Investor wants to buy jointly owned land

[jeromedawg]

Hi all

My in-laws went in with three of their friends on a plot of land in the Lancaster area of southern California. They each own a quarter and paid I think somewhere around $100k for the whole thing. I think this was in the mid 2000s or so. They just got a letter in the mail from someone who wants to buy the land for around $275k.

Should they pursue this? And if so, Amy gotchas or things to consider such as retaining a lawyer and or commercial broker? Seems that would cut into the pricing but not sure if they would try to negotiate a higher price on that land.

The last time they received one of these letters the investor was trying to buy for less than what they paid ($50k or somewhere around there iirc).

[SndcxxJ]

If they are familiar with real estate transactions then no broker is required.  Depending on how title is held your parents and the other co-owners might all have to agree on the sales contract.  It would be a good idea to have an understanding of this sales price is good or not as being approached by a single buyer isn't as favorable as selling on the market because the increased exposure might get a better sales price, but then you'd have to weigh that against the added agent expense.
There are a lot of people who lock up a property in a contract and then attempt to sell the contract to other investors.  It's called wholesaling and it's borderline illegal in California but happens all the time.  It would be best to not get involved with a wholesaler, so it might be good to do a bit of sleuthing on this buyer.
Ultimately though, a private sale without agents is totally fine, especially for those familiar with real estate.

[jeromedawg]

If they are familiar with real estate transactions then no broker is required.  Depending on how title is held your parents and the other co-owners might all have to agree on the sales contract.  It would be a good idea to have an understanding of this sales price is good or not as being approached by a single buyer isn't as favorable as selling on the market because the increased exposure might get a better sales price, but then you'd have to weigh that against the added agent expense.
There are a lot of people who lock up a property in a contract and then attempt to sell the contract to other investors.  It's called wholesaling and it's borderline illegal in California but happens all the time.  It would be best to not get involved with a wholesaler, so it might be good to do a bit of sleuthing on this buyer.
Ultimately though, a private sale without agents is totally fine, especially for those familiar with real estate.

My in-laws are not familiar with RE transactions. They needed a broker to sell their restaurant business a couple years back and that was a hassle - my wife had to get involved and project manage it basically. I have no idea how well-versed the other friends are but I'd guess probably not. This was a speculative purchase way back when.... actually, I got a copy of the deed and it was purchased in 2014.

Good point on the wholesaler - I didn't realize it was borderline illegal to do that here in CA. I'll do some more digging to see what I can find.

Oh in the letter there was a link to this:
http://www.landfarmers.com/

Seems like it's some form of "wholesaling"

[SndcxxJ]

In this case, they are probably better off listing the property with a broker when they are ready to sell.

[jeromedawg]

In this case, they are probably better off listing the property with a broker when they are ready to sell.

The thing is, I'm not sure how much actual demand there is in the area. Haven't really been tracking. The entire area is desert. But maybe something is changing out that way. I'm sure since the market has heated up people are looking for land deals too even if it's further away from things.

EDIT: just looked it up on Loopnet and Redfin and there isn't a ton of activity. A few lots I've seen sell for as high as $275k but there are also some that have sold for less than that too. I'm still investigating. The parcel map of LA County indicates that the assessed value of the land is just shy of $130k

[SndcxxJ]

The assessed value in california is the purchase price plus 2% each year of ownership because of prop 13 so don't let that have any influence on your thinking when it comes to property value.
Just because they received a letter saying that some unsolicited buyer will pay $275k doesn't mean anything.  That company is fishing, and the letter is the bait.  A contract on the other hand holds more weight because it is legally enforceable, but even a contract (if it's a crappy contract) isn't worth the zeros and ones used to draw it.
Starting off on loopnet is a solid start to determine value.  Raw land often takes a long time to find a suitable buyer.  If they want to sell have a couple meetings with local brokers to get their sense of value.  Look at loopnet and zillow, maybe even craigslist to find comparables.  Look in a wider swath of area then you would for a single family house.  Consider factors such as land use, zoning, flood plains, distance to developments, etc.
Raw land is niche.  If it is an agricultural area the most likely buyers are the immediate neighbors, followed by others nearby but not immediate neighbors, followed by other across town.
What is this land used for?  What do the neighbors use their land for?

[cchrissyy]

i agree an unsolicited letter is not going to be your best offer.
but!
perhaps for your folks and their friends it's a real win. they all make some money. nobody loses face, nobody has to stress over maximizing the price or figuring out the ideal time to sell. a cold-call offer to people like them offers a simple way out, and frankly, that's probably good news for four couples who bought undeveloped land together with no real plan.

[jeromedawg]

i agree an unsolicited letter is not going to be your best offer.
but!
perhaps for your folks and their friends it's a real win. they all make some money. nobody loses face, nobody has to stress over maximizing the price or figuring out the ideal time to sell. a cold-call offer to people like them offers a simple way out, and frankly, that's probably good news for four couples who bought undeveloped land together with no real plan.

This is kind of what I was thinking too... just to alleviate the hassle of dealing with a broker and hunting for the best price. It could be months or longer before they find anyone to buy the plot.. then again, they're also not in a rush either :)

The other issue is that I'm not sure if all four of them are on the same page about holding or selling the property - from what I've heard at least 2 of them (including my in-laws) want out but the other 2 don't. It was a stupid move for them to go in on a deal like this together... not sure what they were thinking.

[Mr. Green]

Basic land sales contracts are the simplest real estate transaction out there. Its one of the things I love about land. Generally speaking, RE agents take 10% (because the sale price is less than a house) on a land sale so that's a bit bitey. If they can avoid it, and the buyer is willing to sign a simple contract without a bunch of complicated clauses, they may not really need an agent.

Normally, I'd agree that unsolicited letters aren't going to maximize what the land is worth, but I've now seen enough in real estate to know it's more complicated than that. There are so many companies or people out there with ridiculous amounts of money that they could be looking to gobble up property in the area with the intent of development years down the road. With enough money and a long time horizon, a buyer now may know that it's money in the bank 10 or 20 years from now as growth hits that area and it becomes prime for development. That's just one scenario of course.

I guess it really depends on what everyone wants from the property. Do they want to hold for a long time, looking for the big payout? Maybe no one needs the money and they're willing to pass it on to heirs until a developer comes knocking. Though, being split into four pieces already, things may get dicey if the ownership becomes any more fractured. Maybe taking a nice profit now is not a bad end game.

If there are two parties that want out, perhaps this offer is a great way to establish some kind of current market value and the other two that want to hang on can buy them out of their half.

Food for thought!

[Fishindude]

If all parties are happy with the deal, get a hefty down payment from the buyer to assure they are serious, then have a local title company handle the transaction.
No need to get a realtor involved and pay their fees.