Sellers Normally Have an Inflated Idea of Value
Let’s face it, most sellers think their property is worth more than it actually is. They look at Zillow or a similar site and see listing prices and decide that the highest list price is definitely what they should get. With land, sometimes it’s tax value they use as their benchmark. How do we get sellers to come down to earth, and meet us at a price that works for us?
Reality check, Guided discovery
Guided discovery is the art of guiding a seller through a series of questions that allows them to realize on their own, without being told by you, that their property may not be worth as much as they had originally thought.
When negotiating on houses, a strategy many investors use for a reality check is to ask the seller on the phone to verbally walk you through the house. for each room you ask, has it been updated in the past year or two? Is it HGTV ready? Questions like this will get them to realize that maybe their house is not at top market value standards.
With land, we can’t discuss the roof age, HVAC age, the last time the kitchen and bath were remodeled, etc, so we need different questions to ask sellers in order to to help them self-regulate their price expectations.
Levers to Pull On for Land Negotiations (Reality check, Guided discovery)
Here’s a list of things to ask sellers about that can help them to realize that there are factors that may mean their lot is not worth as much as they originally thought:
- For rural lots:
- Septic/ Perc Test?
- Well?
- Urban lots with municipal water and sewer access-
- Are taps installed?
- Cost of taps?
- Cost to clear (and grade)
- Note- Trees aren’t worth anything unless you have at least 10 acres. (Some sellers will push back on this saying the trees have value).
- HOA?
- Road access?
- Curb cut/ culvert?
- Slope?
- Flood zone, drainage ditch, creek or stream?
- Easements?
- Encroachments? Any neighbor’s buildings crossing the property line?
- Nearby nuisances- Commercial, Cemetery, railroad tracks, busy highway
- Crime rate (be sensitive)
- Nearby homes’ retail value. (If homes aren’t selling for much, it limits what can be built there)
I’ve put a section at the bottom of this post with more detail and costs on this list of items
Level Setting
What is level setting? It’s getting the seller to come down out of the clouds with a sort of gut punch that makes them go “oof!” This can be done by sharing facts or by “lowball” offering. It’s a bit different than guided discovery because you are giving information, rather than asking questions.
“Mr. or Ms. Seller- Have you looked at the prices of other lots that have sold in your neighborhood?” (If prices are favorable to your argument, share a few of them). This may shift them to thinking of a new price level.
The other one we do is just to make a very low offer. If the seller wants 20k and we we say, we would be in the ballpark of 7k, it can have the effect of getting them to question their price and think on a lower level. This can also get sellers to tell you to go kick rocks, but it can work in your favor in the long run, after they’ve had other low offers. Especially if you’ve been respectful and professional and service oriented in your dealings with them.
When there’s a big price gulf, you are probably looking at multiple follow ups before getting a deal at a price that works for you. Level setting is the first step, letting the seller know what your ballpark is.
We use another technique which is a “pull away”. We call it the we’re not your buyer method. “Thanks for sharing your asking price Mr. Seller. At that price, we are not your buyer.” Sometimes when you stop chasing and move away, it has the effect of shifting the dynamic so the seller moves towards you. Here’s an extreme example from Key and Peele (profanity warning)
It Won’t Work Every Time, Don’t Get Stuck On One Lead
These techniques work well and often, but they won’t work every time, or right away. Do your best, and move on to the next. Understand that most deals take from 4-8 follow up contacts before they are secured.
As always with real estate investing, it’s a numbers game, and persistence is key.
Got stories about using this stuff with sellers? Drop them in the comments below.
More detail on land price adjustment items:
- Perc Test/ Septic
- Test $200-$300- but it takes 4-6 weeks. If using a Soil Scientist can be more, like $500-800
- Conventional system cost $7-10k
- Pump system, other types 20-30k
- Get a copy of test
- If the tank/ system is on site- Is it working? When was the last time it was used? Or inspected?
- We’ll need to do an inspection on it. $300-400 cost
- We may need to pump it in order to test it $300-400
- Well
- Cost $7-10k
- Cost of taps
- Municipal (city, county)
- Cost of taps ranges based on county $1500- $4000
- If taps are in place- property is worth more to us
- Cost to clear (and grade)
- 3-5k per acre (Tree guy told Mark $2500 a day for ¼ acre per day)
- Trees aren’t worth anything unless you have at least 10 acres. It costs money to take the cut trees away otherwise. (Stump grinding)
- Grading $3-5k per home site
- HOA
- Dues – outstanding dues? Up to date on dues
- Regulations rules for building
- Access- Gated access, access codes, permits/ pass
- Road access
- Landlocked
- Flag lots- harder to sell sometimes
- Private road? Public Road?- You must have legal and permanent access to the lot- not subject to the whim of a neighbor.
- Deeded access? (Check with Register of Deeds)
- Curb cut/ culvert
- Curb cut- city ~$2500-4000
- Culvert- country, to get across ditch $2500-4000
- Slope
- Steep slope= more grading, filling, possible more expensive foundation (Walk in basement)
- Flood zone, drainage ditch, creek or stream
- Creek or stream usually needs 50’ buffer
- Drainage ditch- could be extra filling or grading. Could prohibit building
- Flood zone- lower price. Insurance- $60-80/ month extra
- 500 year, 100 year
- Easements
- Might make it harder to sell?
- Red flag- may not sell
- Nearby nuisances- Commercial, Cemetery, Railroad tracks, highway, landfill
- Crime rate (be sensitive)
- Nearby homes’ retail value