Selling Land to a Developer
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So, you have this great parcel of land you just listed. It is the best site in the marketplace. The seller told you that zoning and all entitlements are in place; all right-of-way has been fully dedicated; a clean title report, current survey, soils report and environmental report are all available, the parcel is free and clear, there are no liens, and it is ready to be developed. What a great listing … this one should sell quickly, right?
So you place your sign on the property, create a little flyer, and wait for the phone to ring off the hook. Maybe you’ll even send the flyer to the developers in your database or take the property to a marketing meeting and look for a buyer.
As a developer, when I call, this is what you will say to me when I want to make an offer. You will tell me everything you think you know about the parcel and expect me to believe you. When I ask you for copies of the information you say exists, you will hem and haw and tell me that the seller told you all this information. No, you really don’t know for a fact that the zoning is in place because you didn’t make copies of the zoning history file at the city. And sorry, you don’t have a copy of the zoning and land use regulatory requirements, general plan and zoning maps of the city, county and state.
I ask you for a copy of the survey and the other information you told me exists. You call back three days later and gee, guess what? You thought there was a current survey, but you guess that you just assumed one must exist, but you were wrong. Oh, and about that Level One study and the soils report, well, the seller told me that the previous owner had one done, but no one can find a copy anywhere.
And about that title report, well, no you really did not order a preliminary report and didn’t personally review it, so you are sorry about the fact that there really are a couple of liens on the property, and an old set of CC&R’s that you are sure can be abdicated and removed from the chain of title, and a water and sewer agreement that requires advance payment prior to closing, and just a little bit of land that must be dedicated due to plans for future roadway expansion.
You also didn’t realize that there are three public hearings required in order to vest the zoning and that the land use category you thought this parcel fell under was modified last year. Oh, and about those entitlements, well, you are surprised to find out that they are contingent upon site plan and design review approval. No, you didn’t realize that the public hearing process of applying for land use approvals takes almost 8 months; building permits another 4 or 5 months after that; or that the fee to apply is $5,000 and an applicant must submit a full set of construction documents including site plan, elevations, civil engineering, traffic mitigation study, noise calculations, site lighting and photometric studies, line of sight analysis, new landscape plans and native plants re-vegetation mitigation plans.
Oh, and one more thing you didn’t know about; the City Council and the Planning Commission now requires a three dimensional video using computerized modeling submittal showing how the completed project will fit into the existing neighborhood prior to any public hearings for project approval.
I ask you if your client is aware of theses issues and you tell me you really haven’t talked to your client about this entire process so you are not sure he will give me much time to figure this puzzle out. I tell you that I am still interested in the site and submit my letter of intent.
When you get the offer, the first thing you tell me is that my earnest money deposit is not quite enough, that I am asking for too much time to complete my due diligence and much too much time to close the transaction. You assure me that you just know so much about this parcel and the process to develop it that you are sure that I will be successful.
Well, as an experienced developer, this simply doesn’t work for me, the failure to provide solid verifiable information combined with a lack of time to develop the information, is a deal breaker for any developer. I have no alternative but to take a pass on this site. Guess what? After a few months, and a series of disappointed developers later, you lose the listing to another broker.
But what if you had taken another approach? What if you had adopted the philosophy and attained the training that is characteristic of a special group of Brokers? What if you were a Member of the Society of Exchange Counselors? If so, then this whole scenario plays out somewhat differently.
As a S.E.C. Member, before you agreed to take the listing on the land, you would have fully counseled with your new client about the property, his ownership situation, his motivations, the benefits he seeks and how he visualizes the transaction unfolding. You would have asked for and received full access to the owner’s files and you would have conducted your own “pre-marketing” due diligence review on the parcel. You would have helped educate your client on the development process so that he would be better able to make knowledgeable decisions about any proposal to acquire his property. You would have conditioned your client to the needs and expectations of all experienced developers – the need for information and the time to assure themselves that the proposed project is both possible and profitable.
As a S.E.C. Member, you would have created a full and accurate back up package and you would have done your homework. You would have spent some time with the folks on the regulatory side, gathered copies of zoning regulations, applications, and schedules. You would have made copies of the minutes of past public hearings on the parcel so everyone would know whom the players are and how the entitlement game was played in the past. If a survey does not exist, you will have obtained a bid for the work. You would have received bids for other consultants and studies that you know, based on your research, you know will need to be done. You will have a list of the members of the Planning Commission and City Council and all the neighborhood leaders and organizations that are stakeholders in the public process. In short, you would have fully prepared to take the property to the market.
And do you know what, as a S.E.C. Member, you do when I make an offer? You will meet with me and give me this great three ring binder with everything I ever wanted to know about this parcel. You will listen to my ideas for development of the parcel and probably set up a meeting of the principals so we can attempt to work out a satisfactory transaction. Since your client is now well counseled on what to expect from a developer and how the transaction must be structured for success, everyone’s confidence level will be sky high and we will begin our adventure together.
The moral of this story is that selling land to a developer is both an art and a science. The better prepared you are as a broker, the better counseled your client is and the more information you can gather on the people and the process of development for your land listings, the more likely you will find yourself on the path to earning that six figure fee at the closing table.
