Negotiation

How to get access to a landlocked parcel: the basics

April 5, 2019 by Tammy Tengs 2 Comments

You notice a landlocked parcel for sale, and you think “Gee, that’s a nice parcel at an amazing price”. But after reading the fine print you realize there’s no road to it and it doesn’t have an easement. The parcel is “landlocked”. “How will I ever get access” you wonder?

This is an important question, because access is needed to build. Here I describe the steps you can go through to obtain legal access.

This is an “Intro 101” examination of the basics, not an advanced discussion. My goal is to describe the process in a super simple manner to those buyers who have no idea how to get access to a parcel that is landlocked. If you have more advanced questions, you will want to consult a real estate attorney.

Key Things to Be Aware of First

A “landlocked” parcel is one that does not have access to a road because it is surrounded by property owned by other people.
The existence of a physical “road” that you can see with your eyeballs does not necessarily mean you have legal access.
Your goal is to obtain an “easement for ingress and egress” (access to go in and out). Once you have an easement, you will have the right to cross your neighbor’s private property to get to your property.
An easement is basically the right to use the real property of another for a specific purpose. Legal title to the underlying land is retained by the original owner.
Easements “run with the land”. That means when you sell your property or your neighbor sells his property, the easement stays in place. Humans come and go. Land and easements stay where they are. So any future owner of your land would also have access via the easement and any future owner of your neighbor’s parcel would still have to provide access.

Step 1: Verify That the Parcel is Truly Landlocked

It does not make sense to go to the trouble of trying to create an easement if you already have access. So, the first step is to verify that the parcel in question is really truly landlocked.

If the land is on an official paved or dirt road, then you probably have legal access and you do not need an easement. If the land is on a road or path that is unofficial, then you may or may not need an easement. You cannot tell with your eyes whether the existing road is official or whether there is a legally recorded easement. The road you see with your eyes could be unofficial and not an easement.

To get some information about whether you have already access, order a title report. Title companies make decisions about whether or not to insure for “marketable access” when deciding whether or not to insure title. In my experience, “marketable access” correlates with what I will call “legal access” about 99% of the time. If the title company says that they will insure title and will also insure for access, you can be pretty sure you have legal access. If the title company says they will insure for title but will not insure for access, you can usually assume you have no legal access and your parcel is landlocked. So, the easiest way to determine whether or not a parcel is landlocked is to order a title report.

When the title company agrees to insure for title, but declines to insure for access, a phrase like “The lack of right of access to and from the land” will appear in the exceptions section of the title report. When this phrase does not appear, the title company is basically saying they will insure for both title and access.

Step 2: Gather Information on the History of Access

If the owner of a parcel for sale has already tried to get access from a neighbor, and failed, it’s important for you to know this. Maybe the seller has been feuding with his neighbor over access for years. This scenario would suggest that you, the buyer and future owner, are also likely to find the neighbor difficult to work with.

On the other hand, maybe the history offers good news. Suppose that the seller subdivided his 10 acres and sold 5 acres to his best friend from high school, kept the other 5 acres for himself, and just forgot to create an easement across his friend’s land in front to his land in back. That’s a totally different situation. Creating an easement in a case like this may be easy.

Understanding the history will help you, as a buyer, to get a sense of the likelihood that your efforts to negotiate an easement will be successful.

About 90% of the time you will discover that there is no history at all and the seller has never attempted to arrange an easement. This is because many people buy land as an investment, not to build. They have no reason to visit the land so never tried to create access. They bought it “as is” and they are selling it “as is”.

Ask about the seller’s history on trying to establish access. You never know when you might learn something helpful.

Step 3: Consider Who Will Create the Easement and When

Will the easement be created by the City? No. The County? No. The transportation authority? No. The Broker? No. The title company? No. The neighbor? No. The seller? Usually no.

So, who will create the easement? You, the buyer, that’s who. About 97% of the time, buyers of landlocked parcels must purchase the land the way it is, close escrow, own it, and then start working to create an easement after closing.

I find that about 2% of the time, the seller will entertain an offer with a contingency on the easement. This means that the buyer can try to arrange the easement during their contingency period (part of the escrow period). If the buyer is unsuccessful, the buyer can cancel escrow, get their deposit back, and walk away. If the buyer is successful, the buyer will close escrow. I say this happens 2% of the time because it is a rare seller who will entertain such a contingency. It can take months or a year or more to go through all the steps to create an easement and sellers typically want to close escrow in 21-45 days.

In unusual instances, like 1% of the time, the seller will actually agree to create the easement for the buyer prior to closing. Sellers may entertain this option when creating the easement is super-duper easy for them. An example of this situation is when the seller happens to own the adjacent parcel where the easement is needed. In that case, the seller of parcel A is also the neighbor and owner of parcel B, and can easily create an easement across parcel B, his own land. Another example is when the neighbor is a family member or close friend of the seller. A final example is when the seller has already negotiated access with the neighbor and just needs to put it in writing, get it signed, and record the easement with the county.

In my experience, buyers commonly want an easement before closing and sellers almost never agree to this. It’s just wishful thinking on the part of buyers. Generally, buyers will have to purchase the land and then roll up their sleeves, in that order.

Sometimes buyers who have not even submitted an offer on a parcel ask me for contact information for the neighbor. They think I can just give them the neighbor’s phone number or email and they will just contact the neighbor and say, “hey man, can I have an easement?” They’re hoping the neighbor will say “yeah, sure, no problem” and it will be easy. Dear buyers, that almost never works. First, I don’t have the neighbor’s phone number or email and the seller rarely has their contact information either. I do have access to title records but those show only the neighbor’s name and mailing address, not their phone number or email. Second, negotiating an easement takes more effort than a simple phone call. It can take months. So, a “hey man…” conversation is unlikely to be fruitful. Third, you don’t own the parcel yet and you’re not even in escrow, so you don’t really have authority to negotiate an easement. Fourth, generally more than one buyer will have this same idea and it’s not good for multiple buyers to be calling the same neighbor. So, buyers, I suggest that you put this idea out of your mind. Please understand that if you want to buy a landlocked parcel at a low price, in all likelihood you will have buy the land “as is” and work through the steps in this blog post to seek an easement after closing. Or don’t buy it. That’s the other option.

Step 4: Figure Out Where You Want the Easement

After buying the land, if you decide to move forward with seeking an easement from the neighbor(s), you will need to figure which parcel(s) you want to cross. Get a map that shows your parcel and the neighbor’s parcel(s). This map might be a plat map or an aerial map.

Say you are surrounded by neighbors B, C and D. If you cross B you will reach the road. Alternatively, if you cross C you must also cross D, then you will reach the road. In the first case, you will need one easement. In the second case you will need two easements. So, figure out which direction it makes the most sense to go.

Also assess approximately where on the neighbor’s parcel(s) you want the easement. For example, is there a well-worn dirt path that you will try to follow? Do you want to travel along the boundary of a property? Is your desired easement straight or curved? How wide will it be? Ask the City/County what width they require in order to grant a building permit as that will dictate the width of the easement you will try to arrange.

Step 5: Get Contact Information for the Neighbor(s)

In order to request an easement from a neighbor, you will need the neighbor’s name and contact information. Their mailing address might not be the same as their physical address.

Vacant land sellers rarely have contact information for their neighbors. Remember, they’re selling land, not a house, so they don’t live there. However, your Realtor can look up the neighbor’s contact information in title records. In order for your Realtor to help you, you must give her the address or Assessor’s Parcel Number (APN), for the neighbor’s parcel(s) that you want to cross.

You can use the official plat map (not a Google map) to figure out the APNs. For example, if you are purchasing APN 1234-567-89 then the plat map will have an 89 in a circle corresponding to the parcel you want to buy. If you are planning to seek an easement across a parcel that has a 90 in a circle, the APN for that parcel will be 1234-567-90. Give your Realtor that APN and she can look up the name and mailing address for the owner of that parcel. In California and some parts of Oregon, agents have access to title records in Realist through the MLS.

Another way to find the neighbor’s contact information is to use a Geographic Information System (GIS). GIS systems are available free online. To find a GIS system for your area, Google “GIS <city name>” if the parcel is in the City. Google “GIS <county name>” if the parcel is in the County. Enter the neighbor’s APN into the GIS and see if their contact information pops up. Note that not all GIS systems have contact information for property owners – some do, some don’t. Also, if there is contact information it will be limited to names and addresses. There will be no phone number or email.

I have had some success finding phone numbers and emails just by using Google. This works best if the neighbor has a somewhat unusual name. Try it.

Step 6: Ask the Neighbor(s) for an Easement

Armed with the neighbor’s contact information, the next step is to get in touch with them. You can send the neighbor a letter, call, email, or try going in person. Or, if you prefer, you can have your attorney do any of these things.

Explain to the neighbor that you are seeking an easement. Be prepared to explain to them what an easement is. Reassure the neighbor that they will still own the land where the easement is located. You just want to cross it. Let them know that the easement “runs with the land” so it remains there in perpetuity and does not disappear if you sell or if your neighbor sells. Describe where you want the easement to be located. State how wide it will be. Discuss who will improve and maintain the easement.

If the neighbor objects, offer to pay them for it. How much should you offer? It depends on the value of the land…$500, $5000, $50,000. I don’t know. It’s negotiable.

When considering what you are willing to pay for an easement, you might factor these things in to your thought process:

An easement will greatly improve the value of your land. This is because parcels with recorded legal access sell for much more than parcels with no access. I would estimate that easements improve the value of land by 10-1000%. Ask your Realtor to estimate how much an easement might increase the value of your specific parcel.
The alternative to paying the neighbor for the easement is probably going to court to resolve the conflict. Attorney fees are expensive, $200-$500/hour. In comparison to paying attorney fees, paying the neighbor for the easement might feel like a bargain.
By burdening your neighbor’s parcel with an easement, you might be reducing the value of their parcel. It’s only fair to pay him enough to compensate him for any loss in value that he might incur.

If the neighbor agrees to offer an easement, go to step 7 and consider skipping step 8. If the neighbor doesn’t agree to offer an easement, go to step 8.

Step 7: Hire a Surveyor

Easements should be recorded with the county. In order to record an easement, you and the neighbor must sign an agreement. That agreement must specify the precise location of the easement.

The description of the location of the easement cannot be casual like “along the existing path on the west side of John’s land at 1234 Main St”. A proper legal description is often complicated and looks more like this:

An easement and right of way for road, sewer, water, gas, power and telephone lines and appurtenances thereto under, along and across a 60.00 foot strip of land lying within Section 10 and 11 all in Township 9 South, Range 2 West, San Bernardino Meridian, in the County of San Diego. State of California, according to United States Government Survey, the centerline of said 60.00 foot strip being described as follows: Beginning at the Northwest corner of the Northeast Quarter of said Section 11; thence along the Northerly line of said Northeast Quarter, South 86° 05’ 24” East 577.98 feet to the True Point of Beginning; leaving said Northerly line, South 5° 37’ 14” East 310.00 feet; thence South 04° 36’32’ East 164.03 feet to the beginning of a tangent 300.00 foot radius curve, concave Westerly; thence Southerly along the arc of said curve, through a central angle of 27° 07’ 51” a distance of 142.06 feet thence South 22° 31‘19” West 133.34 feet to the beginning of a tangent 100.00 foot radius curve, concave Northwesterly; thence Southwesterly along the arc of said curve through a central angle of 60° 02’ 43” a distance of 104.80 feet thence South 82° 34’ 02” West 174.36 feet to the beginning of a tangent 400.00 foot radius curve concave Southerly; thence Westerly along the arc of said curve, through a central angle of 13° 33’ 30” a distance of 94.66 feet; thence South 69° 00’ 32” West 115.77 feet to an intersection with the Westerly line of the Northeast Quarter of Section 11, Township 9 South, Range 2 West, distant thereon South 05°54’22” East 926.55 feet from the Northwest corner of the Northeast Quarter of said Section 11; thence along the Westerly line of said Northeast Quarter, South 05° 54’ 22” East 397.68 feet to the Southeast corner of the Northeast Quarter of the Northwest Quarter of said Section 11 South 05° 22’ 54” East 13.10 feet; thence South 30° 35’ 51” West 281.12 feet to the beginning of a tangent 180.00 foot radius curve, concave Easterly; thence Southerly along the arc of said curve, through a central angle of 29° 17’ 17” a distance of 92.01 feet thence South 01° 18’ 34” West 264.21 feet; thence North 88°41’26” West 30.00 feet; thence South 13°19’28” West 66.15 feet of the beginning of a tangent 100.00 foot radius curve, concave Northwesterly; thence Southwesterly along the arc of said curve, through a central angle of 70°31’28” a distance of 123.09 feet; thence South 83°50’56” West 43.41 feet to the beginning of a tangent 200.00 foot radius curve, concave Northeasterly, thence Northwesterly along the arc of said curve, through a central angle of 47° 02’ 06” a distance of 164.18 feet thence North 49° 06’ 58” West 117.28 feet to the beginning of a tangent 50.00 foot radius curve, concave Southerly thence Westerly along the arc of said curve, through a central angle of 77° 08’ 23” a distance of 67.32 feet; thence South 53° 44’39” West 59.15 feet to the beginning of a tangent 150.00 foot radius curve, concave Southeasterly; thence Southwesterly along the arc of said curve, through a central angle of 28°58’14” a distance of 75.85 feet; thence South 24° 46’ 25” West 609.78 feet to an intersection with the Southerly line of the Northwest Quarter of said Section 11; thence along said Southerly line, North 87° 41‘ 25” West 61.94 feet to the Southeast corner of the Southwest Quarter of the Northwest Quarter of said Section 11; thence along the Southerly line of said Southwest Quarter of the Northwest Quarter, North 87° 41’ 25” West 193.45 feet to the beginning of a tangent 50.00 foot radius curve, concave Southeasterly, thence Southwesterly along the arc of said curve, through a central angle of 57° 08’ l0” a distance of 49.86 feet; thence South 35° 10’ 25” West 169.73 feet to the beginning of a tangent 100.00 foot radius curve, concave Northwesterly; thence Southwesterly along the arc of said curve, through a central angle of 36° 19’ 10” a distance of 98.30 feet thence North 88° 30’ 25” West 31.23 feet to the beginning of a tangent 150.00 foot radius curve, concave Northeasterly; thence Northwesterly along the arc of said curve, through a central angle of 42°51 ‘10” a distance of 112.19 feet; thence North 45° 39’ l5” West 138.04 feet to the beginning of a tangent 189.53 foot radius curve, concave Northeasterly; thence Northwesterly along the arc of said curve, through a central angle of 29° 27’ 20” a distance of 97.44 feet to an intersection with the Southerly line of the Southwest Quarter of the Northwest Quarter of said Section 11; thence North 16° 11‘ 55” West 482.67 feet to the beginning of a tangent 500.00 foot radius curve, concave Southwesterly; thence Northwesterly along the arc of said curve, through a central angle of 12° 50’ 50” a distance of 112.11 feet; thence North 29°02’45” West 376.18 feet to the beginning of a tangent 300.00 foot radius curve, concave Southwesterly; thence Northwesterly along the arc of said curve, through a central angle of 22° 07’ 00” a distance of 115.80 feet; thence North 51° 09’ 45” West 168.16 feet to an intersection with the Westerly line of said Section 11 distant thereon South 03° 25’ 35” East 194.19 feet from the Southwest corner of the Northwest Quarter of the Northwest Quarter of said Section 11; thence continuing along the last described course North 51° 09’ 45” West 122.20 feet; thence North 14° 09’ 45” West to an intersection with the Southerly line of the Northeast Quarter of the Northeast Quarter of Section 10, Township 9 South, Range 2 West.

As you can see, you will need to hire a surveyor to write a proper legal description of the location of the easement. The surveyor will also prepare documents for you and your neighbor to sign. After you sign, go to the county and record the easement.

Step 8: Hire an Attorney

If the neighbor refuses to allow an easement, hire an attorney. You might also consider hiring an attorney long before this stage to help you with steps 1-7.

Choose an attorney who specializes in real estate. To find one, Google the American Bar Association for the county where the land is located. Call and ask for a referral to a local real estate attorney.

Your attorney will be able to help you negotiate with the neighbor. They can also draft your agreement with the neighbor regarding things like who is responsible for the maintenance and improvement of the easement.

If the neighbor is uncooperative, your lawyer can advise you on whether the specific circumstances of your situation mean that you have a legal right to an easement. Then your attorney can make this case in court, if necessary.

Alternative Approaches

You might be wondering if there are things you can do to address the lack of access without seeking an easement and without the expense of hiring an attorney. Here are some possibilities:

Offer to buy the neighbor’s property outright. Once you own it you will have the control and can create an easement on your own land!
Offer to buy a portion of the neighbor’s property, enough to get you to a road. This would require subdividing the parcel or a lot-line adjustment. Sometimes the city/county will allow this and sometimes they won’t. Before suggesting this to the neighbor, check with the Planning office to see if it’s allowed.
Ask the neighbor’s family member to convince the neighbor to give you an easement. This has worked for me.
If you’re not vibing with the neighbor for personality reasons, ask your spouse, significant other, family member, friend, or attorney to negotiate on your behalf. They may have better luck.
Offer something of value to the neighbor. Examples include: a) more money than you originally offered, b) “first right of refusal” so that he can be first in line if you ever sell your land in the future, c) a gate/road that you will install at your expense, d) fencing between your properties that you will install at your expense, or e) that chain saw he keeps borrowing, etc. You get the idea. This is the “carrot” approach.
Explain to the neighbor what your next steps will be if he declines the easement, e.g., you will hire an attorney so he will probably have to hire an attorney. This will cost him money and there will be a long drawn out court fight, etc. This is the “stick” approach and not recommended unless you’re ready to burn all other bridges.
Offer to pay for a professional mediator to assist both parties in negotiating the easement.
Offer to sell your property to the neighbor. This will not achieve your goal of getting an easement, but it will get you out of the situation.
Wait for the neighbor to sell their property or pass their property on to their heirs. Statistically, houses turn over on average every 7 years. Maybe the next owner will be more accommodating.
Wait for the neighbor to put their property on the market for sale. List your land at the same time, possibly with the same Realtor. If the buyer purchases both properties, they’re not going to be too concerned about your lack of access because they will own the neighboring land.
Ask the neighbor for a “personal permission” to cross. This is different from an “easement”. It applies only to you personally (and possible your family, guests etc.) and does not “run with the land”. This means that when you transfer the property, or the neighbor transfers his property, the permission will disappear. It will not allow you to build and will not increase the value of your property when you sell it, but it will allow you to put your feet on your land for now.
Sell your land on the open market in its current landlocked state for whatever price you can get for it. Be sure to disclose the lack of access to the next buyer.
Try getting an easement in a different direction, across a different neighbor’s land, if possible.

Conclusion

Buyers purchase landlocked parcels every day. It is very common because parcels that lack access are offered at bargain price. By studying this basic outline of the steps that would have to be followed to create an easement, buyers who are unfamiliar with the process can assess whether or not buying a landlocked parcel is something that makes sense for them.

Can the seller counter over the asking price?

August 20, 2016 by Tammy Tengs

Recently, I received a full price offer from a Realtor who was representing a buyer. I was representing the seller. Surprisingly, my client declined the full price offer. He gave the buyer a written counteroffer that was higher than his asking price.

Let’s just say that my client had his reasons.

The Realtor representing the buyer went absolutely ballistic! She threw a tantrum and sent me several flaming e-mails. She implied there was some conspiracy afoot.

I listened politely. I mean, gosh.

So while that other Realtor is taking a time-out in the naughty-girl corner, let’s talk, just you and I. From this experience, it became clear to me that not all buyers, and perhaps not all agents, understand that it’s acceptable for sellers to decline full price offers. Buyers and their agents may not grasp the reasons why a seller might do that. Further, sellers may not realize the drama that they unleash when they counter over the asking price.

Does The Seller Have To Accept A Full Price Offer?

The short answer is “No.”

Real estate is not like shopping at the supermarket. When you go to the grocery store and an item is marked $1.29 you can be confident that when you take it up to the cash register you will be allowed to purchase it for $1.29. Even if the computer register makes a mistake and shows it at $1.50, for example, you can still talk to a manager and he will likely give it to you for $1.29 because that’s the price marked on the item.

Real estate doesn’t work that way.

Does the Seller Have to Explain Their Reason for Declining A Full Price Offer?

No. In fact, the seller does not even have to reply to the buyer’s offer at all, even a full price offer. The seller can remain entirely silent.

Of course the listing agent may well explain the seller’s reasons to the buyer’s agent if she feels it is in her client’s best interest. For example, if the seller wants the buyer to re-submit a revised offer, the listing agent might explain to the buyer’s agent the reasons that justify the higher price. However, there are times when the listing agent, acting as the seller’s fiduciary, will feel that it’s in seller’s best interest to say nothing. In that event, she will remain silent.

Why Would a Seller Decline A Full Price Offer?

First, rest assured that the vast majority of sellers will accept a full price offers. Or, they may give a buyer a counteroffer on a couple of details but accept the full price.

However, there are reasons why some sellers may not accept full price. Here are a few of those reasons:

1. The seller may have received another written offer

In fact, the seller may have not just one additional offer – he may have two or more. The other offer(s) may be higher than your offer, lower than your offer, or the same as your offer. Regardless, the seller is free to accept one offer, counter one offer, counter multiple offers, or decline all offers. There is no “first come first served” in real estate.

In practice, the way it usually works is that when a seller receives two or more offers, the seller will either 1) accept the best offer, or 2) counter one offer on a couple of details, or 3) counter two or more offers. In the event of a bidding war, the parcel is likely to sell for over the asking price.

2. The seller may have received another verbal offer

Even if the seller does not have another written offer, he may have received another verbal offer via his agent. He may be hoping to get more from the competing buyer. It could be that the other buyer is planning to put their verbal offer in writing any day now, but has not gotten around to doing that yet.

3. The seller may be unhappy with the terms

Offers are not all about price. Offers consist of price and terms. Sure you may have offered full price, but did you ask for a 120-day escrow period so that you would have time to come up with the money? Is your offer contingent on selling your house in another state? Did you ask the seller to pay for all of the closing costs including your portion? Did you say you were going to get a bank loan on vacant land with 5% down when the seller knows that no such loans exist? Did you ask the seller to pay for a perc test for septic, a well inspection, and a survey? If you answered “yes” to any of these questions, the seller may be saying to himself “Give me a break. I’m not even going to reply to this frivolous offer” even if it is full price. Sure, the price is fine. But the seller doesn’t like the terms.

4. The buyer’s agent may have “shown her hand” to the listing agent

The agent representing the buyer may have inadvertently or deliberately disclosed to the listing agent the buyer’s extreme motivation to purchase or even the buyer’s willingness to pay more if necessary. The buyer’s agent may have said that she thinks the parcel is a “good deal” or “very well priced”. She may have called the listing agent incessantly asking if there are competing offers, or pressuring the listing agent for a response. This is a “tell” that the buyer is very interested and is pushing her agent to get a response from the listing agent and seller.

The listing agent (who is the seller’s fiduciary) may advise the seller that she believes the buyer may be willing to pay more than the asking price. This advice may cause a seller to decline or counter a full price offer even when the seller has no other offers.

5. The listing agent’s phone may be ringing off the hook

If you think a parcel is so awesome that you are motivated to offer full price, then it stands to reason there are other buyers just like you. The listing agent may be receiving considerable interest – a high volume of phone calls and lots of e-mails. The listing agent has likely shared this information with the seller. The seller may take this as a sign that he can get more than his initial asking price for the parcel.

6. The seller may have had a change of heart on list price based on reliable or unreliable new information from outside sources

After signing the listing agreement at a particular price, the seller may discuss the price with his “financial advisor” Spike, his neighbor Mary Sue, or his favorite uncle Herb who used to sell real estate back in 1958. New advice (reliable or unreliable) may cause him to change his willingness to sell at his original list price. Wisely or unwisely, this may cause him to decline your full price offer.

7. The seller’s confidence in the economy may have improved since he listed the parcel

The actual economy for land sales typically does not change in 3-6 months, the timeframe of a typical real estate listing. However, the seller’s psychological confidence in the economy based on news reports could easily change in a period that short. The seller may be thinking “sure I listed my property at $X five months ago, but now the economy has improved so I want more money for my land”.

8. The buyer or the buyer’s agent may be acting like a jerk

Sellers do not want to sell their land to buyers who are acting like jerks or who are represented by agents who are acting like jerks. An example of a jerky thing to do would be to submit a full price offer and then get angry, threatening litigation if the seller doesn’t immediately accept the offer (like the agent who inspired this blog post did). Any mention of the L-word for any reason is naturally a huge turnoff to sellers. Sellers do not want to do business with buyers who seem litigious or who might create a complicated unhappy escrow experience. As a pure business decision, a seller is unlikely to accept a full price offer from someone who is acting like a jerk.

Advice to Sellers

Yes, technically you can ask a buyer to pay more than the listing price. But let’s face it – you will create an unhappy melodrama between the buyer, buyer’s agent and listing agent. More importantly for you, a move like this is unlikely to be successful.

Countering over the asking price may cause the buyer to disappear. There are some buyers who, upon receiving such a counteroffer, will think you’re an unfair meanie and will walk away just on principle.

As a seller, it’s far better to list the property at a price you are actually willing to accept. If the price you are willing to accept changes, then talk with your Realtor immediately about modifying the advertised listing price.

Also listen to your Realtor. Ask your Realtor to do some updated research. Maybe the higher price you think you can fetch is ill-considered and you should keep the list price the way it is. After all, it hasn’t sold at current listing price yet, now has it?

As a strategy, countering over the asking price should be reserved for only the rarest of circumstances. And only when you’re mentally prepared for the buyer to say “no thanks”.

Advice to Buyers

If you think a parcel is an awesome deal, it is likely you’re not alone in that opinion. When you find a fabulous real estate opportunity, be aware that multiple offers and counteroffers over the asking price are a possibility. The best way to avoid a bidding war is to write a “clean” offer. That means you should offer full price and, in addition, offer 50% of all closing costs including title insurance. To increase the odds of acceptance, write into your offer that the seller can choose the escrow and title company. Finally, submit your offer quickly before anyone else sees the listing!

Advice to Agents

If you are a buyer’s agent and you submit a full price offer and get no response please don’t jump to the conclusion that there’s some conspiracy afoot against your buyer like the agent who inspired this blog post did. There are many reasons why a seller would decline a full price offer that have nothing to do with you and your buyer. Even if you get no reply, remember, a non-reply, while no fun, is legal.

Further, the buyer’s agent should remember that the listing agent has a fiduciary responsibility to the seller, not to you or to your client. The listing agent has no ethical responsibility to tell you what the seller is thinking. A seller could be declining your full price offer for any number of reasons and the listing agent has no duty to tell you the reason. She may. She may not.

Just politely contact the listing agent to inquire about the status of your buyer’s offer. Be careful about seeming too desperate and “showing your hand” because the wily listing agent may use that to her client’s advantage. Monitor the MLS listing daily to see if the seller might have increased the listing price. If you get the news that your full price offer is declined just ask your buyer if they want to submit a better offer.

As the economy improves, you will see more and more bidding wars, declined full price offers, and counteroffers over asking price. Just take a deep breath and take it in stride.

When you are acting as a listing agent, make sure your sellers know that they should list at a price they are actually prepared to accept. If the price they are willing to accept changes, encourage them to contact you immediately to discuss whether it makes sense to officially change the listing price.

Why do sellers have to sign so many pages just to counteroffer on price?

August 8, 2016 by Tammy Tengs

When clients say they want to counteroffer on one item, such as price, and I give them a whole stack of paper to sign they generally raise a curious eyebrow at me.

So let me explain what’s happening.

Here’s a Typical Scenario

You’re a seller and you have received an offer on your land. Woo hoo! Happy dance! You’re pleased to have an offer. However, the price the buyer offered is too low. No problem – you will give the buyer a counteroffer on price.

Let’s say the buyer offered $150,000. You decide to counteroffer at $175,000.

The original offer from the buyer has 11 pages plus a bunch of additional disclosure pages for a total 15 pages (or more) and looks like this:

The one page counteroffer that your Realtor prepared for you to sign looks like this:

Your Realtor tells you that you must sign both the one page counteroffer AND the multi-page page offer.

“Why?” you ask.

You’re tired. You’re grumpy. You’d rather be curled up eating a plate of vegan brownies and watching another episode of RuPaul’s Drag Race instead of dealing with all this paper pushing . . . oh wait, that’s me I’m talking about . . .never mind . . .

Anyway, you just want to sign one page . . .

Plus, you’re confused because the original offer contains the low price of $150,000 and you will not accept that price. Won’t the buyer get the wrong idea and think you’re accepting their low offer, you wonder? Why can’t you just sign your one page counteroffer at $175,000? Why do you have to sign all those other dumb pages too?

In my office I get this question at least once a month.

Here’s the Scoop

In California, sellers who give buyers a counteroffer, actually “accept” the buyer’s offer “subject to” the seller’s counteroffer.

“Huh?” you say. “I thought I was rejecting their low offer, not accepting it” you say to me.

Let me explain. The offer will usually be on the standard California Association of Realtors (CAR) vacant land purchase agreement (VLPA). Look at paragraph 38 at the top of page 11. See the box there for you to check? When you give the buyer a counteroffer you will check the box in paragraph 38 like this:

Checking that box and signing all pages of the offer means that you are cool with all the other stuff in the offer except the things you put in the counteroffer. If you are countering on price only, then you are saying you are comfortable with other blah blah the buyer put in their offer like the length of the escrow period, the buyer’s choice of title company, who pays the closing costs, etc. That is, you are “accepting” all that other stuff.

But wait, wait, just a minute now, are you really OK with all that other stuff you wonder?

Well, I guess you will have to actually read the fine print in the original offer won’t you?

After you’ve actually read the offer, discuss any questions with your Realtor. She will be pleased
to advise you on what is reasonable and customary in your area. If you’re not comfortable with somet
hing in the offer, and want to propose an alternative, put that in the counteroffer too. Counter on everything you want to at the same time in the same counteroffer.

After preparing a complete one page counteroffer and signing it, check the box on the offer indicating that you are accepting the offer but only subject to the attached counteroffer dated <today’s date> and initial/sign all pages of the offer. Your agent will then give the whole thing to the buyer (like 16 pages total) and tell them that you are “countering” which is the same thing as “accepting their offer, but only subject to your counteroffer”.

It will be clear to the buyer that you have agreed to all of aspects of the buyers offer except those things you mention in the counteroffer. Basically, anything you put in your counteroffer as seller over-rides the corresponding item in the offer. So, for example, if you put “Price to be $175,000” in the counteroffer that overrides the price of $150,000 in the offer. As another example, if you were to put “closing in 21 days” in the counteroffer that would override a 45-day closing in a buyer’s offer. There is no confusion.

Conversely, because you are “accepting” the offer (subject to the counteroffer), anything you omit from your counteroffer will be considered agreed to by both parties. For example, if you don’t mention in your counteroffer how closing costs will be apportioned, then the cost-sharing proposal in the buyer’s offer will be the one that both parties have agreed to.

So if you want to address anything as seller, the first counteroffer is the time to do it. It’s a bad strategic idea to bring up changes later in the negotiation and an even worse move to bring them up after escrow is open. (I remember on my high school debate team we were admonished “no new arguments in rebuttal.”) So read the fine print and put it all in this initial counteroffer.

The Bottom Line

Selling land is not only about price. It’s about price and terms. Review the terms in the offer. When giving the buyer a counteroffer, California sellers should sign the one page counteroffer and the entire offer too!

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

July 25, 2016 by Tammy Tengs

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:

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:

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.