Tammy Tengs

About Tammy Tengs

Broker/Owner of Land22 Real Estate

How to get access to a landlocked parcel: the basics

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.

You notice a parcel of land for sale and think, “Gee, that’s a nice property 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 a good question because you will need access to build.

Here, I describe the steps you can take to get legal access.

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

Key things to be aware of first

A “landlocked” parcel 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 aim is to get an “easement for ingress and egress” (access to go in and out). Once you have an easement, you can cross over your neighbor’s private property to get to your property.
An easement is the right to use the real property (real estate) of another for a specific purpose. The owner of the underlying land keeps the legal title.
Easements “run with the land”. That means the easement stays in place when you sell your property. It also remains when your neighbor sells his property. 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 verifying that the parcel in question is genuinely landlocked.

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

Order a title report to learn whether you already have access. When title companies decide whether to insure the title, they also consider whether to insure for “marketable access.” In my experience, “marketable access” corresponds to what I will call “legal access” about 99% of the time.

If the title company says that they will insure the 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 the 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 a property is landlocked is to order a title report.

When the title company agrees to insure for the 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, you need to know this. Maybe the seller has been feuding with his neighbor over access for years. This scenario suggests that you, the future owner, may also find the neighbor challenging to work with.

On the other hand, the history might offer good news. Suppose the seller subdivided his 10 acres back in the day. He sold 5 acres next to the street to his best friend from high school and kept the 5 acres in the back for himself. He forgot to create an easement across his friend’s land to his land. That’s a different situation. Creating an easement in a case like this should be easy.

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

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

Ask about the seller’s history of 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 city create the easement? 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 buy the land the way it is, close escrow, own it, and then start working to create an easement after closing.

About 2% of the time, the seller will entertain an offer with a contingency on the easement. This means the buyer can try to arrange the easement during their contingency period (part of the escrow period). If the buyer is unsuccessful, they 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 rare for sellers to entertain such a contingency. It can take months, 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 agree to create the easement for the buyer before 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. He can easily create an easement across 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 only 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 seldom agree. It’s just wishful thinking on the part of buyers. Generally, buyers must buy the land and 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 give them the neighbor’s phone number or email, and they can contact the neighbor and say, “Hey man, can I have an easement?” They hope the neighbor will say, “Yeah, sure, no problem,” and it will be easy.

Dear buyers, that rarely works.

First, I don’t have the neighbor’s phone number or email, and the seller does not have their contact information either. I can access 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 are not even in escrow. So you don’t have the authority to negotiate an easement.

Fourth, more than one buyer will generally have this same idea, and it’s not good for many buyers to call the same neighbor.

So, buyers, please put this idea out of your mind. Landlocked parcels are being offered at a low price precisely because they are landlocked. If it were simple and easy to create an easement, the seller would have done it already. Further, he would have priced that $20,000 parcel you are eyeing at $200,000.

You must 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

To seek an easement from the neighbor(s), you must figure out which parcel(s) you wish to cross. Get a map that shows your property and the neighbors. This map might be a plat map or an aerial map.

Say neighbors B, C, and D surround your land. If you cross B, you will reach the road. Alternatively, if you cross C, you must also cross D, and 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 makes the most sense.

Also, assess where you want the easement on the neighbor’s parcel(s). For example, is there a well-worn dirt path 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 to grant a building permit. That will dictate the easement width you will try to arrange.

Step 5: Get contact information for the neighbor(s)

You will need the neighbor’s name and contact information. Their mailing address might differ from the address of the adjacent property you want to cross.

Vacant land sellers rarely have contact information for their neighbors. Remember, they’re selling land, not a house, so they don’t live there. But your Realtor can look up the neighbor’s contact information in title records. In California and some parts of Oregon, agents have access to title records in Realist through the MLS. To do this, you must give the Realtor the address or assessor’s parcel number (APN) for the neighbor’s parcel(s) you want to cross.

You can use the official plat map (not a Google map) to figure out the surrounding APNs. For example, if you are purchasing APN 1234–567–89, the plat map will have an 89 in a circle corresponding to the parcel you want to buy. If you plan to seek an easement across a lot with a 90 in a circle, the APN for that parcel will be 1234–567–90. Give your Realtor that APN. Then, she can look up the name and mailing address of the owner of that parcel.

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. Or Google “GIS <county name>” if the land 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, and 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.

Armed with the neighbor’s name, you might be able to find the neighbor’s phone number and email just by using Google. This works best if the name is distinctive. Try it.

If that doesn’t work, skip-trace the neighbor. You can find skip-tracing services online.

Step 6: Ask the neighbor(s) for an easement

Now that you have the neighbor’s contact information, the next step is to contact 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 under the easement. You just want to cross it. Let them know that the easement “runs with the land.” So, it remains in perpetuity and does not disappear if you sell or your neighbor sells. Describe where you want the easement to go. 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, factor these things into your thought process:

An easement will significantly improve the value of your land. This is because parcels with legal access sell for much more than those without access. Easements improve land value 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 going to court to resolve the conflict. Attorney fees are expensive, $200-$500/hour. Compared 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 declines to provide an easement, go to step 8.

Step 7: Hire a surveyor

Easements should be recorded with the county. 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 a 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, it’s complicated. Do not try this home!

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 help you negotiate with the neighbor. They can also draft your agreement with the neighbor about 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 control and can create an easement on your land!
Offer to buy part 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 city or county 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. They may have better luck.
Offer something of value to the neighbor. Examples include a) more money than you initially 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 your next steps to the neighbor if he declines the easement. For example, you will hire an attorney, so he will have to hire one. This will cost him money, and there will be a long, drawn-out court fight, etc. This is the “stick” approach and is 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 it on to their heirs. Statistically, houses turn over every seven years on average. The next owner might be more accommodating.
Wait for the neighbor to put their property on the market for sale. List your land at the same time with the same Realtor. Buyers won’t be too concerned about your lack of access if they purchase both properties. This is because they will own the neighboring property.
Ask the neighbor for “personal permission” to cross. This is different from an “easement”. It applies only to you (and your family, guests, etc.) and does not “run with the land.” This means that the permission will disappear when you transfer the property or the neighbor transfers his property. It will not allow you to build or increase your property’s value when you sell it. But it will enable 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. Be sure to disclose the lack of access to the next buyer. This disclosure is a legal requirement.
Try arranging an easement in a different direction across another neighbor’s property.

Conclusion

Buyers purchase landlocked parcels every day. It is very common because parcels that lack access are offered at a bargain price. By studying this basic outline of the steps needed to create an easement, buyers unfamiliar with the process can assess whether buying a landlocked parcel makes sense.

10 reasons why land sellers should not accept offers from real estate wholesalers

by Tammy Tengs

In the past, landowners would occasionally get offers in the mail from people wanting to buy their land. And the person writing the letter would genuinely be interested in purchasing.

Now, things have shifted. Sellers still get letters. The letters even look like the ones they used to get. But sometimes, the person writing the letter with an offer to purchase their land has no money and no genuine intent to purchase.

Wholesalers have entered the real estate game.

During the pandemic, people were at home with a lot of time on their hands. Some were laid off and trying to figure out how to generate income. YouTube wholesale gurus taught an eager audience how to make money without risk or investment.

The newly minted wholesalers sent out offers. Thousands of them. Yet they had no intent to buy.

What the heck? I will explain.

The most important thing you need to know as a land owner is this: it is not in your best interest to accept an offer from a wholesaler. Here are 10 reasons why:

Reason 1: Real estate wholesalers are not buyers.

Real estate wholesalers masquerade as buyers. But they are not buyers. Their strategy is to get the property under contract at one price and then assign the purchase agreement to another buyer at a higher price. Then, they pocket the difference.

Here’s an example of how a wholesaler might implement their plan for vacant land:

The wholesaler submits an offer to a landowner at, say, $70,000.
The owner is unaware that the “buyer” is a wholesaler.
The owner accepts the offer.
The wholesaler and seller open an escrow.
While in escrow, the wholesaler markets the land at, say, $100,000 to his “list” of potential end-buyers.
An end-buyer offers the wholesaler $95,000.
The wholesaler assigns the contract to the end-buyer.
The end-buyer steps into the wholesaler’s shoes and is now in escrow with the seller.
The end-buyer pays cash for the land, and the escrow closes.
The seller receives $70,000, the wholesaler gets $25,000, and the end-buyer acquires title to the land. (I have ignored closing costs for simplicity.)

As you can see in this example, the wholesaler had no intention of buying the land when he submitted an offer. In fact, wholesalers usually do not have the cash to buy the land, even if they wanted to.

To be clear, when I refer to a “wholesaler,” I’m not talking about real estate flippers. Flippers buy land and then re-sell it at a profit. Flippers differ from wholesalers because, when they submit the offer, they have the intent to purchase. Their purchase is not contingent on finding an end-buyer before they even close escrow. Flippers almost always close escrow so, from the seller’s perspective, flippers are essentially end-buyers. What they do after closing is not the seller’s concern. Wholesalers are not end-buyers. What they do during escrow is the seller’s concern.

Reason 2: Wholesalers don’t market land thoroughly.

Wholesalers don’t own the land. But, after getting the seller to sign a purchase agreement, they do own something: they own the right to buy the land, i.e., a contract. Wholesalers refer to this as “equitable interest” or “equitable title” (as opposed to legal title). Because they don’t own the land, they can’t legally market the land. They can only advertise what they own — the contract.

To oversimplify the difference to the point of inaccuracy, real estate is dirt, and contracts are paper.

Contracts cannot be marketed in the same way that real estate is marketed. For example, a Realtor marketing land can enter the real estate property characteristics into the Multiple Listing Service (MLS). From there, the MLS syndicates it to national sites like Realtor.com, Zillow.com, Trulia.com, brokerage websites such as Coldwell Banker and Century 21, and hundreds more. Through the power of syndication, buyers worldwide can see that the land is for sale.

Wholesalers are rarely Realtors, so they cannot enter the property directly into the MLS. They could try to hire a Realtor. However, many Realtors will not represent wholesalers.

Further, Realtors must abide by MLS rules. Some MLS systems will not allow Realtors to enter contracts into the MLS. Agents can only enter real estate into the MLS and only when they have a signed listing agreement with the actual owner. For example, one MLS system that I belong to, the RMLS, states that agents can only enter listings into the MLS on behalf of the property owner, defined as:

The person(s) having legal ownership of the property or the person(s)’ authorized agent or person(s) having the legal right to sell or lease the property, except that the owner shall not include a person(s) who merely has the right to purchase the property, but does not yet own it…..

In addition to using the MLS, many Realtors who are land brokers invest hundreds of dollars monthly to advertise on land-specific sites. These include LandsOfAmerica.com, LandFlip.com, etc. Wholesalers rarely make this investment.

Wholesalers typically perform limited marketing to their “list” of potential end-buyers. That list may be 10 people, 100 people, or 1000 people. Regardless, the reach is still much smaller than what a Realtor can achieve.

Reason 3: Wholesalers often require long escrows and long contingency periods.

Since wholesalers are not buyers, they need time to find an end-buyer after they get the property under contract. In California, a typical contingency period for a cash buyer purchasing vacant land is 17 days. A standard closing period is 21–30 days. But wholesalers will ask for an extended period, perhaps a 60-day contingency period and a 90-day escrow.

Long escrows are bad for sellers because they will miss out on other buyers while the wholesaler has the property tied up in escrow. Plus, sellers will continue to pay property taxes and possibly HOA dues for that period of time. Further, the longer the escrow, the greater the chance that non-real estate events such as 9–11 or a pandemic can derail the deal. If/when the wholesaler cancels, the seller has lost that time, and the publicly available “days on the market” metric is now high.

Reason 4: Wholesalers rarely submit a deposit.

As I mentioned before, most wholesalers are often cash-poor. Even those with funds do not want to risk sending a normal-sized deposit of 3% to escrow. This is because they realize they may never get it back. They will likely not find an end-buyer and will have to cancel. They know from experience that the seller will be angry when they walk away. The seller will realize he has been duped and may refuse to sign escrow instructions to return the deposit to the wholesaler.

So, the wholesaler will write a tiny deposit of like $100 into their offer. Or, if they propose a larger deposit, say $1000, the wholesaler will specify in their offer that they will submit the deposit to escrow only after they complete their due diligence.

Regardless of whether the proposed deposit is small or large, they often “forget” to send it to escrow.

These tactics give sellers little recourse when the wholesaler inevitably cancels.

Reason 5: Wholesalers often try to renegotiate the deal.

In the example above, the wholesaler and seller agreed to a price of $70,000, and the wholesaler found an end-buyer to pay $95,000. But suppose the wholesaler could not find an end-buyer that would pay $95,000. Suppose he could only find one that would pay $85,000. He would then go back to the seller to try to renegotiate the initial contract price down to, say, $60,000. This way, he can maintain his $25,000 profit margin.

If he is unsuccessful at renegotiating the price, he might ask the seller for a more extended due diligence period and a longer escrow. This is so he can have more time to find an end-buyer.

Reason 6: Wholesalers may not close escrow.

As I stated before, wholesalers usually cancel escrow. Based on my experience, this happens 90% of the time. They cancel because they cannot find an end-buyer that will pay more. Here are some of the reasons for their failure:

As already discussed, the typical wholesaler does not market the property widely. His “list” of end-buyers is small, and since he is not an agent, he cannot place the property in the MLS to be syndicated to a broader audience.
He has the stigma of being neither the agent nor the property owner. It is hard for some end-buyers to understand how a non-owner and non-Realtor can be marketing property they don’t own.
Since he does not have title to the property, he cannot legally market the property. He can only market what he does “own,” the right to buy the property, i.e., the contract. End-buyers find this confusing.
He has not viewed the property in person and has done little or no research. As a result, he is unable to answer the end-buyer’s questions.
He may have offered too much for the land. Because he is virtual and has not visited the property, he may be unaware of some of the problems that a local buyer would be aware of. As a result, he may have offered so much that no buyer will pay more.

Remember, wholesalers usually do not have the cash to buy the property. And, even if they do, they are not interested in purchasing real estate.

Reason 7: Wholesalers cause high days-on-market.

Buyers look at “days on the market” (DOM) when deciding what to offer on a property. They assume that the longer a property has been on the market, the more anxious the owner will be to sell and the lower the price the seller will accept.

Wholesalers tie up the property for weeks or months before canceling. During this time, DOM keeps going up. High DOM can taint the property and affect the price sellers can get from the next buyer after the wholesaler walks away.

Related to this, cancellations are now public information, thanks to sites like Zillow. Cancellations are a bad look. Future buyers will wonder what’s wrong with the property that caused a previous buyer to cancel.

Reason 8: Wholesalers can create legal liability for the seller.

Sellers are required by law to disclose all material facts about the land. Unaware that the buyer is a wholesaler, sellers will naturally give these written disclosures to the wholesaler. But what happens to those disclosures when the wholesaler assigns the contract to the end-buyer? Does he advise the end-buyer that the property is landlocked, the neighbor’s garage is encroaching, and it failed a perc test for septic? What happens after closing when the end-buyer discovers the flaws with the land that the seller did not disclose to him? A possible lawsuit for the seller, that’s what.

Reason 9: Wholesalers make low-ball offers.

The seller in the example above, who accepted a $70,000 offer, is not receiving the full value of their land. If the land owner had listed it at $100,000 with an agent, the agent would likely have found a buyer at $95,000, just like the wholesaler did. Even after paying a 6% commission (ignoring closing costs to simplify these calculations), the seller would have made over $89,000 instead of $70,000. The seller is leaving money on the table.

Sometimes, it is in a seller’s best interest to accept a lower price in return for a fast, sure-thing sale. As a land broker, I see this all the time. Sellers commonly have urgent needs, such as medical care, a family emergency, or an upcoming vacation. Sellers realize they must choose between a high retail price or a fast sale. They can’t have both, and they know it. It is not irrational for a seller to accept a lower price in cases like this. However, accepting an offer from a wholesaler is not the solution. This is because the second part of that equation, a fast sale, generally does not pan out.

Reason 10: Wholesalers make high-ball offers.

An underappreciated fact is that newbie virtual wholesalers often offer too much. How could this possibly be a problem for the seller, you ask? It’s problematic because it makes it impossible for the wholesaler to find an end-buyer that will pay more. And as I’ve said many times, they will cancel when they fail to find an end-buyer. Cancellation is a problem for the seller.

For example, suppose the wholesaler in our example offered the seller a high price of $100,000 instead of $70,000. The seller would be pleased and accept right away. The wholesaler might then market the land to his list at $125,000. However, because he has wildly overpriced the property, he will fail to find an end-buyer.

Wholesalers often submit offers on scores of properties per month, sometimes in several states. They have a shotgun approach. They do very little research on the land and offer a good price because they want to get a large number of properties under contract. They might get 10 or 100 properties under contract and hope one or two will work out. After all, there’s no financial risk to them.

Better alternatives for land sellers

If you want to sell your land for the highest price possible and are willing to wait a few months for the property to sell, the best thing to do is hire a Realtor, preferably a land broker.

On the other hand, if you want to sell immediately and are willing to sell at a low price in return for a fast sale, then sell directly to an end-buyer.

How do you find an end-buyer? Ask your family, friends, colleagues, or acquaintances if they want to buy your land at a steep discount. Advertise on Craigslist or Zillow. Google something like “Fast cash land” and many land-buying websites will pop up. When considering a buyer you find on the web, be sure to ask questions and verify that any “buyer” you find is not a wholesaler. If you receive an offer in the mail from someone offering to buy your land, don’t throw it away. Vet them to ensure they are an actual buyer, not a wholesaler.

Conclusion

It is generally unwise for a landowner to accept an offer from a wholesaler. There are far better alternatives.

How to tell if a parcel is landlocked

by Tammy Tengs

When evaluating the attractiveness of a piece of land, one important feature is whether or not it has access. Is it possible to legally put your feet on it? Or, as buyers have asked me a thousand times “would I 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 with legal access, 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?

Legal access is more critical than physical access. So, I focus on that. When describing access to buyers, I use the word “landlocked” to mean a parcel with no legal access for ingress and egress. If the terrain allows, you can always bulldoze a road if you have legal access.

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

In my many years as a land broker, I have noticed that two main access-related things affect a buyer’s willingness to buy a parcel of land: 1) whether there is a physical path to the property and 2) whether the title company will insure for access. Buyers care only about these two things, and since I want to sell the land, these are the two things I care about.

When assessing physical access, I use my eyes. I view the land in person. If I see a passable “road” leading to the land, then there is physical access. Or, I view the land on my computer using aerial maps. I look for what appears to be a path going to the land. Sometimes, using Google Street View or changing the view to 3D in Google Maps can help me see “roads” hidden by the trees.

To assess legal access, I order a title report. The report will indicate whether or not the title company will insure for access. I base my judgment about legal access on the title report because that’s what buyers will do. Buyers tend to be black-and-white in their thinking. Either the title company, a trusted information source, says they will insure for access, or the title company says they will not 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 try to convince buyers with nuanced arguments. Sellers will say they have a right to an “easement by implication” or an “easement by necessity.” Or, sellers might say they have an unrecorded “prescriptive easement.”

Sellers need to realize that a typical buyer will not be too impressed with such reasoning when a title company tells them they won’t insure for access. When there is no recorded easement, the buyer has no assurance that the neighbor won’t dispute whether it exists, where it exists, how wide it is, how they can use it, or who is responsible for maintaining it. The seller’s arguments are just words; words will not prevent a neighbor from putting up a locked gate or building a garage, 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 if 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 with easy access, they generally decide they don’t want the land enough to mess around with it. In short, buyers paying a premium for the land want to see current legal access — a road or an easement recorded with the county and a title report saying the title company will insure for access.

The good news for sellers is that landlocked parcels are saleable at some price. I mention buyers’ black-and-white thinking about access because a wise seller will want to consider buyers’ attitudes when pricing 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. If they want to sell their land, owners must adhere to these simple rules because buyers will instinctively follow them in deciding whether to buy. Buyer demand should affect seller pricing.

So, this explains why I use the expression “legal access” in a simplistic fashion to mean having a road or a recorded easement and “landlocked” as having “no legal access.” I’m talking right now, not what the buyer might arrange after a legal battle with the neighbor. 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. Buyers won’t care, so Realtors can’t get into the weeds with you on that. Direct those questions to an attorney.

Three things you can do to tell if a parcel is landlocked

1. Study the plat map

The plat map shows the separate lots in a tract of land. Locate the parcel on the map. Does the map show a road running to it or alongside it? If so, there is probably legal access.

Note that I recommend studying a plat map, not an aerial map or Google map. Aerial maps may show you physical access, e.g., a dirt path leading to the land. But, as explained before, physical access may or may not be legal access. Google Maps shows named streets, but occasionally, a street with a name in Google will not be an official street. For these reasons, focus on the official black-and-white plat map.

2. Order a title report

When I doubt access, ordering a title report is the easiest way to get information. Title companies typically insure for “marketable access.” Marketable access is usually consistent with legal access. The title company will almost always insure for (marketable) access if there is legal access. If there is no legal access, they will not insure for access.

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

If the title company decides to insure for access, this item will be absent from the title report. The title report will remain silent on the subject and not mention access in the exceptions section. For example, if the parcel is on a paved street, the title company will likely insure for access, but no paragraph will say, “We will insure for access because it’s on an official street.”

To summarize, a title 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 confident there was legal access, and the title company has declined to insure for access. Conversely, there have been times when I was 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 observe a physical road and they say they won’t insure for access, send the title company photos of the road and ask them to reconsider the access question.

3. Order a map of plotted easements

Title reports will include recorded easements. 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 get to it. So, when ordering a map of plotted easements, tell the title company that you want them to plot any easements on the property and the easements leading to it. Tell them that your goal is to understand access. The reason it’s important to specify this is because 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 Multiple Listing Service (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 street 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 yet to check whether it is a legal access road, a recorded easement, or just a well-worn dirt path crossing private property. Realtors usually describe what they see with their eyes, i.e., physical access.

Smart buyers will look into whether the access is legal. They will ask the title company, city, or county (not the seller or 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! The road, while suitable access for a Mini Cooper, is too wimpy to allow big construction equipment and emergency vehicles such as fire trucks.

Once, I was listing a residential parcel in a Los Angeles neighborhood with existing homes crammed together, crawling up the hills in search of light and air. The lot I was selling had a paved official city road going right past it, next to the land, and winding up the hill. I could drive right up to the lot 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 due to the road. 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 that the street could not 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 looks official, 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.

Some streets are made of paper.

Sometimes, a named street will appear in black and white on the plat map. The parcel might even have a street address, e.g., 98765 Sunny Valley Rd. Yet, you will see no street when you visit the land in person. No paved street, no gravel street, and no dirt path. Nothing.

You might have legal access on paper, but you must develop the entire street to city or county standards to build. The street is a “paper street.” It exists on the paper plat map but not in the real world.

Street signs do not always mark official roads.

If the street sign looks official, it almost certainly marks an actual street. Occasionally, however, you will see a handmade sign. A person living nearby went into their workshop, created a sign, and pounded it into the ground. Sometimes, a handmade sign does 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.

Sometimes, even a street does not mean access.

Once in a while, a parcel will be directly next to a street or highway, and yet there is still no adequate 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 might not allow anyone to install a driveway off the major artery onto the land because it could create a traffic hazard.

Sometimes, the city/county/transportation authority will grant special permission after a review process. However, until they grant authorization, the parcel is effectively landlocked, even though it is next to an artery.

Locked gates can matter.

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

A buyer for this parcel wanted to determine 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 plat map, 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 buyer, aware of all this, bought it anyway. Then, he hired an attorney to take the city to court because they were impeding access to his land. Once the buyer receives access through the gate, 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 listing a parcel for sale with a recorded easement for access, I sometimes drive up to the land only to discover a “No Trespassing” sign. Typically, the sign was 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 home.

It is common for neighbors to treat land near their house like they own it, even when they don’t. 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, and no, the seller will not talk to the neighbor about access and removing his sign. Buyers who encounter no trespassing signs should expect to have some work in front of them communicating with the neighbor and will want to consider this when deciding whether to purchase.

Conclusion

Determining access is usually 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.

Due diligence when buying California land: Answers to frequently asked questions

by Tammy Tengs

What is Due Diligence?

Due diligence means doing your homework on the property before you buy.

Who Handles Due Diligence?

Vacant land buyers are responsible for conducting their own independent due diligence.

Won’t the Seller or Agent Tell Me Everything I Need to Know About Land?

The answer is no. The seller and agent do not have all the information that might interest you. Sellers and agents are legally responsible for disclosing facts they are aware of. But they can’t disclose facts they are unaware of.

So, what kind of information will you get?

The seller will complete disclosure forms. They will write down everything they know about the land they consider a “material fact.” The agent will give a copy to you. If the seller has relevant documents, such as an engineering report or survey, they will also provide those.

In California, the seller will also provide a natural hazard report. The report discloses things like whether the land is in an area prone to earthquakes, floods, or wildfires. Companies such as Property ID or PDQ generate these reports from publicly available information. They charge a small fee, usually under $100.

The agent will tell you what they know about the land. The title company will provide a report so that you will know if the title is clear. Upon request, the title company can also provide a map of plotted easements.

That’s it! That’s all you get!

The information provided by the seller, agent, and title company will not be enough.

The agent and seller will tell you what they know. But, beyond that, it is your responsibility as a buyer to research other matters on your own.

For example, the seller may not know the precise location of corners of the land. If it’s not in the agreement, it is not the seller’s responsibility to mark the corners for you. If you want to know where the corners are, it is your responsibility as a buyer to pay for a survey. It’s not the seller’s responsibility to provide a well report. If she has one, she will give it to you. But if she doesn’t, you must arrange and pay for it yourself.

It is not your Realtor’s responsibility to determine if you can build a second unit on the parcel. You must study the zoning description or speak to a city or county Planner to see if zoning allows a second unit. It is not your Realtor’s responsibility to research the cost of a water meter. You must call the water company if you want to know that.

Dear buyer, you must do your own independent due diligence.

Won’t My Agent Do All This Research For Me?

No. Your agent’s role is to help you by advising you on where to get the information you need as you conduct your independent due diligence.

A key point here is that your agent, who has your back, knows it is in your best interest for you to do your due diligence. Any information you receive will be more accurate and helpful if you get it straight from the information provider. Information filtered through your Realtor will be less reliable. In fact, information filtered through any human intermediary will be less reliable.

Did you ever play the telephone game as a child? Here’s how the game goes: One child whispers a sentence to another child. That kid whispers it to the next kid, and so on. The last child at the end of the chain says the sentence aloud. It’s funny to see how convoluted it becomes.

Don’t play the “telephone game” with your Realtor in the middle. Cut out the middleman. Go straight to the electric company, water company, planning department, etc. Let them put the information directly in your ear!

Another benefit of talking to information providers is that you can ask follow-up questions and have a complete conversation. You may even learn things “you didn’t know you didn’t know.” For example, when talking to the water company, they may tell you that district water is available, but sewer is not. Wow, you might think. You were assuming water and sewer always go together! Now you’re aware that’s not the case. Or, suppose you ask the city Planner whether the zoning would allow an accessory dwelling unit in addition to a house. The Planner says yes and mentions that the zoning will allow you to subdivide the land and build two homes. Wow, that’s awesome. You didn’t know that, and it would fit your family better! One question will lead to answers, more questions, and more insight. The entire conversation will be very helpful to you.

Your Realtor knows it is in your best interest to get information “straight from the horse’s mouth.” That’s why your Realtor encourages you to “go direct” to each information provider to ask questions.

What if I Don’t Want to Do My Own Due Diligence?

Um, then maybe now is not the right time to be buying land?

Of course, you do have the option of buying land without a thorough evaluation. In rare instances, this can make sense. For example, extensive research may be optional if the property is a $5,000 parcel in the middle of the desert.

But it’s especially unwise to skip due diligence when:

The parcel is expensive,
The price is so low it seems “too good to be true,”
You want to build on the land,
You have a particular use in mind for the land and don’t know if the city or county allows that use or
You’re not familiar with the area.

When Should I Do My Due Diligence?

Do as much research as you can before even submitting an offer. If you get deal-breaking bad news, you can walk away. This will save you the time and effort associated with submitting an offer and negotiating with the seller. Plus, you can avoid sending a deposit to escrow.

Another benefit of researching before submitting your offer is that you can use any negative information you discover to negotiate a better price. For example, you can say, “Hey seller, I see that the price on your land is $100,000, but I found out it is in a flood zone. Building will be more expensive, so will you take $80,000?” That kind of thing.

With houses, it is common for buyers to go into escrow, get an inspection, and then ask the seller to make repairs. If the seller declines, buyers often ask for a price reduction.

That tactic is rare with vacant land. It may work for due diligence items that the buyer could not have been aware of in advance. For example, if you paid for a perc test during escrow and learned that the land requires a more expensive engineered system, the seller might give you a price reduction. However, if you try to negotiate the price down during the escrow period based on negative information that was publicly available to you before submitting an offer, such as zoning or property taxes, that will not be well-received. I recommend that you not try it, or you might get kicked to the curb.

But it is common and acceptable to negotiate the price when you submit your offer. Use negative information that you find to your advantage up front.

Include a contingency period in your offer. This will give you a way out if you discover something bad during escrow. The contingency period is sometimes called the due diligence period. The clock on the contingency period starts ticking “upon acceptance”. The acceptance date is when the last signature appears on the contract.

For example, suppose you sign and submit your offer on June 1st, and the seller signs and accepts it on June 3rd. Your agreement states you have a 17-day contingency period inside a 30-day escrow. You should complete your research by June 20th. At the end of the contingency period, the Realtor will ask you to “remove your contingencies .” In California, after you remove your contingencies, your deposit is non-refundable. So, for this reason, you should finish all research before your due diligence period ends. The contingency period usually ends well before the escrow closing date. So don’t get those two dates confused.

Will I Have to Go Somewhere to Do My Due Diligence?

You can do a lot of research at home in your pajamas!

You can review zoning descriptions on the city/county Planning Department website. Most provide an online Geographic Information System (GIS) with tons of information. You can email the city/county Planner to ask questions (this works best when the city/county is small). You can study aerial maps to get a sense of boundaries. You can review the title report, seller’s disclosures, and the natural hazard report. You can learn about crime statistics and weather in the area. You can phone the electric company, water district, well drillers, and septic providers.

Certain things are best done in person. Obviously, it’s best to go see the land in person. If you can’t do that, e.g., because you’re in another state, hire a service like We Go Look to take photos or videos.

If the land is in a big city or county, it may be hard to reach someone in the Planning Department by phone or email. In that case, you must get in your car and go speak to the Planner in person. Usually, you won’t need an appointment. Walk in.

Will Due Diligence Cost Me Money?

Most of it is free. But, if you want to do any of the following, you will have to pay for it:

Arrange a perc test for septic.
Ask a well driller to inspect the well.
Have a surveyor mark the corners so that you can understand boundaries.
Order a phase I environmental review.
Hire an engineer to investigate developing the land.
Retain a contractor to tell you whether a parcel is buildable.

No, the seller is not responsible for paying for these items unless agreed to in the contract. Sometimes, you can negotiate with the seller to pay half. But most of the time, sellers decline.

Buyers, it’s your due diligence, not the seller’s, so you must pay for it yourself.

What Information Do I Need to Have at My Fingertips Before Starting My Research?

Get out a piece of paper. Write down the assessor’s parcel number (APN). The APN is sometimes called the tax ID number. If there is an actual address, write that down as well. If there is no address, common for vacant land, write down the street the parcel is on plus the nearest cross street. Find out if the property is inside or outside city limits in the county. If it’s in an incorporated city, write down the name of the city. If it’s outside of an incorporated city, write down the county. If there is a Homeowners Association (HOA), write down the name of the HOA. If you know the name(s) of the current legal owners, write those down as well. Now that you have identifying information ready, you can start making those calls!

How Do I Even Know If There are Building Restrictions on the Land?

That’s easy. If it’s dirt, there are building restrictions! In other words, every parcel of land in California has building restrictions.

Who Governs Building Restrictions on the Land?

Restrictions may come from the following:

City
County
Homeowner’s Association
Other entities, such as the Coastal Commission or Historic District

If the land is within the limits of an incorporated city, then building restrictions are set by the city. If it’s outside city limits or in an unincorporated area, then restrictions are set by the county.

To determine if a city is incorporated or unincorporated, search the city name and state in Wikipedia. If unincorporated, go to the county. If incorporated, search Google maps to see if the land is inside or outside city limits. Type the city name and state into Google maps, and Google will show you the city’s boundaries. If inside, go to the city. If outside, go to the county.

Are There Electric and Water Meters Already Installed?

The chance of finding installed meters on vacant land is close to zero. I have only seen installed meters when someone lived in an RV on the property.

Even when there is no installed water meter, it could be that a previous owner already paid for it. We refer to that as “on the shelf” at the water company. To find out, you can call the water company and ask if there is a paid meter.

Since the odds of a meter is less than 1%, what you should be researching is whether utilities are available. Note that “available” does not mean that utilities are on the land running to the building site. Usually, the best-case scenario is that you find utilities “in the street.”

How Can I Research Whether Electricity is In the Street?

Get in your car and drive to the land. Look for the nearest electric wires and poles. Plot their location on a map. Find out the name of the electric company that covers that area. To do that, Google this: electric company <city or county name>. Phone the electric company and give them the parcel number (APN), address, or whatever they ask for. Inquire about the availability and cost of electricity.

How Can I Research Water?

To determine if district water is available, look for fire hydrants. Also, look for water meter covers. These offer evidence that water may be in the street.

If you don’t see evidence of district water, start looking for evidence of wells. Is there a tiny storage unit on the land? It might house well equipment. Walk around the land and look for a large round pipe poking up from the ground. It could be a capped well. From the street, look at the neighbor’s properties to see if they have tiny buildings that could house a well. Ask a neighbor if they have a well. If the neighbor has a well, this area likely has no district water available.

Based on your in-person research, phone the water district to verify. To find out the name of the water company, Google this: water company <city or county name>. Phone the water company and give them the parcel number (APN) and/or address or whatever they ask for. Inquire about the availability of water and the cost of a water meter.

If neighbors use wells and there is no well on the land, you must drill a well when you are ready to build. Phone a local well driller. Ask about the cost of drilling a well. To find a local well driller, Google this: well driller <city or county name>. If they express reluctance to offer estimates over the phone, ask for a range or a general sense.

How Can I Research Sewer/Septic?

Even though water is available, this does not mean that sewer is also available. So, when talking to the water company, ask if public sewer is in that area. If sewer is unavailable, you will need a septic system for waste. Like water and electric meters, a septic system on vacant land is rare. The only time I have seen that is when a house was there before, demolished or burned down. If there is a septic, you will want to get it inspected by a septic professional.

Not all land can support a septic system. To determine if a septic system is viable on your land, you can order a percolation test or “perc test .” Sometimes, you will see “perc” spelled “perk.”

If you want to do a perc test during the escrow period, write this intent into your offer to get the seller’s approval. It involves digging big holes in the ground, so you will need the seller’s permission to do that.

Before submitting an offer, ask a septic professional how long the perc test will take. Also, ask what their schedule is. Then, include the time you need for the perc test in your original offer. You want to avoid writing a 20-day contingency period into your offer only to discover later that it will take 60 days to get a perc test. Make your offer contingent on a successful perc test.

Perc tests cost money. To get a rough sense of septic viability without performing a perc test, talk to the neighbors. Ask if they had any trouble getting a successful perc test. You can contact a local septic installer to ask if he has ever had a home in this area fail a perc test. Finally, you can visit the county and find out if a historic perc test result is already on file. If the county has a record of a successful perc test, ask the county if the test would need updating due to age. If it’s a failed perc test, that’s important to know.

How Can I Research Zoning?

The first step in researching zoning is determining whether a parcel is in the city or the county. The location will dictate which planning office you go to for zoning information. Start your zoning research online. Instead of going to the city or county website and spending precious time poking around to find the correct department, it is faster to search Google like this: zoning <city or county name>. The zoning section of the official city or county website should pop up.

If the land is in a city or county with a common name, specify the state in your Google search. You don’t want to spend an hour looking for zoning on the Portland, Maine, website when the land is in Portland, Oregon!

Also, specify in your search whether you want the planning department for the city or county. This is to help Google distinguish between:

· Los Angeles city and Los Angeles county,

· Riverside city and Riverside county, or

· Fresno city and Fresno county.

To find a zoning map fast, go to Google and enter: zoning map <city or county name>. Sometimes, searching Google Images is a more direct way to find a map because a map, after all, is an image. Another good way to research zoning is to use the free Geographic Information Systems (GIS) provided by most counties and cities. You can search the GIS system using the parcel number or address and uncover a wealth of information. This information will include helpful maps and zoning. To find a GIS system for your land, search Google like this: GIS zoning <city or county name>. Include “zoning” in this search string because the city or county might have many GIS systems. Some will have zoning information. Some won’t.

When searching a GIS system using the assessor’s parcel number (APN), a helpful tip is to omit the dashes. For example, do not enter APN 1234–567–89. Instead, enter 123456789. If that doesn’t work, add zeros at the end, e.g., 1234567890000. Try one zero at the end, then two zeros, then three, then four. If that doesn’t work, add a zero to the beginning, e.g., 0123456789. If that doesn’t work, enter the address for the parcel. If none, enter the neighbor’s address.

A final way to figure out the zoning is to ask the planning office. Email, call, or go in person. Give them the APN. They will usually respond to email requests for information when it’s a small office. If it’s a large, busy office, it will be almost impossible to get an answer by email or phone. In that case, you will have to go in person. Before going in person, be sure you’re going to the correct office. If the land is in the city, go to the city. If the land is outside city limits, go to the county.

Buyers often make certain assumptions about the relevance of zoning. For example, they might assume that if zoning is residential, and allows a house, then some trusted entity has verified that a house is definitely buildable on that property. Not true. Building requires many things not covered by zoning. These include acceptable slope, water, and access for ingress and egress. Zoning does not take these factors into account. A parcel can have residential zoning and yet a building a house is not practical.

One last tip is to research both “zoning” and “land use.” They might conflict, and it’s good to know both.

How Can I Research Building Requirements?

If you’re interested in building, the first step is to research zoning. The zoning will tell you what kind of structure the zoning permits, if any. For example, if the zoning allows only homes, you cannot build a commercial office. If the zoning allows only one home, you cannot build two. Then, get in your car and drive to the city or county offices to learn what you can about building restrictions. If applicable, also check with other entities that have rules about what you can build. Examples include the HOA, Coastal Commission, etc. If you still have questions, pay a licensed contractor a consulting fee to advise you.

Remember, your Realtor is an expert in real estate sales, not building. Realtors will sell you the dirt, but building on the dirt is a whole separate thing.

How Can I Research the Homeowner’s Association?

If there are conditions, covenants, and restrictions (CC&Rs), the title company will provide them. Bear in mind that there could be CC&Rs even if there is no HOA.

The agent, or the escrow officer, will also order HOA financials, architectural standards, bylaws, etc. You will receive these during the escrow period.

For some reason, these documents are rarely available online. Maybe that’s because HOAs like to charge for them.

How Can I Research Property Boundaries?

Walk around the land near where you think the corners might be. Look in the dirt for markers. Markers might be anything:

vertical white PVC pipes
wood sticks poking up out of the ground
unusual piles of rocks
florescent pink tape hanging from a tree or
remnants of fence or old wood post.

Search for something unnatural that looks like a human put it there. But remember that humans make mistakes, so any markers you find may not be accurate. If you want the corners marked accurately, the only option is to hire a surveyor. To find one, go to Google and enter: surveyor <city or county name>.

Free GIS systems will also show you boundaries layered over aerial maps. I use paid software from LandId. Note that all computer-generated maps are inaccurate. The boundary lines can be off by 1, 10, or 30 feet. This is why you may see lines going through roofs and swimming pools. Don’t fret that the neighbor is encroaching on your land. It’s likely a computer error. Use these maps as an approximation only.

How Can I Research Easements on the Land?

Easements recorded on the land you are buying will restrict how you can use it. One example is a utility easement (no, you can’t build your garage under those tall utility wires).

If there are easements on the land, they will almost always appear in the title report you will receive during the escrow period. But, in the title report, the location of the easement will appear in some gobbledygook way. So, if you see easements mentioned, ask the title company for a map of plotted easements. That way, you can see their location and judge how they might impact your building plans.

Occasionally, there is a conservation easement blanketing the whole parcel, preventing building anywhere on the land (yikes!). There is a National Conservation Easement Database where you can look up them up online.

How Can I Research Access?

In California, it’s not uncommon for parcels to lack access. The property is landlocked. Also, physical access and legal access are different. A parcel might have one, both, or neither.

To research physical access, study aerial maps or get in your car and see if you can drive to the land.

The easiest way to evaluate legal access is to order a title report. If the title company says they will insure for title and access, then it’s likely the parcel has legal access. But what if the title company says they will insure the title but will not insure the access? That is usually because there is no legal access. There, you have your answer!

When there is no road going to the land, there may be an easement for access. Note also that easements on the land differ from easements used to access the land. The former are recorded on the property you are buying, while the latter will be recorded on the neighbor’s parcel. Easements recorded on land you are buying will not help you get from the road to the land. Easements recorded on the neighbor’s property for ingress/egress to your parcel may not appear in the title report because the report is specific to the property you are buying. So, you may want to ask the title company to research easements for access recorded on the neighboring property. If the title company discovers an easement for ingress/egress, ask them for a map of plotted easements showing the route.

How Can I Research Environmental Problems or Endangered Species?

If you have concerns about possible environmental pollution, you can pay for a Phase I Environmental Site Assessment. Generally, this is only needed when the land hosted something like an abandoned gas station, junk yard, auto repair site, or if you see evidence of pollution, such as leaking oil drums. To find a local firm, Google: Phase I Environmental <city or county name>.

And while we’re on the topic of nature, did you know that there are rules about removing certain trees in California? If there are oak trees or joshua trees on the land, look into that. If they are right where you want to build, that could be an issue.

How Can I Research Neighbors?

Get a crime statistics report for the City or County. To do this, Google: crime statistics <city or county name>. You can also research predators living near the land at the Sex Offender Registry.

But don’t freak out and conclude that the land is in a sketchy area just because you find a certain number of burglaries and pedophiles. Sorry to be the bearer of bad news, but almost every neighborhood has crime. The best way to realize that is to research the community you live in now, and you will see what I mean. Evil-doers are everywhere! Bleh!

Another way to learn more about the neighbors is to stop and talk to them. Say “hi” to the guy bringing in his groceries or the lady working on her car in the driveway. See if they’re the kind of people you want to have as neighbors.

How Can I Research Local Amenities?

In Google Maps, search for the property you are buying. If there is no address, because it’s vacant land, enter the address of a home down the street. Then click on “nearby”. Several options will pop up, such as Restaurants nearby, Hotels nearby, Bars and pubs nearby, etc. Choose one or enter what interests you, e.g., grocery stores, hospitals, schools, etc. Google will map them for you.

How Can I Research Climate?

One of my favorite places to research climate is BestPlaces. I like to compare two cities. The site offers helpful information for two cities on weather, crime, economy, housing, health, education, people, transportation, religion, voting, jobs, etc.

How Can I Research Real Estate or Rental Prices?

Search Zillow or ApartmentList. There are no Zillow-generated Zestimates for vacant land (thankfully). So, search for similar properties for sale and properties that have sold. When checking prices, remember that the most important reason a property is for sale, and not sold, is that it is over-priced.

How Can I Research Whether the Title is Clean?

As a buyer, you do not need to research the title. Leave it to the professionals, the title officer.

During the escrow period, the title company will investigate the chain of title. They will produce a title report. You can review that. The title company will not insure the title unless it is “clean .” So, if they say they will insure the title, that’s your best indicator that it is in good shape.

If there are blemishes on the title report, the seller can often correct those during the escrow period. So, if the preliminary title report says the title is not clean, don’t assume that’s the end. Wait for the final title report after the seller and escrow officer have worked to address questionable items. For example, if there is a judgment or lien, the seller can arrange to pay that off. Then, it will disappear from the title report, and you will not be responsible for the lien.

How Can I Avoid Making Mistakes on My Due Diligence?

One way to avoid errors is to get with your Realtor and create a list. The list will include all items you, the buyer, must research. Also, put on the list where you can go to research each item. By creating a list, you will be less likely to forget something,

Another way to minimize error is to get all critical information directly from various information providers, not second-hand from Realtors or sellers.

A final way to reduce error is by practicing redundancy: Get the same question answered in multiple ways or by several different people. For example, if you are trying to figure out if the land is likely to perc for septic, you can:

Ask a neighbor if they had any trouble with their perc test,
Check with the county to see if a historic perc test is already a matter of public record,
Call a local septic installer to ask about the viability of septic in that area and/or
Pay for an actual perc test.

That is, do several of these things, not just one.

Storytime: I once phoned a county planning office to ask about the zoning for a parcel I was selling. The Planner I spoke to said the zoning was commercial. A few days later, I called again to get some clarification on what commercial uses were allowed, e.g., office, restaurant, or what? I talked to a different planner. That Planner said it was actually zoned residential. So, I went to the planning office in person. The third Planner walked me over to a large zoning map on the wall. That map showed commercial zoning along the street and residential zoning in the back. I could see from the map that it was the correct answer. Finally! Making several phone calls, and going in person, and looking at maps was the key to getting accurate information at the end of the day. Redundancy rules!

What if I Mess Up on My Due Diligence?

Once, I was selling a piece of land, and the buyer received all seller and agent disclosures but did zero additional due diligence before buying. He then asked to “rescind” the sale after closing escrow.

Um, that’s a “no”.

There is no way to rescind a sale after escrow has closed and a change of ownership is recorded with the county.

Buying real estate is different from shopping in a retail store. You can’t walk up the return counter with a copy of your receipt and get your money back. With that said, if, after purchasing land, you decide that you don’t want to own it for any reason, you can always resell it. But be sure to disclose all material facts to the next buyer, especially any adverse ones you discover. The law requires this.

It’s All Very Overwhelming. What Strategies Will Make it Easier?

Remember, all you’re trying to do now is decide if you want to buy the land. You won’t be building a house next week — that’s in the future. So, focus on the mission-critical items, i.e., the things that affect whether you want to buy it. If you think about it, you will realize that some things are not critical right now.

For example, do you really need a surveyor to mark the exact-exact-exact corners on those 40 acres? Or will studying boundaries in an aerial map do for now? If you discovered that the property line is 10 feet from where you thought it was, would that affect your buying decision? If so, hire a surveyor. If not, it can wait until after you buy the land.

Or, suppose you’re buying a lot in a densely populated urban neighborhood. You observe a fire hydrant at the nearest intersection. The house on the left of the lot has water, and the one on the right has water. In this situation, do you need to research the cost of a water meter right now? After verifying that there is no moratorium on issuing new water meters in that area, you might put that item on the back burner until you’re ready to build. All you’re trying to do right now is trying to figure out if there are any bad-news-deal-breakers. You can put off the rest ‘till later.

If you think along these lines, you can cross some things off your immediate To-do list. Resolve to tackle them after you buy the land. For now, focus on those key items that affect your buying decision.

Summary

When purchasing land, yes, you do have to do your independent due diligence. Further, there is no “one-stop shopping” for all the information you need. No single person will provide all the answers for you.

Not the seller.

Not the Realtor.

Not the escrow officer.

Not the title company.

Savvy buyers will want to make a list, roll up their sleeves, and do their own research before buying land.

How to ask if seller financing is available

by Tammy Tengs

A buyer texts me and says: “will the seller carry the loan?” As a land broker, buyers ask me this all the time. It’s totally reasonable to ask about the availability of seller financing because there are very few conventional loans for vacant land.

The thing is, when a buyer asks the question in this simplistic way, I cannot give them an answer. And, there’s no point in me contacting the seller, my client, with a simple “hey man, will you carry the loan?” Because I already know what the answer will be. The answer from the seller will be “no”. Or, if it’s not a flat out “no”, it will be a bunch of questions:

How much will the buyer put down?
What interest rate?
How many years?
What price?
What are the monthly payments?
Who’s paying the closing costs?

Then, since the buyer has not stated the terms they are proposing, what happens is a lot of back and forth between buyer, agent and seller. It’s a big ‘ole unnecessary time-sink for all involved.

So, my friends and valued buyers, I offer you my advice on the best way to approach a listing agent to ask if the seller will carry the loan. I will show you how to save time and get positive results.

Let’s get started.

Sample Ideal Email Inquiry From a Buyer

Below is an example of an email that you might send to the listing agent.

“Hi Some Broker,

I’m interested in that parcel APN 987-654-321 at 1234 Some Street in Some City in Some County. I was wondering if the seller would consider carrying the loan with the following terms:

Price $80,000
Down payment $20,000
Principal $60,000
Interest rate 6%
Term 15 years
Monthly payments $506.31
No pre-payment penalty
Closing costs (escrow/title) shared 50-50
Closing in 21 days

Please let me know if the seller would consider these terms. If yes, I am prepared to submit a written signed offer.

Thank you,

Some Buyer”

Notice the specificity? Notice how the email includes everything that is needed and nothing that is not needed? See how the inquiry clearly spells out the terms including the price, down payment, interest rate, length of the loan, and monthly payment? Do that. Please.

How to Calculate Monthly Payments

It’s easy to calculate the monthly payment so that you can include it in your email. However, it’s not as simple as just dividing the amount owed by the number of months that you plan to make payments. That only works if your interest rate is 0.

To get the monthly payment for a fully amortized loan, use an online calculator:

http://www.moneychimp.com/calculator/mortgage_calculator.htm

http://bretwhissel.net/amortization/amortize.html

What Terms Should You Offer?

Buyers, in order to draft the email above, you will need to decide up front, before even asking the Realtor if seller-financing is available, what terms you are proposing. This will require a little advance thought on your part. So, spend a few minutes running some numbers. It will be worth it when you get a positive reply. Below are some customary seller-financing terms to help you out.

Down payments typically range from 20% to 50%. Please do not offer less than 20% for reasons spelled out here.
Interest rates on seller-financed land generally range from 4% to 10%. I recommend that you not offer less than 6%.
Terms (length of the loan) typically ranges from 2-10 years.

Out of all these items (down payment, interest rate, and term) the thing that sellers care most about is the down payment. To increase your odds of success, make the down payment as large as you can.

How Not to Ask a Realtor if the Seller Will Carry

For comparison, let’s look at how not to ask a Realtor if the owner will offer seller-financing.

Buyer: Yo, will the seller carry the loan on that parcel?

Agent: Which parcel?

Buyer: The one on the internet

Agent: Which parcel on the Internet? What street, city, county, state please?

Buyer: The land listing

Agent: I have 50+ land listings.

Buyer: The one priced at $100,000?

Agent: There are two, the one in California or the one in Oregon?

Buyer: California

Agent: OK, that’s the one in Riverside. I will be pleased to ask the seller if they will carry the loan. In order to ask the seller, I need to know the price, down payment, interest rate and term that you are proposing. Then I can ask the seller.

Buyer: Can’t you just ask the seller if he will carry, like, in general?

Agent: Sorry, no, because if I do the seller will ask me to specify the terms before he decides. What terms are you proposing please? I need your proposed price, down payment, interest rate and the length of the loan.

Buyer: I can put 25% down

Agent: OK what price, interest rate and term?

Buyer: 6% interest

Agent: Are you offering $100,000? How long would you like the term to be?

Buyer: No, I only want to pay $80,000.

Agent: OK what term?

Buyer: 10 years

Agent: Payments would be $666.12 per month. I will ask the seller and let you know when he replies.

Buyer: No, I can only afford about $500 per month

Agent: OK then let’s change the term to 15 years. I will ask the seller if he will consider $80,000 with $20,000 down at 6% interest for 15 years, payments to be $506.31 per month. I will let you know when he replies.

Buyer: OK thanks

Buyers, you don’t want to spend a bunch of time going back and forth on the phone, text or email just to get an answer to your question, do you? I mean, the email/text exchange above took like half an hour. You don’t want to invest that same half hour with five different Realtors on the five different parcels you’re interested in, right? It would be much easier for you to spend a little time thinking about it before even contacting the agent and just send the agent the email I recommended above. You could even use it as a template and send it to multiple agents on several parcels, editing key items slightly for each one. Save yourself a bunch of time!

Who Should Name Their Terms First: Buyer or Seller?

I find that Buyers usually want sellers to name their terms up front and sellers want buyers to name their terms up front. So, who goes first?

I recommend that the buyer “go first”. Here’s why: As a listing agent who represents the seller, it doesn’t make sense for me to even ask seller if they will carry the loan at the time of taking the listing. Why? Because if I ask the seller if they will carry at the time of signing the listing agreement, the seller’s answer is almost uniformly “no”. So, there’s no point to even asking. Almost all sellers prefer cash, and, at the time of listing, they are usually thinking their parcel is so special it will sell quickly and for a full cash price. At the outset, sellers see no reason to carry the loan. This means that if you’re the first buyer me to ask, “will the seller carry?” it’s likely that I won’t know the answer to your question.

And I cannot just pose this question to the seller “in general” or “hypothetically”. I find that sellers run into a mental block when they are asked whether, in theory, they might consider carrying the loan. Most sellers have no clue whether they should ask for 20% down or 50% down, whether the interest rate should be 4% or 10%, whether it makes sense to carry for 2 years or 15 years. I find that most sellers cannot wrap their mind around the question of whether they might carry in general for some hypothetical nameless faceless buyer. Sellers can only think about financing when the precise terms are spelled out by an actual buyer. It’s a psychological thing.

So, as an agent, instead of asking the seller at the time of taking the listing whether or not they will carry, I wait a month or two until I get the first inquiry about seller financing from a buyer. Then I ask the buyer to name their terms. Armed with those terms, I go to the seller and say hey there is real buyer proposing actual specific terms and I ask the seller if they will consider those exact terms.

This strategy is more likely to get a positive response from the seller. One reason is that a couple of months into the listing period, sellers are starting to see that their parcel has not flown off the market with a full price all cash offer. By this time, sellers are beginning to think about new ways to get their land sold. A second reason is that if I can specify exact terms to a seller, he can ruminate about it in a concrete way. Is the 20% down proposed by the buyer sufficient, he will wonder, or would it be better to counter at 30% so that the buyer has more “skin in the game”? Is he willing to carry for 10 years, as the buyer requests, or will he need the money in 5 years for his kid’s college education? Is the 6% interest rate proposed by the buyer less or more than what he earns on his other investments? What would it be like to get a regular check for $506.31 per month? That might be nice, he will think.

So, buyers, when you name your terms this gives the seller something concrete to focus his thinking on. It works much better this way and he is more likely to say “yes”. Trust this advice from the experienced land broker.

Consider Your Audience

As a buyer, it’s best if you can learn something about the seller and agent before preparing your detailed inquiry about seller-financing. Is the seller younger or older? Is the Realtor a residential broker or a land broker?

If the seller is older, you will want to propose a shorter term for the seller-financing. While banks can entertain long loan terms like 15-30 years, because they exist in perpetuity, land sellers are not banks. They are humans with finite lifespans. Some sellers are older and naturally want to get paid off while they are alive. So, consider the seller’s age when deciding what term to propose. The older the seller, the shorter the term you should propose.

The reason to consider whether the listing agent is a residential broker or land broker is that residential brokers will be less familiar with seller financing. Residential brokers sell mostly houses and condos and may have only one or two land listings. Since conventional loans are plentiful for houses, Residential brokers may not be aware that there are few conventional loans available for vacant land. A residential Realtor might wonder “why doesn’t the buyer just go to their bank?” Residential brokers may even greet your seller-financing request with suspicion. Some may not have a clue how to prepare a seller financing offer, calculate monthly payments, create an amortization schedule, etc. (By the way, these are just some of many reasons that land sellers should list with land brokers not residential brokers, but I digress….) Buyers, if your audience is a residential Realtor, it is even more important to spell out your proposed terms in detail in your first inquiry as I have shown you above. If you do this, you will look like a serious buyer. In addition, you will be educating the residential broker so that they will see that preparing an offer like this would not be all that cumbersome (for them). Then they may take your “seller financing?” question more seriously.

Also remember that your “audience” for this inquiry, the listing agent and the seller, are probably not mathematicians or loan brokers. So keep it simple! I recommend that the type of loan you propose be as basic as possible. For clarity, make it fully amortized. This is because loans that are amortized involve just a single monthly payment and when you’re done making those payments the whole principal will be paid off. It’s an easy concept for sellers to grasp. Try to avoid proposing a balloon payment and never ever propose multiple balloon payments such as “I’ll pay you $20,000 up front, then monthly payments, the another $30,000 in 1 year, then more monthly payments, then $40,000 in 3 years.” OMG. Do not ask for an interest-only loan because that involves a balloon payment at the end. A final recommendation is to avoid proposing multiple options. Never say “we could do it this way or we could do it that way”. You might think it’s totally logical that the seller would prefer to have choices, that way the seller can get more what he wants and so is more likely to carry the loan. Wrong. It just confuses the negotiation. Think about Trader Joes. One of the reasons they are so successful selling tomato sauce and frozen burritos is that they offer one option not multiple options. If you want the seller to say “yes”, just propose a single garden variety amortized loan with one set of terms.

Finally, buyer, keep in mind that most sellers prefer all cash. So, your audience for your “seller financing?” question will be someone who really doesn’t want to carry the loan. You will have to entice them. So, don’t go in with an offer that is low price AND a small down payment AND a low interest rate AND a long term because that’s not going to work. Give the seller something to hang his hat on. Make him want to work with you. You’re not the only buyer out there. You are in competition with other buyers, actual or theoretical, past, present or future. And while you cannot make your offer superior to other buyers in all ways (because you’re not offering cash), you can make it superior to all other buyers in one way – and that’s on price. So, if you’re going to request terms, at least offer full price.

Buyer Worries

Sometimes buyers worry that if they send a detailed inquiry like the one I am suggesting, the seller will get the mistaken impression that it is an actual offer. They fret that if the seller says “yes” they will be “under contract”. Not true. In real estate, a contract has to have two signatures. And when a buyer sends this kind of inquiry to a Realtor, and the Realtor forwards it to the seller, and the seller says, “sounds good”, nobody has signed anything. The seller’s positive response just means “I invite you to submit a formal offer and, if you do, and I will look at it favorably”. However, until there is a signed agreement, there is no deal and either party can walk. So, buyers, don’t be afraid to state your terms up front with some specificity.

From the Perspective of the Realtor and Seller

In addition to increasing the odds of getting a positive response, something that benefits the buyer, the strategy that I am advocating also serves the purposes of the Realtor and seller. Asking the buyer to give a few minutes of thought to the kind of seller-financing deal he wants, weeds out those buyers who are not serious about the parcel in question and are just sitting around in their jammies, watching Netflix, surfing Zillow, and blasting off “seller carry?” emails to random agents. After all, not all “buyers” are buyers. And there’s no point in getting a seller’s hopes up if the buyer is not really a buyer. I find that real buyers are willing to spend a few minutes crafting their seller financing proposal. It’s a good test.

Conclusion

If you’re interested in purchasing a piece of land, it’s reasonable to ask a Realtor whether or not their seller client will carry the loan on a parcel of land. The best way to do it is to briefly specify all terms up front. This will increase your odds of getting a positive response!