  3. SteveD(TX)

    SteveD(TX) Well-Known Member

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    Are you asking for advice?

    My comments would be:
    1. They are paying $680-700K per acre for what? Half acre lots are typically worth a lot more per acre than say, 5 or 10 acre tracts.
    2. I would get together with my neighbors and discuss the situation. If an agreement could be made where the price is that you would all consider selling, that would be beneficial.
    3. Don't sell unless you can find something equal to or better than what you have, for the price they are willing to pay.
    4. Remember, their first offer will typically be a "low-ball".

    That said, it sounds like you have no real reason to even give consideration to their questions or offers right now. You sound like you want to just stay there. Somebody else will probably want your land even more in the future.
     
  4. Gary in ohio

    Gary in ohio Well-Known Member Supporter

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    Find a new place that meets your needs then Tell them you want 1 lot in the new development with paid tap fees, plus they money (and some) to pay for the new place
     
  5. Dutchie

    Dutchie Well-Known Member Supporter

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    I was pretty much going to say the same thing Steve already did. Just want to add one thing: Get an appraisal.
     
  6. goatlady

    goatlady Well-Known Member Supporter

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    Seems to me you are really figuring on being able to seel you place sometime in the future at a decent price, however, If I was a buyer looking for a nice rural place I personally would NOT buy across the road from a development at any price. You really need to talk to the other neighbors and all of you settle on a price agreeable to you all, then sell, and move before the traffic gets really bad and your property taxes start going sky-high based on the land values across the street.
     
  7. clovis

    clovis Well-Known Member

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    Congratulations!!! I would give my eye teeth to be sitting in your shoes right now. This will give you the opportunity to be debt free....what a wonderful feeling!
    I personally wouldn't leave any money on the table, but I certainly wouldn't get greedy either.
    Millions of deals are killed every day because of greed. Sounds like this is a payoff that thousands of us would like to have. Why kill the deal?
    Clove
     
  8. Obser

    Obser "Mobile Homesteaders"

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    Do you want to stay in your present location in spite of the changes that are occurring (high density housing, bigger roads, more traffic, higher taxes)?

    Don't believe what the developer or his representatives say without verification. If it can't be verified, consider statements as "possible". For instance, they MAY develop your side of the road even if one property owner won't sell, but it could be a good business tactic to say they will not, knowing that they are not committed to do what they say informally (unless under some agreement or contract).

    If faced with your situation I would hire a professional to appraise my property (an appraiser recommended by my bank or title company). With that information I would ask the developer what premium they would pay since I do not particularly want to sell or move. If the appraisal came in around $325,000, the developer should be willing to pay considerably more for those relatively rare pieces of property that are approved for high-density housing.

    I would also evaluate the alternatives available if I had cash in hand to purchase other property (and would not confine myself to using the 14 acres if its location was not appealing).
     
  9. cast iron

    cast iron Well-Known Member

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    True. Their spin is they can cram X amount of houses on the 1+ acre lots so they attempt to buy them first, then try to pick up as many sub 1 acre lots as they can.

    People who's property is inside the boundaries of the planned development and don't sell, get "built around". You can litterly drive through these developments and there will be new house after new house, then all the sudden you round a corner and there is an old house sitting on a 1/2 acre or an acre+. The developers of course don't like this because it mucks up their fancy development, so typically the developer will put a tall solid board fence around the perimeter of the "offending" property to block it from others view.

    In our case we are on the outside perimeter of the proposed development and they want all three properties or none at all. So there will be no "building around us", supposedly. We either all decide to sell and leave, or one of the three decides not to sell and we all stay... and the backside of the development is built up to our doorstep. This will mean looking out our front window we will see on the other side of the street a 6' board fence, and the second story of the houses above the fence...

    hmm, I just realized if that happens I'm probably not going to be able to walk around the front rooms half naked anymore... we never shut the curtains around here now... guess I better add that to the negative list. ;)
     
  10. GAchickenguy

    GAchickenguy KS boy stuck in GA

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    If you didint want to stay in that area since you will be having alot more neighbors and the man has asked what your "number" is. If it were me I would simple tell him your number is the 350k plus he takes over the responsibility for paying off the current morgage on the house and property that way you walk away with the 350k in your pocket to do what is in the best interest of your family being finding something small for now still with in a reasonable drive for you and your spouse even if you did add a few miles to each and also while keeping your son in his comfort zone of being in the same school to finish up his last 2 years. Then once he graduates you go from there with the rest of the money and decide if you build on your 14 acres or look for another place to proceed with your plans
     
  11. logbuilder

    logbuilder Well-Known Member

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    I agree with Clovis on this. This is a great opportunity but it won't last. The developer is motivated to get your parcel to complete the development. He values it based on the land only but can rationalize a premium since he has plans. If he doesn't get yours, they will eventually wrap up this development and move on to the next one. That would leave you with property that to another person would not be as valuable unless they also wanted to develop it. In terms of finding someone highly motivated enough to pay you a premium, the current developer is the one.

    Get with your neighbors. Agree on prices that are high but with everyone saying they will sell, the developer might go for it. Ask to be able to stay rent free still they are ready to develop it. Start looking for another parcel with the proceeds from this sale.

    Robert
     
  12. CraftyDiva

    CraftyDiva Is anybody here?

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    Are you taking into consideration, "Capital gains" and the taxes you'll be paying on it? That alone will bring down any money your looking to use for future housing if you sell.
     
  13. agmantoo

    agmantoo agmantoo Supporter

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    Study the quality of life that will exist after the development occurs next door. Research what you can buy with the proceeds that would meet your total needs. If the sell will provide the lifestyle you want and you can improve yourself financially make the change. Do understand that you are the inexperienced one in the transaction. The buyer knows every loophole and trick of his trade and trust me, there are many! Some professional assistance may be needed and even then you may not get all areas covered. I have done a number of the transactions and still have to be extremely careful not to get myself in a tight spot. Such opportunities do not come along often but they can be most rewarding. Good luck.
     
  14. wilderness1989

    wilderness1989 Well-Known Member

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    EXACTLY figure capitol gain tax!!!!!!!!! :cowboy:
     
  15. logbuilder

    logbuilder Well-Known Member

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    There is some information being thrown around that may not be totally accurate concerning the impact of taxes on your transaction. Below is directly from the IRS website. In a nutshell, a married couple filing jointly can deduct up to $500k cap gain if they lived in the home for 2 years.

    Robert

    ********** irs info below ********
    http://www.irs.gov/publications/p523/ar02.html#d0e1931


    Excluding the Gain
    You may qualify to exclude from your income all or part of any gain from the sale of your main home. This means that, if you qualify, you will not have to pay tax on the gain up to the limit described under Maximum Exclusion, next. To qualify, you must meet the ownership and use tests described later.

    You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. This choice can be made (or revoked) at any time before the expiration of a 3-year period beginning on the due date of your return (not including extensions) for the year of the sale.

    You can use Worksheet 2 to figure the amount of your exclusion and your taxable gain, if any.

    Maximum Exclusion
    You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true.

    You meet the ownership test.

    You meet the use test.

    During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.

    If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed.

    You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true.

    You are married and file a joint return for the year.

    Either you or your spouse meets the ownership test.

    Both you and your spouse meet the use test.

    During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home.

    If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property.

    Ownership and Use Tests
    To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

    Owned the home for at least 2 years (the ownership test), and

    Lived in the home as your main home for at least 2 years (the use test).


    Exception. If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. The maximum amount you can exclude will be reduced. See Reduced Maximum Exclusion, later.
     
  16. cast iron

    cast iron Well-Known Member

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    Yes, this has been weighing on our minds throughout this deal as well if we decide to stay. In addition to what you have mentioned, we have the issue of our road and the utilities easement that it has. Technically our property line goes to the other side of the two lane road, but there is a good chunk of easement that is specified for utilities.

    Even though we would be on the "outside" of the development they may decided to run the sewer line up our road, or they may decide to put the power-lines underground, or (I don't know if they can do this or not) they may decide to take up the easement and absorb it into the development, effectively leaving us with a narrow single lane road (if that). If we own the road, who pays for the sewer and power work.... will we be forced to hook-up to the sewer (after spending 8K one year ago for new drain-field)? We are zoned rural, out of the city limits, and in unincorporated part of the county.. but still, who knows.
     
  17. cast iron

    cast iron Well-Known Member

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    That was the gut feeling I got from this meeting yesterday. These guys are huge developers, and in fact they are now working on another large development that would be coming towards my backyard. From the map however, it looks like that development would end beyond the (relatively new) houses that are currently behind us. Thus preserving some privacy and solitude in our backyard.... I hope.

    This guy we are dealing with is of course just the front guy. He takes the offers to the money guys within the development group for approval and such is my take. This guy was very mater of fact about the whole thing (although that is of course how the car salesmen work as well). He mentioned that if they could secure say 2 of the 3 properties, they would probably be inclined to, "make the third one work". He said that, "they know neighbors talk", and in fact outright asked neighbor #3 when he made him the 350K offer if he had talked to his neighbors about this issue.

    As far as capital gains goes, I've been looking into that and have pretty much found as logbuilder outlined in his post. We have been in this house for about 20 years now so I don't think it would be an issue there. However, if we buy something else around here and then are able to develop and move onto the 14 acres before two years are up, we might have a problem.

    Finding something around here with the amenities we have currently will be extremely tough. I sincerely doubt we could find anything within my sons high-school boundaries. We looked out aways and found somethings in the 300-500K range, but that took my wifes 7 minute one way commute to a 1.5 hour one way commute.

    Fun stuff...
     
  18. cast iron

    cast iron Well-Known Member

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    Here is some "high density" housing, all within 5 minutes of my place.

    This is like what we would be looking at across our street (except our street is a dead end road with only two residents at the end) when that new development goes in. This picture doesn't do it justice, but the distance between the backs of these houses and the fence is only about 6'. The sign says, "starting in the low 500K's, only a few left".

    [​IMG]


    The front...
    [​IMG]


    These are a little fancier (and more expensive). The HOA rules are so vast that they hand them to you in a three ring binder - no cars on the street, no cars in the driveway for more than X hours, garbage can has to meet X standards etc.
    [​IMG]


    This is what happens if you are in the middle of one of these developments and you decide not to sell. They fence your ugly old house off all around its perimeter. This guy really irritates the neighbors with that ugly old tv antenna on his house. The guys in the new houses are not allowed to have antennas per their hoa's, and they don't appreciate Mr. old house having that blight on the side of his house.
    [​IMG]


    These are not condos, not apartments, not town-homes, these are single family houses. They are sold as fast as they go up.
    [​IMG]


    And if those are too rich for your blood, you can get these smaller versions starting at 390K. Look at that huge lawn, do you think they use a rider to mow that? ;)
    [​IMG]
     
  19. Fla Gal

    Fla Gal Bunny Poo Monger Supporter

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    That's ugly, it's so ugly... and I don't mean the house with the antenna. [​IMG]
     
  20. Dutchie

    Dutchie Well-Known Member Supporter

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    Do not ask your bank or title company for a referral. Reason being that you are not getting an appraisal for lending purposes, but rather to determine market value as well as highest and best use. Banks may have excellent appraisers on their list but these may not be the right ones for the job. Instead, look for a listing here www.asc.gov and look for a Certified General Appraiser (CGA) or Certified Residential Appraiser (CRA)in your state/area.

    Or even better .... go here: www.http://appraisersforum.com and post your question there. There are some very competent and ethical appraisers on that board who could answer many of your questions and refer you to the best appraiser for the job.