Buying and Selling Land

How to find seller-financed land for sale

July 30, 2016 by Tammy Tengs

Seller Financing, Genius

With bank loans difficult to secure for vacant land, buyers basically have two options:  1) pay cash or, 2) seek seller financing. In fact, vacant land sellers financed approximately 17% of California land purchases last year in the $50,000-200,000 price range.

So where can the savvy buyer go to find land for sale where the seller is willing to finance the deal?

Craigslist

Craigslist is a good place to find seller financed properties.  This is in part because there are many For Sale By Owner (FSBO) listings. First choose the geographic area you’re interested in on Craigslist and then head on over to the HOUSING > REAL ESTATE FOR SALE section.  Although a misnomer, the HOUSING section is the place to find all real estate, including vacant land.

To search for seller-financed properties, enter terms like the following into the search field:

  • “seller financing”
  • “owner financing”
  • “carry” (picks up phrases like “seller will carry the loan”)
  • “OWC” (abbreviation for Owner Will Carry)
  • “OMC”  (abbreviation for Owner May Carry)
  • “contract” (identifies sellers who say they are offering a “land contract”)
  • “bank” (picks up phrases like “no bank needed”)
  • “finance” or “seller” (picks up phrases like “seller will finance”).
  • “financing” (picks up phrases like “seller is offering financing”)
  • “terms” (picks up phrases like “seller will consider terms”)
  • “motivated” or “submit” (identifies properties where the seller is “motivated” to sell, or where seller is inviting buyers to “submit” any offer)

Here is an example on how to search for land on Craigslist using the search term “carry”:

Try experimenting to find the search phrases that work best in your geographic area. For example, in a rural area a search on “carry”, intended to capture listings that say “carry the loan”, may also pick up unwanted listings that mention the “carrying” capacity of wells, or the number livestock the acreage will “carry”.  On the other hand, this might never happen in an urban area where there are no livestock and few wells.

Also be aware that searching on a word like “carry” might capture listings that contain phrases you certainly don’t want such as “seller will NOT carry”.  Consider also that a search on something like “financing” will not pick up postings that say, “seller will finance” (because “financing” and “finance” are not the same word).  However, a search on “seller” will pick up both “seller financing” and “seller will finance”.

Get creative with your search and see which terms and phrases works best in your area. Whatever you do you will still have to sift through a collection of ads to find those gems.

As one example, a search the search for “carry” on vacant land in Sacramento California yielded 29 results.

Zillow

The national website Zillow is another place to find seller financed land.

To find owner financed properties, enter terms and phrase like those mentioned above, e.g., carry, OWC, into the Keywords search field.  This will identify only those parcels that have these terms/phrases in the paragraph remarks of the Zillow listing.

Below is an example on how you might search for land in Los Angeles County California if you were seeking property paragraphs that contain the keyword “financing”:

Beware, however, that this search strategy will fail to identify certain parcels.  It will not identify parcels where the seller is in fact offering financing but the listing agent, when originally entering the listing into the MLS, entered that detail in the special financing or terms field of the MLS, but did not enter that information in the paragraph field in the MLS.  Financing database fields are not syndicated from the MLS to Zillow so you cannot search them in Zillow.  (See the section below on how to search them directly in the MLS.)

The above search of Zillow on Los Angeles County in California yielded 60 potentially owner-financed parcels for sale.

The MLS

For a comprehensive search of all owner-financed land listings represented by Realtors in a certain geographic area, ask a real estate agent to search the MLS for you.

Start by considering location.  There are many MLS systems, each specific to a different geographic location.  Most Realtors belong to one local MLS so be sure to find an agent with access to the particular MLS that that has the most comprehensive coverage in the geographic location that interests you. For example, if you’re interested in San Diego County land do not ask a San Francisco area agent to help you.  Ask an agent who specializes inSan Diego County.  The Realtor can search for owner-financed land meeting all of your criteria.

Below I describe search strategies for three popular MLS systems in California and Oregon, the CRMLS, Metrolist, and the RMLS.  I won’t link to them because only a Realtor can search these fields in the MLS.  However, it might help you to understand the MLS fields related to seller financing so that you can discuss MLS search strategies with your Realtor.

CRMLS

In the California Regional MLS (CRMLS) in southern California a Realtor could search the field named “terms” using the strategy:  TERMS=Owner May Carry OR Owner Will Carry.  The difference between “may carry” and “will carry” is probably obvious – “may” means that the seller is not fully committed to offering financing and has a preference for cash.  Whether such a seller will carry the loan or not depends on the details of your offer.  “Will” means that the seller is likely to carry with acceptable terms and may even prefer to carry the loan compared to receiving cash.

To expand your search and find even more properties try: TERMS=Owner May Carry OR Owner Will Carry OR Submit.  “Submit” is ambiguous and can mean any number of things.  It sometimes means that the listing agent has not discussed the possibility of carrying with the seller but the listing agent thinks that there is a chance that the seller may carry, e.g., because the seller is an investor and there is no mortgage on the land.  Listings that say only “submit” may or may not be worth your time to investigate depending on how motivated you are to identify such properties or enlarge the pool of your prospects.

When searching for vacant land in the CRMLS, the Realtor will use the Land/Lot detail search form. Although detailed, the “terms” field does not appear on this form. Down at the bottom of the form the Realtor can add the field. After the Realtor has added the field, she can search it.

For example, a search of CRMLS on Riverside County in California yielded 796 owner-financed parcels of land for sale.  Wow, that’s a big number!

MetroList

In the Sacramento-area MLS, MetroList, the database field called “terms” can be searched to identify properties where the seller will carry the loan.

This field can be found under Additional Criteria. Search on TERMS=Owner Financing. Or to enlarge the pool search on: TERMS=Owner Financing OR Creative.

As one example, a search of MetroList on Placer County in California yielded 81 owner-financed parcels for sale.

RMLS

The largest MLS in Oregon is the RMLS. To find properties where the seller may carry the loan, use the field “Terms”.

Using the Advanced MLS Search, add the field “Terms” to the search page. From the Terms menu, choose both “OWC2nd” which stands for “Owner will carry a second” and “OWNCONT” which stands for “Owner will carry a contract”.

RMLS search for seller financing

For example, a search of the RMLS in Lane County Oregon yielded 140 owner-financed parcels for sale.

LandsofAmerica

Land-specific websites such as LandsofAmerica do not contain all land listings syndicated from the MLS.  On the other hand, they have many listings that are not in the MLS, e.g., For Sale By Owner.

To search, scroll down to Additional Filters and check the “Owner Financing” box.

For example, a search of LandsofAmerica on Siskiyou County California yielded 5 owner-financed parcels for sale.

LandAndFarm

On LandandFarm you can select the box “Seller financing” to limit your search.

A search of LandAndFarm on Fresno County California, for example, yielded 19 owner-financed parcels for sale.

Land Investor Websites

Many investors purchase land at tax sales at low prices and then re-sell the parcels at somewhat higher prices.  One example is DesertLand:

For example, DesertLand has 10 parcels available in the greater Joshua Tree California area, all with seller financing.

To find other land investor websites, try searching Google on “real estate” “land” “owner financing” “<your state>”.

Realtor Websites

Some Realtors indicate on their website when seller financing is offered on their own listings.  For example, at Land22 Real Estate we have special pages on our California and Oregon websites devoted to all seller-financed properties that we have for sale:

For example, at this time Land22 has 7 parcels in California and one in Oregon where the sellers are offering financing.

Conclusion

Bank financing for vacant land is scarce and many buyers do not have all cash. Even buyers who do have all cash may wish to finance a portion of their land purchase. Buyers seeking seller financing can investigate these sources to locate land offered by owners who may be willing to carry the loan.

Filed Under: Buying, Seller financing

Isn’t the other guy supposed to pay those closing costs?

July 25, 2016 by Tammy Tengs

Pay closing costs

No one likes to pay escrow and title closing costs.  Buyers commonly ask: Isn’t the seller supposed to pay those?  On the other hand, sellers also say:  What are all these crazy costs – isn’t the buyer supposed to pay?

As a broker, what fascinates me about this is that buyers ARE sellers, and sellers ARE buyers, or will be, in a few years, or on a different property.  They’re the same people!  Of course they will forget that they thought that it was customary for the other guy to pay when it’s time for them to be on the other side of the transaction  . . .

So who should pay for closing costs?  My answer is:  Although it’s entirely negotiable who pays closing costs it is generally unwise to negotiate!  Regardless of the side you’re on, it’s actually in your enlightened best interest to agree to split costs with the other party.   I’ll explain why.

But first things first – what are “closing costs” anyway?  Let’s concentrate on the big ones and set aside the miscellaneous costs for now.  In California, the big closing costs are the title policy, escrow, and the natural hazard report.  Three other cost items are also large but they are not commonly referred to as “closing costs”.  Those are back taxes, other liens, and the real estate commission.  So in an effort to discuss all of the big numbers, I will touch on those later too.

The negotiation on “who pays what” starts when the buyer submits an offer.  In California, the buyer makes his or her proposal using the checkboxes in paragraph 9 of the Vacant Land Purchase Agreement.  There are two customary patterns for sharing closing costs.

First Common Pattern for Sharing Closing Costs

For vacant land parcels in California, the cost-sharing pattern that I prefer is to split all closing costs 50-50 between buyer and seller like this:

Closing costs 50-50

 

Second Common Pattern for Sharing Closing Costs

Also common is a cost-sharing pattern where the seller alone is asked to pay for title insurance, the natural hazard report and miscellaneous costs, while the escrow fee is split is 50-50.  The logic behind this pattern is that the seller should demonstrate to the buyer that he is delivering clear title so he pays for a title report and title insurance to do that.  Also the seller is required by law to disclose any natural hazards so the seller alone pays for a natural hazard report to comply with the law.  This second pattern is common for homes in California so it often used for vacant land too:

Closing costs seller pays

 

Back Taxes, Liens and the Commission

Now let’s consider those other big-ticket items:  back taxes, liens and the real estate commission.  These are not referred to as “closing costs”.  Buyers will be happy to learn that when using the standard California Vacant Land Purchase Agreement, those items will be paid for by the seller alone.  In the agreement, paragraph 18B says “Title is taken in its present condition except for…monetary liens of record (which Seller is obligated to pay off)….”   In paragraph 23 the agreement says: “The following items shall be PAID CURRENT … real property taxes and assessments….”  Further, the seller signed a separate listing agreement with the listing agent promising that the seller alone would pay the entire commission.

So, if the standard purchase agreement is used, the escrow officer will automatically deduct liens and back taxes from the seller’s proceeds so as to deliver the parcel to the buyer “free and clear”.  Escrow will also automatically deduct the commission from the seller’s side.  Because these items are not commonly referred to “closing costs” there are no checkboxes for them in paragraph 4 of the purchase agreement. Unless there is some agreement to the contrary, in California the seller will pay all back taxes, liens and the commission and the buyer will not pay for them.

When Sellers are Asked to Pay for Everything and the Kitchen Sink (and There is No Kitchen)

Occasionally one of my sellers will receive an offer from a buyer represented by another agent where the buyer’s agent has checked off every single box in paragraph 4 and asked the seller to pay for all of it! They write in that they want the seller to pay for the well to be tested and sometimes they even indicate that when there is no well!  They want a perc test, a survey performed, and the corners marked, and this, and that, etc.  This kind of offer, where they throw it all in and see what sticks, is usually prepared by an agent who specializes in selling houses and condos, not vacant land.

When receiving an offer like this it’s best to just take a big breath and pull out the counteroffer form.  While all items are negotiable, in my experience it is not customary for sellers to arrange or pay for “extra” items such as having the property surveyed (marking corners), testing the well, testing the septic system or performing a percolation (perc) test, etc.  I generally advise my sellers to decline to pay for these items.  However, some sellers do occasionally pay if they are highly motivated to sell and have the time to deal with surveyors or inspectors.

When sellers decline to pay it is still a customary to allow buyers to perform any surveys or inspections they care to perform at the buyer’s expense as part of their due diligence.  So if you are a seller and you receive an offer like this asking you to pay for everything and the kitchen sink just prepare a polite counteroffer with the assistance of your broker stating what you will and won’t do and what you will and won’t pay for.

Not Sharing the Burden is Seen as Unfair

As a purely psychological matter, buyers really dislike being asked to pay what they perceive to be the “sellers” costs.  Sellers also hate being asked to pay what they think are “buyers” costs.  If asked to carry the load of the other person, each party will think the other is being an unfair meanie or a trickster trying to slip costs into the fine print of a deal.

Interestingly, the parties are likely to be far more accepting of negotiation on price.  Buyers understand and accept that sellers want the highest price possible.  In fact, buyers may even be a little sheepish and worried about submitting a low price offer and anxiously awaiting a counteroffer on price.  Further, sellers understand the reality that buyers want the lowest price possible.  The other party is unlikely to be perceived as “unfair” or “mean” by simply counter offering on price.

Thus, it is in the best interest of both to just accept the transaction costs of buying and selling real estate and negotiate on purchase price only.

Advice to Buyers

You should propose to split all closing costs with the seller 50-50 consistent with pattern 1.  Why?  Well, keep your end goal in mind:  As a buyer, you want the seller to accept your offer as written with no counteroffer, right?  Further, you want the seller to accept it quickly before another buyer submits a higher offer, yes?  If you ask the seller alone to pay for some items consistent with pattern 2, a seller who does not buy or sell land every day and has not read this blog may wonder if this is customary.  The seller may be annoyed.   He may start calling Aunt Bessie in South Dakota who used to be a Realtor back in 1940 and ask her whether she thinks this is fair.  He may call Cousin Bernie in Long Island who just sold his house to see what closing costs he paid.  He may communicate back and forth with his agent on how to respond to your offer.  He may request an estimate from escrow to see how big of a hit all these costs will be.  All this flagellation takes time. The risk of time passing is that another buyer may appear on the scene in the interim.  The annoyed seller may finally give you a counteroffer on who pays what closing costs.  The seller might reason that as long as he is countering on closing costs he might as well ask for a higher price too as that requires no additional effort to slip into the same counteroffer.  If you, as buyer, are not offering full price, the seller may factor in your unequal cost sharing proposal and “take it out on you” in his counteroffer on price.

So what you want to do, as buyer, is fly under the radar with your original proposal on how to share closing costs and be perceived as fair and reasonable.  You want the listing agent to take your first offer to the seller and describe it as “clean”.  The best way to accomplish that is to propose to share all costs 50-50.

Here is an example to illustrate the issues:  California buyer Sally calls her agent wanting to submit an offer of $13,000 on another agent’s parcel of land priced at $13,000.  The agent reminds Buyer Sally that her half of all closing costs combined will be approximately $850.  Buyer Sally replies that she only has $13,000 and does not have $13,850.  Buyer Sally wonders if she should ask the seller to pay all closing costs including her portion.  The agent wisely recommends that Sally not do that and suggests that she submit an offer at $12,000 and offer to pay 50% of all closing costs.  Sally does that.  The seller counters at $12,500, Buyer Sally counters at $12,150 and the seller accepts.  Sally pays a price of $12,150 plus $850 in closing costs for a total of $13,000.  Both buyer and seller are happy.

Imagine if Buyer Sally had submitted an offer at $13,000 and asked the seller to pay 100% of closing costs?  The seller would have been pleased with the full price offer but might have countered asking Sally to pay her own darn closing costs.  Then Sally would have had to back-peddle on her offered price in order to afford her portion of the closing costs.  The seller would have been annoyed at Buyer Sally trying to lower her offered price after offering full price and the deal might have fallen through.  This demonstrates why buyers should just offer to split the closing costs upfront so that they can negotiate on one thing, price, not two things, price and closing costs.

Advice to Sellers

You should accept and agree to either of the two patterns described above for cost sharing because both are common and customary.   If the offer is less than full price, do not negotiate closing costs – negotiate on price only.  There is no point in negotiating on two things (price and closing costs) when you can simply negotiate on one thing (price).  It all comes out the same in the end anyway.  Don’t nitpick over details.

Here is an example:  Seller John has his parcel listed for $20,000.  Buyer Mary offers $15,000 and proposes that seller John pays the bulk of the closing costs consistent with pattern two above.  Seller John is tempted to reply “Well, I’ll accept Buyer Mary’s (low) price if Mary will pay 100% of all closing costs.”  However, John’s smart agent knows that Buyer Mary may balk at being asked to pay what Buyer Mary perceives to be Seller John’s portion of the costs, just as a matter of principle.  If John were to pay the bulk of the closing costs as the buyer requested, his costs would be $975.  The listing agent wisely advises Seller John to give Buyer Mary a counteroffer at a price of $15,975 and agree to share closing costs just as Mary proposed.  Buyer Mary feels the price adjustment is quite reasonable in light of her low offer and accepts the counteroffer.  Both buyer and seller are happy.

Advice to Agents

Carry your own weight C
Carry your own weight

Perhaps, as a good fiduciary, you’re thinking that when you represent sellers you want the buyer to pay and when you represent buyers you want sellers to pay.  Remember though, for the reasons mentioned in this blog, you don’t want to win the battle on closing costs only to lose the war on price.  A good fiduciary should tell both their buyers and their sellers that they should carry their own weight and explain why doing so is actually in their enlightened best interest.

The bottom line is this:  Don’t sweat the details on closing costs. Negotiate only on price.

 

 

Filed Under: Closing costs, Negotiation, Purchase agreement

Where do land buyers find the money?

July 25, 2016 by Tammy Tengs

Find money to buy landWhen buying a house, most people finance the purchase their home purchase with a bank mortgage. However, when it comes to purchasing vacant land, where do land buyers find the money?

Their choices are:

  • Cash
  • Loan
  • Seller financing

Which source of funds is more prevalent? How does the source of funds vary by price range? I’ve always wondered.  So I did some research.  Now I can share my research with you.

First, let me explain what I mean by each source of funds.

Cash

I thought that “cash” was self-explanatory until the time I told a buyer that the seller required “all cash” and he replied “so, you want me to come to your office with dollar bills in a duffle bag and put it on your desk”? From the perplexed look on his face I understood in that instant that “cash” means different things to different people!

Paying for land with “cash” means that you pay with money you already have in the bank or some other account. The money is sitting there, ready to go toward your land purchase. It is “liquid”.   You can write a check or wire the funds to escrow tomorrow.

Loans

Loans to purchase houses and condos are plentiful. But remember, you’re buying land, dirt, not a home with four walls. Loans to purchase land are scarce.

When available, a loan to purchase land might be available from a bank, credit union or other conventional lender. Loans are sometimes financed by so called “hard money” lenders. Occasionally sellers receive loans from family, friends, or acquaintances.

Seller Financing

Seller financing is also a type of loan. The only difference is that instead of the bank serving as the lender, the seller becomes the lender.

It works like this: The buyer makes a down payment. The seller transfers title to the buyer at closing and the seller becomes the lender. The seller has a lien on the property, just like a bank. The buyer makes payments to the seller (now the previous owner) over time. When the buyer finishes paying off the loan the seller removes the lien. If the buyer does not pay, the seller contacts the Trustee and forecloses, just like a bank would.

How Common is Each Source of Funding?

To figure out where buyers were getting their money to buy land, I searched one large Multiple Listing Service (MLS), the California Regional Multiple Listing Service (CRMLS). I identified all vacant land parcels sold in the last year in various price ranges.

In the one-year period that I reviewed, a total of 4786 parcels of vacant land sold. Of those, 3398, or 71% were purchased with cash. Further, 910, or 19%, were purchased with a bank loan or other loan of some kind. The remaining 478, or 10%, were purchased with seller financing.

Land purchase funding source, all price ranges
Land purchase funding source, all price ranges

 

Variation in Funding Source by Price Range

The source of funding varies by price range. For land selling in the $50,000-$199,000 price range, seller financing is more common than outside loans.  Seller financing is used in approximately 17% of transactions.  This is clear in the figure below:

Land purchase funding source, $50,000-199,000 price range
Land purchase funding source, $50,000-199,999 price range

 

For land selling in the $200,000-$1M price range, outside loans are more common than seller financing and are used in 23% of sales:

Land purchase funding source, $200,000-999,000 price range
Land purchase funding source, $200,000-999,999 price range

 

Cash is the most common way buyers purchase land in all price ranges except the $1M+ range. In that high price range, buyers are slightly more likely (51%) to purchase land with a loan than pay cash (46%). Seller financing in the $1M price range is rare (2%).

Land purchase funding source, $1M+ price range
Land purchase funding source, $1M+ price range

 

Here is the complete data for all price ranges:

Price Range               N                      Cash Seller Financing                   Loan
$0-49,999  2127  76%  7%  17%
$50,000-99,999  724  76%  16% 8%
 $100,000-199,999  638  68%  18%  14%
 $200,000-499,999  635  69%  10%  21%
 $500,000-999,999  305  64%  9%  27%
 $1M+  357  47%  2%  51%
All 4786 71% 10% 19%

Conclusion

In California in 2016, mortgages are plentiful for homes, but not for land. Land is generally purchased with cash. Seller financing is common, especially in some price ranges.

Filed Under: Buying, Financing, Loan, Seller financing

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Tammy Tengs

Land Broker; systematic; empath; doctorate from Harvard; likes vegetarian food, documentaries, water aerobics, learning new technology, and all things real estate.

California license #01436288

Arizona license #BR688152000

Oregon license #201208568

Land22 Real Estate

http://land22.com

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Where do land buyers find the money?

Pay closing costs

Isn’t the other guy supposed to pay those closing costs?

Seller Financing, Genius

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