Buying and Selling Land

How to tell if a parcel is landlocked

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When evaluating the attractiveness of a piece of land, one important feature is whether or not it has access.  Is it possible to legally drive to the land and put your feet on it?  Or, as buyers have asked me a thousand times “would you have to take a helicopter to get to it?”

Many cities and counties will not allow construction on a parcel that lacks access.  Also, lenders may refuse to write loans to purchase, or build on, landlocked property.  Landlocked parcels have less value compared to parcels with access.  For this reason, sellers will want to determine if a parcel is landlocked when pricing it and buyers want to understand the access situation when deciding whether or not to purchase it.

First, Just What is Access?

The most important thing to know about access is that there are two kinds:  physical access and legal access.  They are two different things.  The fact that you can see a dirt road with your eyes does not mean that you have legal access.  Further, even when legal access exists, there might be no visible road.

When a parcel has physical access, it is possible to drive in a car (or maybe a 4WD) on a paved or dirt road to reach the edge of the land.

When a parcel has legal access, this means that it is adjacent to an official street or there is a recorded easement across the neighbor’s private land for ingress and egress.

A parcel might have physical access but no legal access.  That is, you can drive to the land on a “road” but the road is unofficial, and you are technically trespassing on private property when you do that.

A parcel might have legal access but no physical access.  This occurs when there is a recorded easement for ingress and egress, but no one has put in a driveway or road yet.  The access is on paper but not visible in the real world.

A parcel might have both physical and legal access.  For example, the home you are living in almost certainly has both.

A parcel might have no physical access and no legal access.  This means there is no visible road to the property and there is no recorded easement allowing access.

What is a Landlocked Parcel?

When I describe access to buyers, I use the word “landlocked” to mean a parcel has no legal access for ingress and egress.  I focus on legal access rather than physical access because I consider it more important.  If the terrain allows, you can always bulldoze a road, if you have legal access, that is.

Note that other Realtors and attorneys might use the word “landlocked” differently.  This variation in usage makes understanding access confusing for buyers and sellers.

My Super Practical Approach to Evaluating Access

I am a Realtor, a land broker, not an attorney.  Realtors are in the business of helping people buy and sell real property, such as land.  Realtors are not in the business of giving legal advice about whether a client would have a good case in court if they wanted to obtain access to a landlocked parcel.  I mention this because it’s important for you, as a reader, to consider who is writing any blog you read.  My role as a Realtor affects how I think and communicate about access.

In my many years as a land broker, I have noticed that there are two main access-related things that affect a buyer’s willingness to purchase land:  1) whether there is a physical road going to the property, and 2) whether the title company will insure for access.  Regarding the former, it doesn’t matter that much whether it is a paved road or a dirt road.  As long as a buyer can drive on it to reach the land, it’s all good.  Regarding the latter, buyers tend to be black and white in their thinking:  Either the title company, a trusted information source, says they will not insure for access, or the title company says they will insure for access.  If the title company says “no access”, buyers will inevitably fret about this.  Then, either they will not purchase the land, or it will affect the price they will pay.

Sometimes when a title company says they will not insure for access, sellers will then make nuanced arguments about how they have a right to an “easement by implication” or an “easement by necessity”.  Sometimes sellers will say they have an unrecorded “prescriptive easement”.  For example, the California Association of Realtors defines a prescriptive easement as “created when the property owner claiming the easement can prove that he/she used the servient estate owner’s property openly, exclusively, adversely, and continuously for a period of at least five years.”

These arguments are all well and good, but sellers need to realize that a typical buyer will not be too impressed with such reasoning when a title company is telling them they won’t insure for access.  When an easement is not recorded, the buyer has no assurance that the neighbor won’t dispute whether the easement exists, where it exists, how big it is, or how it is to be used.  Seller arguments are just words, and words will not prevent a neighbor from building a garage or putting up a locked gate, blocking access and creating conflict.  Even if the current neighbor is friendly and allows unrecorded access, buyers realize that the adjacent property could change hands to an unfriendly neighbor who will not allow access.  Buyers understand that in the event that there is a dispute with a neighbor, they will probably have to hire an attorney.  Attorneys are expensive, and the outcome of legal action is uncertain.  Since there are other parcels buyers can purchase in the same area that have easy access, buyers generally decide they just don’t want the land bad enough to mess around with it.  In short, Buyers who are paying a premium for the land, want to see either a road or a recorded easement on paper and a title report saying the title company will insure for access.

With that said, the good news for sellers is that landlocked parcels can totally be sold at some price.  The reason I mention buyer’s black and white thinking about access is because a wise seller will want to take buyer’s attitudes into account when they price their land:  If the title company will insure for access, price it higher.  If the title company won’t insure for access, price it lower.  Land sellers should adhere to these simple rules because buyers will instinctively follow them in making a decision whether or not to purchase.  Logically, buyer demand should affect seller pricing.

So, this explains why I, as a Realtor, not an attorney, use the expression “legal access” in a highly simplistic fashion, to mean having a road or a recorded easement, and “landlocked” as having “no legal access”.  When I use words in this way, I’m talking right now, not what could be arranged in the future after a legal battle.  Realtors sell land “as is, where is”.

If you own a landlocked parcel and want to know whether you would have the legal right to obtain access in the future, that’s a different question and Realtors can’t get into the weeds with you on that.  Direct those questions to an attorney.

Things You Can Do to Tell if a Parcel is Landlocked

Study the Plat Map

The plat map shows how a tract of land is divided into lots.  It is drawn to scale and shows the land’s size, boundaries, nearby streets and rights of way.  Locate the parcel on the map.  Does it have a street running to it or alongside of it?  If so, there is probably legal access.

Note that I am recommending that you study a plat map, not an aerial map or Google map.  Aerial maps may show you physical access, e.g., a dirt trail leading to the land.  However, as explained previously, that physical access may or may not be legal access.  Google maps show named streets but, occasionally, a street named in Google will not be an official street.  For these reasons, the map you want to focus on is the black and white plat map.

Order a Title Report

When I am in doubt about access, I find that the easiest way to get information is to order a title report.  If there is legal access, the title company will almost always insure for access.  If there is no legal access, they will not insure for access.

If the title company declines to insure for access there will be an item in the “exceptions” section of the title report that says something like “Lack of right of access to and from the land”.  There, you have your answer.

If the title company decides they will insure for access, this item will be entirely absent from the title report.  The title report will just remain silent on the subject and there will be no mention of access in the exceptions section.  For example, if the parcel is clearly on a paved street the title company will insure for access but there will be no special paragraph saying, “we will insure for access because it’s on an official street”.  To summarize, a report mentioning no access is bad news while a report saying nothing about access is good news.

Note that title companies sometimes make mistakes.  There have been times that I was pretty sure there was legal access and the title company has declined to insure for access.  Conversely, there have been times when I was fairly sure there was no access and the title company has indicated that they would insure for access.  If this happens to you, point out the possible error to the title company.  For example, if you observed a physical road and they are saying they won’t insure for access, send the title company photos of the road and ask them to reconsider the access question.

Order a Map of Plotted Easements

Easements are described in title reports.  However, sometimes it’s hard to visualize their location.  So, ask the title company to prepare a map of plotted easements.  These helpful maps are usually color coded.  Here is an example:

Not all easements are for access.  Further, an easement recorded on the parcel will not help you in getting to it.  So when ordering a map of plotted easements, be sure to tell the title company that you want them to plot not only the easements on the property, but also easements leading to it.  Tell them that your goal is to understand access.  The reason it’s important to specify this is that the access easement will be recorded on the neighbor’s land, not the land for sale, and the title company might overlook it if you don’t explicitly ask to see it.

More Things to be Aware of When Evaluating Access

A road is not always a road

Realtors often mention “roads” in their marketing.  For example, they might write in the MLS something like “turn off of Hwy 101 onto the dirt road going the land.”  It would be a mistake for buyers to assume that this dirt “road” is an official road, sanctioned by the city or county, and that the parcel has legal access.  Sometimes this will be the case.  Sometimes it won’t.  In all likelihood, the Realtor observed a physical access road and has not checked to see if it is a legal access road, a recorded easement, or just a well-worn dirt path crossing private property.  Realtors are usually just describing what they see with their eyes.  Smart buyers will look into whether the access is legal.  They will ask the title company, City, or County (not the Realtor).

Sometimes a road is a road, but it’s not enough of a road

Occasionally you will find a property with a road, you can see it with your eyes, and the title company even states that they will insure for access, however the municipality still won’t let you build!  This is because the road, while legal access for a Mini Cooper, is too wimpy to allow big construction equipment and emergency vehicles such as fire trucks.

One time I was listing a residential parcel in a Los Angeles neighborhood that was notoriously crowded, with existing homes crammed together and crawling up the hills in search of light and air.  The lot I was selling had a paved road going right past it, adjacent to the land, and winding up the hill from there.  I could drive right up to the land in my car and the title company said they would insure for access.

The parcel had legal and physical access.  The City, however, would not allow construction.  Why?  Because the road was too narrow to accommodate emergency vehicles.  Complicating the situation, historic homes on this street were built so close to the road, there was no way it could be widened without slicing off part of someone’s living room.  From this experience I learned that sometimes a road offers legal and physical access, so a parcel is technically not landlocked, but the road is still insufficient to build.

Street signs do not always mark true roads

If the street sign has an official-looking appearance, it almost certainly marks an actual street. Occasionally, however, you will see a handmade sign.  A person who lives out there went into their workshop, created a sign, and pounded it into the ground.  Sometimes a handmade sign does, in fact, mark a legal street.  Other times, the locals just adopted a name for an unofficial road and posted their own sign.  If the road is not official, that can mean no legal access.  So look into it to see which it is.

Occasionally, even a street does not mean access

Once in a while, a parcel will be directly adjacent to a street or highway and yet there is still no effective access for ingress and egress!  This is especially common when the artery is a major thoroughfare, like a highway or four lane road.  Cars stream by the land at a high rate of speed.  The transportation authority will not allow anyone to install a driveway off the major artery on to the land in question because it could create a traffic hazard.  Sometimes the driveway can be installed with special permission after a review process.  Until that permission is granted, however, the parcel is effectively landlocked, even though it is adjacent to an artery.

Locked gates can matter

A few years ago, I was selling a piece of privately-owned land near a City water supply.  There was a big water holding tank at the top of a hill on land.  A dirt access road lead from an official paved street to the water tank and went right through the land that I was selling.  This dirt access road appeared on the tax assessors plat map and so seemed to be legal access.  However, the City had placed a big locked gate adjacent to the paved road, blocking the entrance to the dirt water supply road.  The City would not give my client, the seller, a key.

A buyer for this parcel wanted to figure out if there was legal access.  To get an answer, I asked the title company if they would insure for access.  I emailed the title company a photo of the access road and locked gate.  I thought they would see the road on the map and see the same road in the photo and insure for access.  Surprisingly, the title company said no!  The gate, locked by the City, was the reason.

The way the story ended is that the buyer was aware of all of this and bought it anyway.  Then he hired a good attorney to take the City to court because they were impeding access to his land.  Once that gate is opened, the title company will insure for access and the land will be worth much more.

No trespassing signs do not always mean there is no legal access

When I’m listing a parcel for sale that has a legally recorded easement for access, sometimes I will drive up to the land only to discover a “No Trespassing” sign.  These signs are usually posted by a neighbor who lives in a house nearby.  The neighbor’s house is surrounded by vacant land.  The neighbor doesn’t own the surrounding parcels, but he figures that there’s no good reason for anyone to be sniffing about near his property.

It is common for neighbors to treat land near their house like they own it, even when they don’t.  I find that few people understand the concept of an easement and the neighbor may be unaware that there is one.  So, the bottom line for a potential buyer in this situation is yes, there is an easement, but no, the neighbor will not be happy to learn about it.  Also, in general, no, the seller does not know the neighbor personally and, no, the seller is not going to talk to the neighbor about access.  Buyers who encounter no trespassing signs should anticipate that they may have some work in front of them communicating with the neighbor and will want to take this into account when deciding whether or not to purchase.

Conclusion

Determining access is usually pretty straightforward.  Most of the time you can look at the plat map and order a title report and you will have your answer.  Other times, understanding access can be tricky.  Sellers should consider ease of access when pricing their land and buyers should investigate access thoroughly before purchasing.

Effect of wildfire on land prices

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Wildfires scorch the landscape and reduce houses to rubble.  They destroy community infrastructure and recreational resources. The result is a decline in real estate prices.

How much will real estate prices decrease after a wildfire?  Read on.

Reasons Why Real Estate Prices Drop After a Wildfire

The most obvious reason that real estate prices go down is that where there was once house+land, there is now only land.  Vacant land with no house usually sells for less than land with a house.

Further, even if you own vacant land that never had a structure on it, the trees and vegetation may be charred.  Land with unattractive or no vegetation will sell for less than land with attractive vegetation.

Even if your land was not affected, your neighbor’s land was.  All the houses around you are gone; the local market is boarded up; the medical clinic severely damaged; the forest where you used to take your dog for hikes is now a bunch of eerie charred twigs.  The state of community infrastructure affects the attractiveness, and therefore the value, of your land.

Lastly, wildfires increase the perception of risk in the minds of buyers.  All things being equal, buyers may be reluctant to purchase real estate in areas prone to wildfire.

These factors, and others, combine to cause a reduction in real estate prices.

What Does the Research Say about the Effect of Past Wildfires on Land Values?

Several scientists have examined the effect of historical wildfires on real estate prices.  Here is what they found:

Huggett, Murphy and Holmes (2008) examined the 1994 Chelan County wildfires in Washington state and found that real estate prices dropped 13-14% over a one year period afterward.

Mueller, Loomis and Gonzalez-Caban (2007) studied fires in Southern California.  They found that repeated forest fires cause houses near fires decreased in value.  The first fire reduced house prices by 9.7%, while the second fire reduced house prices by 22.7%.

PricewaterhouseCoopers (2001) performed an analysis of how the Los Alamos, New Mexico real estate market responded to the 2000 Cerro Grande fire.  The report showed that after the fire, the average sale price of single-family homes in Los Alamos County declined 3-11%.

Loomis (2004) estimated that house prices in Pine, Colorado decreased by approximately 15% following the Buffalo Creek fire.

Kiel and Matheson (2015) studied the Fourmile-Lefthand Canyon forest fire in Colorado and found a 21.9% decline in sale prices.

The Good News

If I put on my rose-colored glasses and squint real hard, I can come up with some examples of good news regarding the value of real estate after a wildfire.

First, the house that burned to the ground probably had underground utilities.  The water pipes are still there buried in the ground; the septic system or sewer pipes are also there; and if you have a well, the vertical casing is still in the dirt even if the above-ground equipment might be damaged.  Most vacant land on the market does not have utilities stubbed into the building area because there was never a house.  But yours does.  Builders love it when utilities are not just “in the street” they are stubbed all the way into where a new structure might be built.  The presence of utilities adds considerable value to vacant land.

Second, any structures that are rebuilt in the affected neighborhood will be new, and possibly more valuable, than what was there before.  For example, your plot of vacant land may end up next to a brand new 4-bedroom, 3-bath house instead of next to the tired 2-bedroom, 1-bath bungalow built in 1958 that was there before.  This may positively affect the value of your lot.

Third, if you own a nearby rental property that was not affected by the fire, you may find that demand for your units will increase.  This is due to the many displaced homeowners who now want to rent near the same area where they once owned home.  Supply is down and demand is up, so you may be able to increase your rental rates accordingly.  (Don’t price-gouge though, it’s not nice).

Fourth, recently I was listing some acreage located 2 miles from the edge of a wildfire.  After the fire, I noticed an uptick in interest in this parcel, i.e., more calls and e-mails.  This may have been related to displaced families needing to move animals or themselves.  Or perhaps buyers were previously looking for land in the wildfire-torn area and now they have shifted their focus to the area just outside of that area.  Supply and demand can cause an increase in value just outside the wildfire perimeter.

Fifth, sometimes homeowners who receive a handsome insurance settlement want to rebuild a larger home and need more land to do that.  The adjacent owner might be able to sell their land to that person at an inflated price.  One example of this occurring is with the Felton Estate.  This 14,000-square-foot property was built five years after fire destroyed all the homes on top of Schooner Hill in Oakland California.  One owner bought up neighboring land, built a large house in 1996, and recently sold that house for $20.5 million.

Lastly, real estate prices will not be low forever.  As time goes on, vegetation will come back, infrastructure will be rebuilt, and buyer’s memories of the fire will fade.

So, to Summarize

After a major wildfire, land prices in the affected area are likely to decrease.  Prices decrease for a host of reasons including reduced infrastructure and increased perception of risk.  According to the research, land prices after fires have historically decreased between 3 and 23%.  However, there are scattered cases where the value of land can remain steady or even increase.

Has your property been affected by recent wildfires? Check out this interactive map!

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As wildfires rage through-out the western United States, many people are wondering whether or not their real estate has been affected.  Get clear answers with GeoMAC.

What is GeoMAC?

The Geospatial Multi-Agency Coordination or GeoMAC, is an internet-based mapping application originally designed for fire managers to access online maps of current fire locations and perimeters in the United States.  Now it is available to the public.

How Accurate is GeoMAC?

Fire perimeter data is updated daily based on input from incident intelligence sources, GPS data, and satellite infrared imagery.

How to Use GeoMAC to Research Active Fires

Launch the viewer.  Active fires are marked with green triangles.  Zoom in to see the yellow perimeter of current fires.

On the left, on the Data Layer tab, under Active Fires, check all five options including MODIS Fire Detection, VIIRS IBAND Fire Detection and HMS Fire Detection to get more complete information on fire location from additional information sources.

You may find it difficult to see the bright yellow perimeter of the fire against the light-yellow background of the street map.  Under Base Map change the Base Data to Imagery so that the yellow perimeter will appear in high contrast against a dark satellite map.

On the Legend tab, under Current Fire Perimeters, one thing that initially confused me was the “Not Part of Complex” vs. “Part of Complex”.  I found myself hoping against hope that somehow “Not Part” was some kind of good news that an area was not affected by wildfire.  No such luck.  It turns out that a “complex fire” occurs when separate fires link up together.  So, the yellow boundaries that you see show active complex fires while the green boundaries show active single fires.  What matters though is the boundary itself as it does show an active fire area.

Fires are given names based on where they started.  If you know the name of the fire you want to investigate, you can choose it from the menu in the upper right corner.  Some fires are referred to by the name of street where they began, e.g., the Tubbs fire currently burning in Napa, Sonoma and Lake counties in Northern California.  Other fires are referred to by prominent places, e.g. the Chetco Bar fire in Brookings Oregon.

One of the best features of this map is the Go To menu in the upper right corner.  Here you can type in the address or latitude/longitude of any property that you might be worried about.  The map will center there and you can see whether or not it’s inside the fire perimeter.  Or you can check how far away the fire is today and then check again tomorrow to see if the fire has moved closer.  It is common for vacant land to not have an address.  In that case, you can get the latitude/longitude of your land here first and then enter it into GeoMAC.

Using GeoMAC to Research Historic Fires

A couple of decades ago I was working at a consulting firm in Denver.  I lived in Pine Colorado in a new log house that had been built after a fire had torched the previous home and the surrounding forest.  The landscape had an eerie beauty to it as I recall.  Even though there is no active fire there in 2017, I was able to research the boundaries of this historic fire in GeoMAC.  On the Data Layers Tab under Map Layers, choose Past Fires, Historic Fire Perimeters.

The ability to research past fires may be especially helpful to real estate buyers who want to stay away from locations that seem prone to fire.  Or, at least you’ll know what you’re getting into.

Also, when buying land that is landlocked, the seller and listing agent will probably not know whether or not the land has ever been affected by fire.  This is because they can’t get to the land to check it out and neither can you.  But you can research past fires in GeoMAC to assess whether all the timber and vegetation might actually be gone or how many years of new growth there might be by now.

Summary

Using GeoMAC, I was able to determine that none of Land22’s current land listings in California and Oregon have been affected by wildfires.  Yeah!  However, a couple of my listings are two miles from the edge of an active wildfire.  Yikes.

Consider forwarding this blog post to anyone you know who is worried about recent wildfires.  Knowledge is power.  Once you have the facts, you can deal with it, good news or bad.  Stay safe.

10 reasons land sellers sometimes have so little knowledge about what they’re selling

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Land owners have a legal duty to disclose to buyers all material facts about the land they’re selling.  This duty, however, is limited to information the seller is actually aware of.  Buyers are sometimes dismayed when they learn that sellers have so little knowledge about their own land.

Here is a typical scenario:  A buyer asks me a question like “where are the exact corners?” or “will this property perc for septic?”  When I say that I don’t have that information, the buyer says “well, could you ask the seller?”

The thing is, the seller has no idea either.

“How could that be?” the suspicious buyer wonders.  “Surely the seller knows everything there is to know about their own land, right?”

Um, no.

The vast majority of sellers are ethical and helpful and will provide the information if they have it.  However, there are many reasons why some sellers know little about the land they’re selling.  Here are the top ten reasons:

  1. Bought it at a tax sale

Seller Larry is an investor.  He buys land at county tax sales at low prices.  Then, he “flips” the land a couple of years later at a profit.  For parcels under $50,000, Larry does not go to see the land in person.  To decide what to buy, he relies on studying satellite maps and other online information sources.  As a consequence, when it comes time to sell the land, Larry does not have detailed knowledge about the land he’s selling.

  1. Just the lenders

Seller Seymour did not invest his retirement money in the stock market.  Instead, he became a hard money lender because the rates of return were higher.  A few years ago, buyer Jane wanted to buy some land and Seymour loaned Jane the money.  At that time, Seymour had the land appraised.  Unfortunately, after buying the land, Jane lost her job and did not pay Seymour.  Seymour foreclosed on Jane and took the land back.  Now he wants to sell it and the old appraisal report is the only information Seymour has about the land.  Seymour will be happy to disclose the appraisal to new buyers, but that’s all the information he has.

  1. Purchased it for someone else

Sellers Wang and Chen purchased a lot for their daughter Lilly to build a home in California.   Wang and Chen live in New York.  Although they are the owners, they have not seen the land.  A year later, Lilly’s company transferred her to an office in a different state.  Lilly moved away from California and so decided not to build.  The family now wants to sell the land.  It is Wang and Chen, not Lilly, who must list the land for sale with a Realtor and complete the official disclosure forms.  This is because they are the legal owners.  Sellers Wang and Chen know almost nothing about the land and their disclosures reflect their lack of knowledge.

  1. Live far away

Sellers Brad and Leslie live in the Rocky Mountains of Colorado.  They purchased land on the Oregon Coast 10 years ago with the intent of someday building a retirement home there.  However, they have now decided to stay in Colorado near their children.  Brad and Leslie live hundreds of miles from the land.  They bought it on a whim based on the amazing ocean view and have little information about the land beyond happy memories of salt air and seagulls.

  1. The person with detailed knowledge about the land is deceased

Seller Myrtle owns land near Crescent Lake in Oregon.  Her husband Fred used to love to take the RV over to Central Oregon to go fishing with his friends.  The guys would camp on the land and Fred would dream about someday building a cabin there.  Fred was a fastidious person and knew every single detail about the land.  Myrtle, on the other hand, preferred the comforts of city life and did not get into detailed discussions about the land with Fred.  Fred is now deceased and Myrtle is trying to sell it.

  1. Have not seen the land in decades

Seller Cecil, age 85, purchased 160 acres of desert land 50 years ago.  Cecil went to see the land prior to purchasing it.  In addition, while on vacation 10 years later, Cecil took a detour to go “visit” his land.  At that time, access was via a dirt road and the nearest electric pole was 1 mile away near a small development of new homes.  Decades have now passed and he has not seen the land for 40 years.  Cecil has no knowledge of whether or not additional development (paved streets, water, electricity, sewer) might have reached his land or not.

  1. Didn’t do their research when they bought it

Seller Omar received a large inheritance 5 years ago.  He bought 12 lake-front lots at the time.  He chose the parcels based on how pretty the lake looked in the Realtor’s online photos.  Omar relied on what the Realtor told him and did not do any independent due diligence on the parcels prior to purchase.  Consequently, now that Omar is a seller he is is unable to provide much information to potential buyers.

  1. In the hospital

Seller Thelma hired a listing agent to sell her land.  A few months later, when the agent located a buyer, he called Thelma’s home to tell her about the offer only to learn from her family that Thelma was in the hospital.  Thelma is scheduled for surgery next week.  She is anxious to sell her land so that she can pay her medical and after-care bills.  Thelma is of sound mind so, with the assistance of a mobile notary, she is able to sign the offer and escrow documents to sell her land.  However, since she is in the hospital, she is not exactly in the position to be looking through her files at home for additional documents.

  1. Never had plans to build

Seller Juan purchased 10 rural acres from a friend for about 50% of its true value. Juan already owns his dream home so he has no plans to build on this land.  He bought it strictly as a long-term investment and to help out his friend, who needed fast money.  Because Juan never planned to build, and because he bought it at such a bargain price, he did no research on building and has no knowledge about things such as utilities or even whether there is legal access.

  1. No legal duty to research

Seller Tamar owns a view lot in Malibu.  Tamar is an orchestral musician and does not have a background in construction.  Tamar is represented by a Realtor.  Buyer Manuel is considering purchasing Tamar’s lot to build a fabulous architectural house for his family.  Manuel has never built a home before.  He does not have a contractor or architect yet.  Manuel has many questions about whether or not the lot is buildable.  He asks Tamar’s Realtor for information about the degree of slope, whether a flat pad can be graded, the minimum square footage for a house, the cost of a water meter, etc.  Seller Tamar and her Realtor reply that they do not know the answers to these questions.  The Realtor explains to Manuel that the owner is selling dirt and has no duty to research matters related to building. The Realtor helpfully advises buyer Manuel to seek the assistance of a contractor, architect, engineer, or other building professionals to assist him.

What’s a Buyer to Do?

Land buyers should do their own independent due diligence.  Here is a partial list of things that land buyers will want to research:  Zoning, building restrictions, electricity, water/well, sewer/septic, and legal access.

Buyers sometimes wonder whether the Realtor will get answers to all their questions.  Realtors do sometimes have considerable knowledge about the land they’re representing.  In fact, Realtors often know more about the land than the sellers do.  On the other hand, it is also common for the Realtor to have little information.  The Realtor’s ability to provide answers, varies depending on the parcel.  So just ask.  If the Realtor has answers, the Realtor will be pleased to provide them to you.  If the Realtor does not have the information, they can usually be very helpful in advising the buyer where the buyer can go to get answers.

Note however that while the Realtor will happily disclose what they already know about the land, it is not the agent’s role to perform new research, especially on matters related to building.

Further, experienced Realtors have learned that the best way to prevent misunderstandings and lawsuits is for the buyer to get as much information as possible from an official source instead of relying on the Realtor or seller.  A wise Realtor will advise a land buyer to roll up their sleeves and get answers “straight from the horse’s mouth”.  This means that the buyer, not the Realtor, should phone the utility company to get information on utilities or drive down to the Planning or Building Department to discuss building restrictions.

A great side benefit to a buyer doing their own due diligence, is that they may learn things about the land that they did not even know they had questions about.  For example, a buyer who calls the water company to ask about the cost of a water meter, may learn there is no sewer.  Or, a buyer who sits down with a City Planner to discuss building setbacks may discover, in the course of conversation, that the mother-in-law unit they were planning is not allowed by the municipality.

As a buyer, you may feel that you don’t have time to do your own independent due diligence.  Or maybe you feel it’s not that fun and you just don’t want to do it.  I understand completely.  However, in that case it is in your best interest to buy a house or condo, not land.

Conclusion

For the reasons described above, it is common for sellers to have little knowledge about the land they’re selling.  The careful buyer will seek answers from official sources such as the City, County or utility companies.

Reading the “days on market” tea leaves

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“How many days has that parcel been on the market?”  Buyers call and ask me this question all the time.  They assume that the longer a parcel has been on the market, the more motivated the owner is to sell.  When the “Days on Market” (DOM) are high, buyers think that they can offer a price that is much lower than the listing price and the seller will gladly accept it.

However, as an agent, I know the opposite is often true.  A seller whose land has been on the market for 300 days may have turned down offers received at 30 DOM, 100 DOM, and 200 DOM.  Land owners like this have demonstrated a low motivation to sell not a high motivation to sell.  Sellers with high DOM are often waiting patiently for a buyer to come along who will pay them their target price.

It is my experience that when buyers try to read DOM, it’s like reading tea leaves.

That is, it’s an ancient superstition passed down through the ages.  And it’s not all that helpful in figuring out what price a seller will accept for their land.

To separate myth from the reality, I decided to look at actual data.  I compared the price difference (the percent difference between the listing price and the selling price) with DOM.  If the buyers who call me are correct, the percent “discount” the seller gives the buyer off the listing price should be higher for high DOM and lower for low DOM.  Let’s just see if that’s true or not.

Research

I obtained data from the California Regional Multiple Listing Service (CRMLS).  This Multiple Listing Service (MLS) system covers much of California.  I searched the MLS for the 2000 most recent land sales.  For these 2000 sales, I extracted the listing price, selling price, and days on market.

I eliminated four wonky data points.  For example, in one case the list price was $17,500 and the broker indicated that it sold for $175,000.  While it is not unheard of for land to sell over the asking price, these digits were so similar I assumed that there was a typo and the listing agent just added in an extra 0 when entering the selling price.  After eliminating these four weird cases, I ended up with a total of n=1996 land sales.

I calculated:  Percent Price Difference = (Listing Price – Selling Price)/Listing Price

In Excel, I performed a statistical linear regression to find y=mx+b, the equation for the line that best fits the data.  In this case, Percent Price Difference was y and DOM was x.  M is the slope of the line and b is the y-intercept.

The parameter m is of particular interest.  The m, produced as a result from the statistical regression, tells us how much Percent Price Difference changes with each additional DOM.  If m is a large negative number then the buyers who think DOM is important are right.  If m is zero then buyers are wrong.

Results

The following scatterplot shows Percent Price Difference and DOM for all land sales:

Two things jump out at me in this figure.  The first is that there were a fair number of parcels (n=144) that sold for over the asking price.  Second, 38 parcels were on the market for 3 years or more before selling:

Due to the clustering of points at the left, the scatterplots above, showing all data, are hard to read.  So below is a revised figure.  The scatterplot below shows a subset of the data for the first 365 days on market and for prices ranging from a reduction of 75% to an increase of 25%:

How do you read this figure?  As one example, consider point A.  This point reflects a land sale that occurred after 100 days on market.  The selling price was approximately 39% less than the listing price.  The land sale at Point B also occurred at approximately 100 days on market but this selling price was 0% from the listing price.  That is, the seller at Point B sold their parcel for full price.

Points C, D and E occurred at approximately 200 days on market.  Point C reflects a parcel of land that sold for approximately 25% less than the listing price.  Point D is a sale that also occurred at 200 days on market but this parcel sold at 50% less than the asking price.  Finally, point E occurred at the same 200 days on market but it sold at 18% over the asking price.

After performing the statistical linear regression on all data, the resulting equation for the line that best fits the data was:

y = mx + b

Percent Price Difference = m (DOM) + b

Percent Price Difference = -0.0000546341974725283 (DOM) + -0.103314904970139

What does this equation mean?  It means that the day a parcel goes on the market (0 DOM), the average seller will accept 10.33% less than the listing price.  Further, for every additional day a parcel stays on the market (DOM), that discount changes by -0.00005.

Note that -0.00005 is close to zero.  That means that the slope of the best fitting line will be close to zero which would make the line virtually horizontal.  The best fitting line is shown in pink in the above figure.

In other words:

  • At 1 DOM, the average seller may accept a 10.3% reduction in price.  (This was calculated as -0.0000546341974725283 (1) + -0.103314904970139)
  • At 30 DOM, the average seller may accept a 10.5% reduction in price.  (This was calculated as -0.0000546341974725283 (30) + -0.103314904970139)
  • At 90 DOM, the average seller may accept a 10.8% reduction in price.  (This was calculated as -0.0000546341974725283 (90) + -0.103314904970139)
  • At 180 DOM, the average seller may accept a 11.3% reduction in price.  (This was calculated as -0.0000546341974725283 (180) + -0.103314904970139)
  • At 365 DOM, the average seller may accept a 12.3% reduction in price.  (This was calculated as -0.0000546341974725283 (365) + -0.103314904970139)

Discussion

Are you a buyer interested in knowing the lowest price a seller will take on a parcel of land?  What is their bottom line – that’s what you really want to know, right?

This research shows that the amount of time a parcel has been on the market is a poor indicator of seller flexibility on price.  There is almost no relationship between the price a seller will accept and how long their parcel has been on the market.

For example, a parcel listed at $100,000 that’s been on the market 30 days might sell for 5%, 25% or 50% less than the asking price.  Or it might even sell for more than the asking price.

On average, a parcel that is sold the day it comes on the market listed at $100,000 will go for 10.33% less than the $100,000 asking price or $89,668.  In comparison, a parcel that’s been on the market 180 days might sell for an average of 11.3% less or $88,685.  The difference between $89,668 and $88,685 is only $983.

Fortunately, for buyers, there are better ways to figure out how flexible a seller may be on price:

  1. Pick up the phone and call the listing agent and ask.  (As a listing agent and fiduciary to the seller, I personally won’t reveal to a buyer how flexible a seller is on price, unless the seller has sent me strong signals that they want me to share their flexibility.  However, other listing agents might reveal this information.  Try it.)
  2. Ask the listing agent if the seller has received offers that they turned down.  What prices were offered but declined?  For example, if a parcel is listed at $100,000 and the seller has turned down offers of $80,000 and $85,000, that’s a pretty good indication that the seller will not accept your offer of $82,000.  (Again, as a listing agent I may or may not give a buyer this information, depending on whether I think it’s in the seller’s best interest.  But other listing agents might.  It doesn’t hurt to ask.)
  3. If the parcel recently fell out of escrow, ask the listing agent what price it was in escrow at.  While the seller’s motivation to sell may have increased or decreased since they accepted their last offer, the answer will at least tell you what price the seller was willing to accept historically.  (As a listing agent, the only time I might reveal this is if the seller was previously in escrow at full price.  This is because I want to convey to the new buyer that the previous buyer clearly thought the property was worth full price and, in any case, the seller is unlikely to accept less.)
  4. Float a verbal offer.  For example, ask the listing agent to check with the seller on whether they will accept $90,000 on that parcel listed at $100,000.  (Personally, I often decline to do this and insist that buyers submit a written signed offer.  Listing agents are required by law to present all offers.  However, a verbal conversation is not an offer.  A true offer is written and signed by the buyer and contains lots of other details such as how the buyer plans to pay for the land, who pays the closing costs, and the closing date.  Nevertheless, there are situations where I will present a verbal offer to the seller and other agents may too.)
  5. Submit a written signed offer.  Ask your agent or the listing agent to prepare an actual offer on proper forms with all the other details in addition to price.  Sign it.  Then the listing agent will present it to the seller.  A seller who receives a written signed offer is likely to respond, via the listing agent, and tell you whether or not they will accept your price.  The seller may counteroffer.  Then you’ll have your answer!

Conclusion

This research shows that it is a fallacy that the longer a parcel of land is on the market the more likely a seller will accept a significantly lower price.  This is because high Days on Market does not always lead to extreme motivation to sell as buyers assume.  High Days on Market could be an indicator of the reverse, low motivation to sell.

Attempting to read the meaning of Days on Market is like reading tea leaves.