Excerpted from Neil’s latest book LandBook – An owner’s manual for rural land (second edition)
There is no other single aspect of land ownership which more completely captures the imagination than the actual selection and purchase of the land.
Sometimes however, on the way to acquiring the ideal tract of land, many folks, for whatever reasons, wind up owning the less-than-ideal parcel that needs to be sold before real-property nirvana can be achieved.
Whether you inherited a piece of property that doesn’t mesh with your goals, discovered that you simply need to live in another part of the world, or even if you bought a piece of property and later just fell out of love with it, selling land, particularly in a poor market, can appear to be a daunting task. The amateur’s first reaction is usually to list with a real estate agent and hope for the best.
Now, far be it from me to discourage using an agent. This certainly is the easiest way and not necessarily the least profitable or most expensive, especially in a booming market. In a less-than-booming market, however, it’s good to remember that listing your property with an agent will subject it to comparison with dozens, perhaps hundreds of other listings, all competing with yours in features and price. Selling your property then, will probably require that a potential buyer finds it to be either the best he sees… or the cheapest.
If you have unimproved land to sell, you may also find that the majority of agents are more interested in selling more expensive improved properties where they stand to make much larger commissions (and get fewer ticks) so your five acres of woods may get short shrift when it comes to exposure to the market. This wouldn’t be such a big problem were it not for the fact that these days, more and more brokers are insisting on exclusive listing contracts that obligate you to pay them a commission even if you sell the property yourself to the fellow next door.
That’s why you may want to tackle the job on your own. These days, you can set your land apart from the crowd by marketing and selling it yourself. Since the advent of the internet, it’s easier and more effective than ever, and the phrase “for sale by owner” has a particular cachet about it that buyers seem to like. Many buyers assume that they’ll be saving the sales commission by buying directly from the owner. Of course, you’re probably assuming that you’re saving the sales commission by selling it yourself. Which of you is correct depends on how adeptly you handle your sale.
Evaluating Your Land from a Seller’s Standpoint
The first step is to decide on your price. The timid choose a price too low, and the foolish pick one too high. What you want to do is find the right price that will yield a reasonably quick sale, but not generate a stampede of skinflints to your door.
To determine, or appraise, the value of land, you need comparables. Using the internet, finding these is easier than it’s ever been, although there are also a few new pitfalls.
The best places to find your comparables are the places where you plan to advertise. In a moment I’m going to recommend that you advertise on the internet, so you shouldn’t be surprised if that’s where I recommend you gather your comparables as well.
In choosing comparables, you want as many tidbits of information as you can find; that’s the primary reason why the web is the best source, because the people writing the advertisements there aren’t usually paying by the word – although you’ll find that they can still be infuriatingly vague.
Here are the basic things that must be considered when appraising land:
Size: The fact that you find 80 acres, or 8,000 acres, selling for a given amount per acre tells you virtually nothing about what your 8 acres is worth, so ignore it.
Rather, classify your property somewhat like this: is it from 0 to 3 acres? 3 to 8? 8 to 15? 15 to 40? Of course it can’t be all that cut-and-dried, but remember to only compare your rural property to others of about the same size – nothing has greater bearing on the value of unimproved land than size, except, to a degree, location.
Please note that I am NOT going to repeat the old saw about the three most important things to know about real estate. Unless you spent your formative years in a cave, you’ve already heard it enough times to make you wish you hadn’t.
I’ll assume that, as an adult who can read and operate a computer, you already know that the price of your 40 acres in western Kansas has very little to do with the value of New York’s Central Park, but you do need to make a distinction between a property that’s a thirty-minute drive from a city and one that’s two hours distant.
I’ve found that most people draw an invisible line at a thirty-minute commute whether they’re commuting into L.A. or Buzzard’s Bluff.
Additionally, you shouldn’t compare land from outside your region. West-coast prices aren’t applicable to West Virginia, and vice versa.
Okay, that takes care of the broadest measures. Let’s assume you’re looking for comparable land to your forty acres in rural Tennessee, we next start to evaluate the features of the land.
Water: Lake or river frontage is more valuable to most people than a non-navigable stream, which is more valuable than a spring, which is more valuable than a pond, which is more valuable than no water at all. Almost everyone wants water frontage, but not everyone is willing to pay for it.
Soil Terrain and Vegetation: Most small landowners will prefer a mixture of hill and valley, but level agricultural land is usually more expensive than hilly ground. However, if your property is smaller, say less than eighty acres, there will probably be a better market for the mixed terrain that includes level bottomland and forested hills. Likewise, the best overall market exists for small properties with a mixture of forest and meadow as opposed to all woods or all field.
Improvements: A modern water-well is worth more than it costs to drill. In the Ozarks, for example, where the typical well costs around $6,000, I generally value them at around $10K.
Access: While few in number, there are still some properties that don’t have legal access – that is, a deeded access-easement, or frontage on a public road. This is what is known as “landlocked” property, and it is of considerably less value. If you see an extremely low-priced piece of land for sale, it may be a bargain, or it may just not have legal access. Curing this can be fairly simple, but don’t count on it. If it were an easy matter, it would likely already have been fixed. In most cases, legal access will require a deed from the neighbor whose land you’re crossing, and folks tend not to like to sign deeds unless they get something of significant value in return.
Utilities: Electric and phone. Check whether your comparables have, or don’t have, the same utilities that your property has. If not, and all other things are equal, price yours ahead of those that don’t have what yours does, or behind those that have what yours doesn’t.
Buildings: This chapter is intended to address land-only sales. Obviously, if your land has buildings on it, those can add significantly to the value. If the buildings are of any value, that is, a livable house or a barn or shed in good repair, this may be harder for you to estimate or to compare with others. About the best you can hope to do is to compare the number of rooms/bedrooms, the square footage, the general condition, and overall appearance. If the buildings are of marginal value, give them appropriate ranking, however as advice to a potential seller of real estate (I’d tell a potential buyer something else) don’t discount that shack or hovel too severely. A lot of buyers seem to feel somehow assured if there’s a structure of any kind on a property. Maybe it seems less intimidating than starting with empty woods. So if it doesn’t leak too badly, and isn’t going to fall down in the next few years, you may consider bumping the price up a few thousand dollars, or leaving it where it is so that the building provides another inducement to buy.
Finally, after you’ve researched all your research and compared all your comparables, it’s time to decide on your final price.
Actually, this is the easy part: you bring all your comparables together and rank them – a spreadsheet like Excel is good for this. Put the price of each property in Column A, the “sort” column, and a brief description of the features in Column B.
Now put yourself in a buyer’s shoes. Right away, you can see what’s a bargain and what may be overpriced. The idea is to price your property as a happy median between the two extremes.
Now that you’ve arrived at your price, you’re ready to put your property in front of the world. To do this, the first thing you need is a web page.
Now, I suppose you could HIRE someone to make a page for you, but frankly, if you can read well enough to get this far in this book, you’re perfectly capable of making one on your own.
Nowadays all of my favorite software packages come for the same price: free. So I’d check out what’s available at tucows.com or software.com. You can also make a tolerable web page using Microsoft Word (which probably came loaded on your computer) however, if you’ve never made any web pages before, you’ll probably also be needing web-space to put them on, and you can find both web-authoring software and web-space available cheap or free with a little thoughtful web-searching.
Once you’ve got the mechanics taken care of, all you need to do is collect absolutely everything you can think of that will describe your property, which may include, but will not be limited to, a written description, lots and lots of photographs, perhaps taken in different seasons, information about the local area, last year’s real estate taxes, aerial photos, road maps and perhaps a .pdf or .jpg copy of the survey, if available.
Next, it’s time to advertise. Depending somewhat on the type and location of your property, you can find a handful of free advertising sites on the web and you should employ these, preferably with a link to your web-page(s) if that’s permitted. However, few of these free sites bring you enough traffic to help much in the absence of some uncommonly good luck.
That means, as it always has, that you’re going to have to pay for your advertising just as sellers always have, but take heart in the fact that you don’t have to pay nearly as much for national advertising as you did in the days of paper. Better still, if you put a hit-counter on your web page(s), you’ll be able to keep track of how much traffic you get from each source. That will give you an idea of which ads are most effective.
Personally, I’ve had good experience with Google Adwords where you can set your ad budget to as little as one dollar per day. (You may be able to set it even lower, but let’s get serious, you DO want to sell this place don’t you? Adwords also coordinates with Google Analytics, which will tell you far more than you need to know about the traffic you’re getting to your pages. Also provided are ways to see how effective the ads you write are proving to be. LandWatch.com is another favorite source of mine which consistently supplies better-quality leads, that is, more serious clients, than Google and others.
Now it’s time for probably the toughest decision you’ll have to make about selling your property. Do you want to finance the price, or will you only accept cash in full?
Perhaps I can help you out with that decision. If you finance, you are going to have a LOT more prospective customers than if you don’t, and if you make the terms easy enough, you will have even more.
That’s not to say that there aren’t a few potential hazards involved in owner-financing, but in my view, the benefits far out-weigh the drawbacks.
At first you may think that owner-financing means giving up all the money you expected to realize when your property sells, but if you look at it from the long-term view, you’ll actually make about twice as much at competitive interest rates.
One of the first benefits of this is that when you collect interest on your sale proceeds, unlike an interest-bearing bank account, the interest on your land sale starts out as a large percentage of the payment and shrinks over the life of the loan. So the first payments made to you largely go toward interest.
Moreover, even though you’ll not have a lump sum of money to place against another piece of land or some other big-ticket item such as a vehicle or home construction, you will have the guaranteed income to match your payments, or some such new purchases, including the interest. You’ll also get to keep a lot more of the money you’ll receive, because you’ll only pay income taxes in small installments over the years, rather than all at once, which is likely to bump you into a higher tax bracket.
“But,” you’re probably thinking, “this ‘guaranteed income’ is only guaranteed by another individual — a human being just like myself and subject to all the same problems, foibles and weaknesses. What if my buyer defaults?.”
That is a very realistic concern.
Here’s a system I’ve devised that works well for me:
To begin with, when I place my advertisements I make two assumptions: first, I assume that my buyer will want me to finance the sale, because this is the case about 95% of the time.
Second, I assume that my buyer may very well default, especially in the first six months, because this happens about 25-30% of the time.
These two assumptions prepare me mentally for the task ahead, and they prepare me physically to guide in the preparation of the documents I will use to consummate the deal.
I accept a no-down-payment deal — only the first monthly installment is required to cement the deal. (I offer a discount for cash.)
The deal I make is that the transaction is governed for the critical first six months by a Contract for Deed. That is, the title stays with me, if the buyer defaults, he simply loses his money, the deal is off, and everyone goes back to square one.
However, after the buyer makes his sixth payment, I give him title to the property, that is I make and record a Warranty Deed to him, and hold a Promissory Note and Deed of Trust in return as security. Finally, as boiler-plate, I have the buyer sign a Quit-claim Deed back to me which is annotated to only be recorded in the event of a default. This, in one stroke lowers my foreclosure costs from around $1,500 to hire an attorney to perform a trustee’s sale, down to about $27 to record the Quit-claim Deed. Since I create all the contracts and deeds myself from standard forms, I save immensely on attorney’s fees. Using this technique, I am prepared both for the long-term sale as well as, should it be necessary, a fast and easy foreclosure.
Preparing the Property
Finally, you need to get the property into shape to show it to prospects. There’s probably not a lot you can do in this regard. This being unimproved land, it tends to rise and fall on its own inherent virtues or faults. The good news is that there’s probably not a lot that needs to be done. I’d recommend though that you consider three areas:
1. The Road: The better the condition of the access road, the better impression your property will make. If your land is three miles of bad county-road away from pavement, then I wouldn’t waste a lot of money making the access from the county road any better than the county road itself, but remember that you can do quite a bit to civilize a dirt driveway with a tractor and blade. If you don’t have too much length to cover, there’s no substitute for a layer of 1” crushed rock (or larger rock in deep mud-holes). One layer of 1” rock one lane wide will cost you about 75¢ per foot around my neighborhood. Needless to say, if the property is on a road maintained by the county, or some other local government entity, and if this road has any work that needs to be done, this is an excellent time to complain politely about it to the wonderful folks on the Road Board. Most counties grade their roads once or twice a year, but some roads that don’t get much traffic may be neglected if no-one complains.
2. Clean Up the Junk: If you didn’t do this when you bought the place, now is the time. Other than buildings of value, get rid of everything that didn’t grow there. This doesn’t have to be a major ordeal. First check out local laws regarding what, if anything, can be burned at your location. Nearly all states have laws against burning old tires and many forbid burning other items such as other rubber products; wire; treated, painted or finished wood; plastics; garbage; heavy oils; asphalt materials; building materials, especially those containing asbestos; paints; and agricultural and household chemicals. Then, if you have anything combustible, and plenty of water and a way to disperse it, go ahead and burn what you can, but make absolutely, positively certain the fire is out before you leave. “Out” in this case means cold to the touch.
You may be able to use, or otherwise recycle, part of the remainder, and the rest you can take home to add to your home garbage-collection schedule, perhaps over a short period of time rather than all at once.
3. Bush-hogging: To make the place look its very best, bush-hog any brush small enough to be cut. If the place doesn’t sell quickly, do it every few weeks.
Closing the Sale
Now you’re all set to go. When you find a buyer, and after he’s given you money and signed your contract, it’s time to prepare for the closing.
I strongly suggest that you be ready to get him to sign and notarize all the documents required at the very beginning of the deal, even though if you follow my suggestions, you won’t be recording most of them for six months.