Tammy Tengs

Why it may not be wise to base your listing price on what similar parcels are selling for

“Hi, I’d like you to list my property for sale. Will you send me some comps?”

I get this phone call from land sellers several times per week.

I think: Comps, uh, what comps?

By “comps” I presume you mean you want to know the selling prices of comparable parcels. Perhaps you’re remembering how it was the last time you sold your house. The nice Realtor showed you a list of similar houses in your neighborhood that had sold recently. You looked at the list together and discussed how your house may have fewer bedrooms than that one but a better kitchen than the other one. You priced your house after reviewing a list of sold comps, right?

So now with your land you’re thinking that you’ll do it the same way. You assume there are a fair number of parcels that have sold recently and you want to price your parcel based on what other parcels like yours are selling for. Do I have it right?

As a seller, I know you think your logic is impeccable and your request for comps is just, well, obvious.

I hope you are open to new ideas.

Because the problem with your logic is this: unlike houses, which sell easily, land is difficult to sell; there are many sold house comps and few sold land comps; because so few land parcels have sold those sales tend to be less comparable and more idiosyncratic, so less reliable as the basis for comp averages; anything that has sold has, by definition, done so in the past, not the present, in a somewhat different economy; you’re not competing with the handful of parcels that have already sold; you’re competing to sell your parcel in the present or future with the many, many parcels like yours available for sale right now; finally, you want to sell in the next half year not two years from now after hundreds of “days on market” like most sold land comps.

All of this means that basing your selling price of the smattering of parcels that have sold may not be wise in the current economy.

Here are some examples to illustrate my point (names and places have been changed):

Seller Todd’s Subdivision Lot

Todd owns one of several virtually identical lots in a central Oregon subdivision. He wants to sell his lot. All of the lots in this subdivision are similar in size and quality. Seller Todd’s goal is to sell his lot in the next 6 months.

Four parcels in this subdivision have sold in the last 2 years at $20,000, $25,000, $30,000 and $35,000. However, there are 32 parcels available for sale and on the market now that have not sold. Those 32 lots are available starting at listing prices of $19,000 and going up from there. Further, in the past year, 17 sellers of lots in this same subdivision have seen their listings expire and their lots have not sold. The prices on those expired listings started at $21,000 and went up from there.

If I e-mailed seller Todd some “sold comps” and advised him to price his parcel around $27,500, the average of the sold comps, do you think he would achieve his goal of selling his parcel in the next 6 months?

Probably not.

The reason is, his lot is competing with parcels on the market now priced as low as $19,000.

To understand the situation, imagine buyers driving into central Oregon from Portland. Let’s say they are hipster buyers in a retro red convertible. Based on statistics, one buyer like this shows up in this subdivision every 6 months. Our buyers heard about this nice new subdivision in the mountains where there used to be an ostrich ranch. Suppose Todd did price his lot at $27,500 and these buyers read about this great $27,500 lot in the agent’s colorful ads and decided to drive over and check it out. But when they get there and start driving up and down the streets they see 32 signs on vacant lots. There’s one lot at $23,000…and another one at $28,000…and one at $20,000. Then they spot one at $19,000! So while originally they drove out to look at the lot priced at $27,500 based on the agent’s great marketing, the buyers in the red convertible ultimately decide to submit an offer on the lot priced at $19,000.

This is the way it goes in real estate day in and day out. However buyers are not driving around in red convertibles. They’re surfing the web. Today buyers can easily access information on the Internet about all of the parcels available in this subdivision. They can search any number of websites like Zillow or Realtor.com. So it’s highly unlikely that a buyer would get a hankering for a high priced parcel over all of the other virtually identical and less expensive lots in the same subdivision. Why would someone buy Todd’s lot at $27,500 when they can buy essentially the same lot at $19,000, $20,000 or $21,000?

Before Todd can sell his parcel at $27,500, the lots priced at $19,000, $20,000, and so forth will have to sell first. Since one lot is selling about every 6 months in this subdivision, it will be a few years before his lot is likely to sell at a list price of $27,500.

OK, thinks seller Todd, then how did those other sellers get good prices like $20,000, $25,000, $30,000 and $35,000? If they sold theirs for prices like that then why can’t I? That’s what he’s thinking, I know, I can hear his thoughts through the phone lines.

Well, for one thing those sellers got those prices in the past. Some of those parcels sold 1-2 years ago in a somewhat different economy. Another reason is that sometimes transactions are not “arm’s length”. The lots may have sold to a family member at a higher price. For example maybe an adult son or daughter was trying to help their aging parents with hospital bills by buying their lot. A lot may have sold to an adjacent neighbor who wanted to expand his yard and so didn’t want any other parcel but the one she purchased. We have no way of knowing why they sold at those prices. The question Todd must ask himself is: can he get a high price like that for his lot when many other similar lots are available at lower prices? Let me put the answer simply: It’s highly unlikely.

If seller Todd really wants to sell in the next 6 months, he should glance at the sold comps and then set them aside. In deciding how to price his parcel, his primary focus should be on the prices of his competition – parcels available for sale. Todd should consider pricing his lot at $18,000, effectively undercutting the least expensive parcel on the market.

On the other hand if, after rethinking things Todd decides that he doesn’t necessarily want to sell in the next 6 months after all, or does not want to accept $18,000, that’s fine too. In this case he should consider leaving the parcel off the market and waiting for the economy to improve.

Seller Bethany’s Riverfront Land

Bethany does not have a cookie cutter parcel like Todd’s. She has a large 20-acre parcel directly on a river. Also Bethany is willing to offer seller financing as an incentive to buyers who don’t have all cash.

However, even with this special parcel, we would still have the same situation:

As seller Bethany’s broker, I could research all 10-30 acre parcels in the area or county where Bethany’s parcel is located and I would find that few have sold and many are available.

I could research all parcels on a river, stream, lake or ocean and I would find that few have sold and many are available.

I could research all parcels where the owner is offering seller financing and I would find that few have sold and many are available.

The economy has affected the salability of all parcels including large attractive parcels with financing incentives like Bethany’s. No matter what kind of parcel you are offering in the current economy, research is likely to reveal few sold comps and many equally wonderful parcels available that have not sold. Thus, pricing based exclusively on sold comps is folly in this economy even for “special” parcels.

Seller Fred’s 5 Acres With a Well

Fred wants to sell his 5 acres in an agricultural area. Fred has a capped well. So I go into the MLS and research all parcels between 3 and 7 acres in the same are over the last 2 years. In that period, 3 parcels sold. The median average selling price was $122,500. In addition, 28 parcels expired in the MLS without selling starting at $73,000 and going up from there.

Currently, 17 parcels are available starting at $48,000 and going up from there. Available parcels with wells start at $90,000 and go up from there.

Note that only 3 parcels sold in a 2-year period. That’s one parcel every 8 months. Many did not sell. Many are on the market now. However, the parcel priced at $48,000 is not his competition because it does not have a well. Fred’s competition starts at $90,000.

Fred definitely wants to sell his land in the next 6 months.

Let’s do a thought experiment: Supposed Fred priced his land at the average selling price of $122,500. Do you think it would sell in 6 months? Unlikely. The reason is, that statistically one buyer will come along in that window of time. If they are looking for a parcel with a well they the probably buy the $90,000 competing parcel and not even look at Fred’s high priced parcel priced at $122,500.

So I advise Fred to glance the average selling price and the comps and set them aside. I also advise him to pay no attention to the $48,000 parcel available for sale because it does not have a well. If he wants to sell in the next 6 months, Fred should list his land at something like $89,000, undercutting his $90,000 competition.

Conclusion

It may not make sense to focus solely or primarily on the selling prices of a few random parcels when there are many parcels available for sale that have not sold. Keep your eye on the competition: similar parcels available for sale. Price your land to compete!

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

by Tammy Tengs

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

So let me explain what’s happening.

Here’s a Typical Scenario

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

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

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

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

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

“Why?” you ask.

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

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

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

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

Here’s the Scoop

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

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

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

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

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

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

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

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

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

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

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

The Bottom Line

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

Dear principal brokers, it’s spelled “principal” not “principle”

by Tammy Tengs

Do you remember learning in school that “the Principal is your pal?” Maybe this was how you remembered the correct spelling of “principal”?

Yet many principal brokers refer to themselves as “Principle Broker”.

They misspell it on their business cards. They automate the error in their email signature line. They spell it wrong on their website. They splash all over the Internet.

When I receive an email from a “Principle Broker” I just think, “girlfriend, your slip is showing; brother, your fly is down…should I tell this person? “

In a quick Google search I found 473,000 hits for “principal broker” (that’s good). I also found 113,000 instances of “principle broker” (that’s bad).

Definitions

You may have heard of “brokers” and “agents”. Perhaps you already know what a “Realtor” is. But what is a “principal broker” anyway, you wonder?

In the context of real estate, one definition of “principal broker” is:

A name given in some states to the responsible party in a real estate office; sometimes called the managing broker or the qualifying broker. It is the person legally authorized to enter into agency contracts with consumers, and the person legally responsible for supervising the agents who work under that supervision.

The Oxford Dictionary defines “principal” as:

The person with the highest authority or most important position in an organization, institution, or group.

The word “principle”, on the other hand, is defined like this:

A fundamental truth or proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning.

Because the principal broker is the top dog, the person in charge of the real estate office, the correct spelling is “principal”.

Grammar Girl Weighs In

Apparently, Realtors are not the only ones who confuse the two words. Mignon Fogarty, AKA Grammar Girl tackled this issue in a recent podcast. Grammar Girl is an expert and her podcast ranks on the top 40 on ITunes. She explains the difference between “principal” and “principle” better than I can. You can listen to her podcast on this issue below (this part starts 4:12 minutes into the podcast):

http://hwcdn.libsyn.com/p/1/9/3/1936179825764bdd/gg_519.mp3?c_id=11865351&expiration=1470078847&hwt=ec79539b66deb8225f49e2ba767de6d5

If you prefer, you can read a transcript of her podcast.

The bottom line for Realtors is this: It’s supposed to be “principal broker” not “principle broker”. If Grammar Girl says so it has to be true. Grammar Girl wouldn’t lie.

My Concerns

I’m concerned for all you buyers and sellers out there, working with “principle brokers”. I can’t help but wonder how the person in charge of a real estate office goes for years misspelling their title? Did they miss they day in school where we all learned that “the Principal is our pal?” Did they miss a lot of days in school? Do they lack attention to detail? Why didn’t anyone in their office notice this misspelling? Does their staff lack attention to detail too? Will this broker also overlook key items in real estate contracts or physical inspections?

I don’t know, maybe I’m getting my “panties in a bunch” over nothing. We all make mistakes.

On the other hand, it’s not just some random word it’s your TITLE after all. You spell your name correctly, right? It seems like you would get your job title correct too.

Think it’s no big deal? Here’s the real truth of it: If you work with clients who don’t know the difference then it is no big deal to them. However, there is a whole ocean of prospects out there, educated ones, who are noticing and making a mental note of this error. It’s registering in their minds, especially if it’s somewhere prominent like your business card or website. They’re just too polite to say anything. Maybe they’re just silently moving on down the road, deciding to work with a different broker…

And While I’m At It

Now that I think of it, there are least three areas in real estate where “principal” and “principle” are commonly confused:

Mortgage

CORRECT: “The remaining principal on the loan is $100,000.”

INCORRECT: “The down payment is 20% and the principle is 80%.”

Client

CORRECT: “The buyer and seller are both principals.”

INCORRECT: “The agent is a fiduciary to his principle in a transaction.”

Broker

CORRECT: “I am the Principal Broker in charge of the real estate office.”

INCORRECT: “My name is John Smith, Principle Broker.”

Repeat After Me

“The principal broker is my pal.”

“The client is the principal and also my pal.”

“The loan principal is my pal.” (Yeah, I know that one is a stretch!)

Now you have it straight! So get out there and edit those business cards and websites. Or forward this blog post to a pal …

How to buy land with (almost) no money

by Tammy Tengs

So, you dream of owning land.

Maybe you want to build a tiny house, a storage container home, or a yurt. Or you dream of having a garden, a few chickens, and a barn for your horse. Perhaps you envision a unique modern home with lots of glass and a panoramic view. Or you’re thinking of a large, rambling house where you will sit on the big covered porch and watch your children play. Maybe you just want a place to go. Get away. Hang out in your RV. Chill.

But you’re short on cash.

You discover that your bank will gladly give you a mortgage on a house or condo. But they won’t give you a loan on vacant land.

The good news is that you can still be a landowner. But how?

The seller of the land may offer financing!

Last year in California, for example, sellers financed 17% of land purchases in the $50,000-$200,000 price range.

What is seller financing?

Well, it’s pretty simple: A landowner sells his property to a buyer and then acts as the lender. The buyer makes payments to the seller over time.

There are two kinds of seller financing: 1) note and deed of trust and 2) installment land sale contract. The main difference is the timing of the transfer of title from seller to buyer.

With a trust deed, the seller gives title to the buyer upfront. The seller then has a lien recorded on the property. If the buyer fails to pay, the seller forecloses and takes the land back. This is the same way a bank mortgage on a house works. The seller is essentially the bank.

With a land contract, the seller retains the title until the buyer makes all payments. Upon receiving the final payment, the seller gives the buyer title. This is the way a car loan works.

About 99% of the time, California land sellers use a note and deed of trust for owner-financed sales. A land contract may be more common in other parts of the US.

Who prepares the paperwork?

In California, Realtors complete a special Seller Financing Addendum that spells out the terms. The buyer and seller sign it. Then, the escrow officer uses that addendum to prepare additional legal paperwork. At closing, the escrow officer also records the lien.

What if your credit is not so great?

Don’t have perfect credit? I’ve got good news for you. About 80% of the time, the seller does not request an income or credit check. Weird, right? I don’t know why this is the custom in California, but it is. Maybe it’s because sellers are motivated to sell and consider seller financing as a kind of investment secured by the land. They want the interest, and sometimes they can get a better price if they carry the loan. They realize that if the buyer doesn’t pay, they can always foreclose, keep the deposit and all payments made to date, get the land back, and re-sell it, possibly at a higher price in a better economy. Likely, they wouldn’t have to go through the hassle of eviction because there is no house on the land. Occasionally, I even encounter a Machiavellian seller who almost hopes the buyer will not pay. Don’t shoot the messenger. I’m just telling you like it is.

OK then! So, how can you find a seller who is willing to finance the deal? Read on.

Craigslist.org

Craigslist is an excellent place to find land with seller financing. This is because there are many For Sale by Owner (FSBO) listings.

First, choose a geographic area. Then go to the “Housing > Real Estate for Sale” section. Although a misnomer, the Housing section is the place to find vacant land. Choose Housing Type = Land.

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

seller financing, seller-financing, seller finance, seller-finance
owner financing, owner-financing, owner finance, owner-finance
carry (picks up phrases like “seller will carry the loan”)
OWC (abbreviation for owner will carry)
OMC (abbreviation for owner may carry)
contract (identifies sellers who say they are offering a “contract” or a “land contract”)
bank (picks up phrases like “no bank needed”)
finance (picks up phrases like “I will finance”)
financing (picks up phrases like “may offer financing”)
loan (picks up phrases like “owner may offer a loan”)
seller (picks up phrases like “seller is anxious to move out of the state”)
terms (picks up phrases like “seller will consider terms”)
motivated (picks up phrases like “motivated to sell”)
submit (picks up phrases where the owner is inviting buyers to “submit any offer”)
note (picks up phrases like “will consider a note”)
down (picks up phrases like “will accept payments with a down payment”)
paper (picks up phrases like “seller will carry paper”)

For example, here’s how to search Craigslist for California land in the Inland Valley area using the term “carry”:

One downside of this search method is all the false positives. Unfortunately, searching for a word like “carry” will capture listings that contain phrases you don’t want, such as “seller will not carry.”

Note also that the best search phrases vary by part of the country. You’ll want to experiment to see what works best in your area. For example, in rural areas, a search on the word “carry” may capture unwanted listings that mention the “carry” capacity of wells or the number of livestock the acreage will “carry.” These false positives will not happen in an urban area with no livestock and few wells.

Whatever you do, you will still have to sift through a collection of ads that pop up to find those gems. No search will be perfect.

For example, I searched Craigslist for vacant land in Sacramento, California, using the word “carry.” It yielded 20 good results, including these:

“I may also be able to do a finance option and carry the balance if you put enough down”
“Seller Will Carry with Large Down”
“Willing to do an option on the land as owner-financing to carry the majority of the cost for you”
“Will carry with 50% down”
“Possible carry paper with large $”
“Owner will carry a note with a large down payment”
“Possible owner carry option available”
“Get the directions and parcel maps to all the owner carry properties with low down payment at …”

My search also captured two unhelpful results:

“No owner carry option”
“I can not carry any loan”

There are 115 land parcels for sale in Sacramento currently advertised on Craigslist. So statistically, at least 17% offer seller financing.

Pro tip: If you want to get sophisticated and string multiple search terms together or omit listings that contain specific terms, you can learn more about Craigslist search here or here. If you decide to go this route and create a complicated search string, save it somewhere so you don’t have to re-create it next time.

Multiple Listing Service (MLS)

For a comprehensive search of all owner-financed land listings represented by real estate agents, ask a Realtor to search the MLS.

Before choosing a Realtor, consider where you want to buy land. There are many MLS systems, each specific to a different geographic area. So be sure to find an agent with access to the MLS with the most comprehensive coverage in the geographic location that interests you. For example, do not ask a Los Angeles agent to help you if you’re interested in San Francisco area land.

Below, I describe search strategies for two of the largest MLS systems in California: CRMLS and MetroList. Although only a Realtor can search the full MLS, it might help you, the buyer, to understand the MLS data fields related to seller financing. This way, you can discuss search strategies with your Realtor.

Not in California? No worries. The MLS systems in your state will be similar.

Pro tip: If you ask a Realtor to search the MLS for you, be sure to also specify other requirements that you might have. Don’t ask for a list of every single seller-financed property in the MLS. For example, do you have a price range? Need access to water? Want to eliminate properties that are landlocked with no road access? Ask your Realtor to narrow it down for you.

California Regional Multiple Listing Service (CRMLS)

The California Regional MLS (CRMLS) covers southern California and parts of northern California. Search the field “Listing Terms” using this strategy:

Listing Terms=Owner May Carry OR Owner Will Carry

“Owner Will Carry” means that the seller will likely agree to carry the loan with acceptable terms. The seller may even prefer to act as the lender over receiving all cash. This is because he wants the interest payments. “Owner May Carry” means that the seller is not fully committed to offering financing and prefers cash. Whether the seller will carry the loan depends on the details of your offer, how clearly and enthusiastically his agent explains it to him, and what kind of mood the seller is in that day.

To expand your search, try:

Listing Terms=Owner May Carry

OR Owner Will Carry

OR Contract

OR Lease Option

OR Private Financing Available

OR Submit

“Contract” sounds like a generic word, but it is short for “land contract,” the type of financing that works like a car loan. Even though you, the buyer, may prefer a trust deed over a land contract, consider including “contract” in your search. This is because few Realtors appreciate the difference between a trust deed and a contract, and the seller’s agent may have chosen “contract” to indicate that some form of owner financing may be available.

If you want to buy land, not lease land, then a “lease option” is not what you are looking for. However, as with “contracts,” some agents may not appreciate the difference between a lease option and seller financing since both involve making payments over time. The listing agent might have chosen this option during data entry to indicate that owner financing is available. So search on it to see what you find.

“Private financing available” indicates that a loan may be available from an individual or company that isn’t a bank or traditional mortgage lender. For example, the seller may be affiliated with a hard money lender or a wealthy family member who likes to lend money. Listing agents also sometimes mistakenly choose this option at the time of data entry to indicate that the seller will carry the loan.

“Submit” is an ambiguous term and can mean many things. Sometimes, listing agents choose this to say their client is motivated to sell. The agent is encouraging other agents to “submit any offer!” Other times, it means that the listing agent has not discussed seller financing with the owner but thinks that there is a chance that he may be willing to carry. The agent could be encouraging you to submit an offer and find out.

A search of CRMLS for land in Los Angeles, California, on Listing Terms=Owner May Carry OR Owner Will Carry yielded 355 owner-financed parcels of land for sale. There are 3102 land parcels for sale in Los Angeles County today. That means that 11% of land sellers offer seller financing.

Sometimes, the seller will carry, but the agent leaves the “listing terms” field empty. Instead, the agent enters phrases into one of these text fields:

Description
Private remarks
Publication remarks
Syndication remarks

Weirdly, it is impossible to search the above text fields in the CRMLS. But there is a workaround: Your agent can export the data into a spreadsheet and then search.

For the Los Angeles data, I searched the four text fields in Excel for the word “carry.” I found 366 instances where the “listing terms” menu field was blank, yet the seller was willing to carry the loan as explained in a text field. Here are three examples:

“Owner may carry half with only 2% friendly interest”
“Seller is open to carrying back financing for an attractive offer”
“Seller willing to carry”

Pro tip: In the CRMLS, do not search the field “buyer financing.” That field is for properties that have already sold.

MetroList MLS

The MetroList MLS covers portions of northern California. Your Realtor can search the “Terms” field to identify properties where the seller will carry the loan. This field is under “Additional Criteria”. Search on:

Terms=Owner May Carry

To expand the search, try:

Terms=Owner May Carry

OR Owner May Carry 2nd

OR Owner May Carry 3rd

OR Creative

OR Lease Option

OR Private Financing Available

A search on Terms=Owner May Carry in Placer County, California, yielded 35 owner-financed parcels of land for sale.

Zillow.com

The national website Zillow is another place to find seller-financed land. The great thing about Zillow is that you don’t need a Realtor to search it. The disadvantage is that it lacks important data found only in the MLS.

Zillow has two sections, “By agent” and “By owner and other.” You must review each separately. The listings in the “By agent” section come from the MLS. The “By owner and other” section contains listings from sellers not represented by an agent.

MLS systems have rules about what data fields they will syndicate (transfer) to sites like Zillow. Unfortunately, the “seller financing” field is not syndicated. This means that even in the “By agent” section, you cannot search Zillow by simply choosing owner-financing from a menu. So you will have to get creative.

Enter terms and phrases into Zillow’s “Keywords” search field.

For example, enter “carry” or “seller financing.” This will identify parcels where these terms appear in Zillow’s “What’s special” paragraph. This field is identical to the MLS description field.

This search strategy will not identify properties where the seller is, in fact, offering financing, but the listing agent entered that detail in the special financing or terms field of the MLS without mentioning it in the property description field.

My search of the “By agent” section of Zillow in San Diego County on the keyword “carry” yielded 18 owner-financed parcels for sale.

Pro tip: You can also try searching Redfin.com or Realtor.com in the “Keyword search” field. The data from all three public-facing sites is syndicated from MLS systems. Results will be similar, so you only need to search one, not all three.

LandFlip.com

Sites like LandFlip.com have many listings not represented by Realtors, so they are not in the MLS. Private land investors are selling these parcels.

Search on city, county, or state. Then, to the right of the search bar, click on the filter icon. Choose “Owner Finance” and click the green search button:

A search of LandFlip.com for all California parcels with owner financing yielded 292 listings.

Land.com

Land.com is like LandFlip.com in that investors, not real estate agents, offer most properties.

Search on city, county, or state. Then, in the Misc. section, check the “Owner Financing” box and click “Apply Filters”.

For example, my search of land.com for all active vacant land listings in California with owner financing yielded 745 properties.

Land Investor Websites

Land investors purchase property at low prices and then re-sell at higher prices. Sometimes, they advertise these parcels on their website. One example is DesertLand:

DesertLand offers financing on all listings. Currently, they have 7 parcels available in the greater Joshua Tree, California area, all with seller financing.

Another investor site is Landio. They have 15 parcels available with seller financing all over the US.

I have no affiliation with DesertLand or Landio and do not know the owners. I offer them only as examples of the many land investor sites like this nationwide. To find investor websites in your area, cut and paste one of these strings into Google, substituting in your state:

“real estate” land “owner financing” <your state>

“real estate” land “seller financing” <your state>

Realtor Websites

Unlike houses and condos, vacant land is commonly sold with seller financing. So, Realtors who sell land, not houses, may state on their website when the seller offers owner-financing. For example, at my company, Land22 Real Estate, we have several parcels with seller financing.

For example, here are the terms on this corner lot south of San Jose: “Cash or seller may carry the loan with $12,000 down at 6% interest for 5 years. Payments would be $927.97 per month.”

And here are the terms on this 120-acre parcel in the southern California desert: “Cash or seller may carry the loan with $20,000 down at 4% interest for 3 years.”

Just Ask

What if you fall in love with a property, and there is no sign the seller may carry the loan?

You should still ask!

If the property is vacant land and not a house or condo, you’ll get a “yes” or “it depends” maybe 10–20% of the time.

But only if you ask in the right way.

Please do not contact the listing agent with “Yo, will the seller carry?” The Realtor can’t answer that question unless you specify the price and terms. For example, are you offering half the asking price, 5% down, 3% interest, and want a 30-year term (when the seller’s age is 80)? Then the answer is “no”. Or are you offering the full price, 30% down, 10% interest, and want a 2-year term? Then the answer might be “yes”.

As you can see, it depends.

Here is an example of the kind of email inquiry that will increase the chance of a positive response:

To calculate the monthly payment, use any online mortgage calculator. This one is simple to use with no distracting bells and whistles.

There are many ways to structure a loan, e.g., interest-only, balloon payments, etc. But don’t be creative in this initial inquiry. Just propose a simple, fully amortized loan: Down payment, interest rate, term, and monthly payments. That’s it. Your goal is for the seller’s agent to understand what you are asking so that you can get a “yes” from the seller. Keep it simple.

If a seller is willing to carry the loan, why isn’t it advertised that way? The answer to that question has to do with seller psychology. Most land sellers suffer from “Lake Wobegon” syndrome (where all the women are strong, all the men are good-looking, and all the children are above average). Sellers think their land is far better than other parcels and likely underpriced. When listing their land for sale, they expect an instant cash offer at the crazy low list price their agent has suggested. And since they prefer cash, why would they offer seller financing? This is why the listing agent doesn’t even ask them to consider carrying the loan at the outset. It takes a few months for sellers to realize that they will have to negotiate with buyers on price or offer financing if they want to sell. That’s why financing is often not advertised, and you have to ask about it to learn if it might be available.

Pro tip: On seller-financed vacant land, down payments are typically 10–50%, interest rates tend to be 4–10%, and terms are 1–15 years. If the land is listed with a Realtor, do not offer less than 15% down. This is because the seller will have to pay Realtor commissions of 5–10% out of your down payment. For example, suppose the commission is 6%, and you were to offer a super low down payment, such as 3%. To accept, the seller must reach into his pocket to pay the commission and closing costs. The chance of the seller agreeing to write a check while transferring the title to you is virtually zero. Land sellers like to receive money, not spend money.

Conclusion

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

Seller financing…Genius!

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

by Tammy Tengs

No one likes to pay real estate closing costs. Buyers ask me: Isn’t the seller supposed to pay those? Sellers say: What are all these crazy costs – isn’t the buyer supposed to pay?

As a land broker, what fascinates me is that buyers ARE sellers. Sellers ARE buyers. Or they will be, in a few years, or on a different property. They’re the same people! Of course, when they switch sides, they will forget that they thought the other guy should pay.

So, who should pay for closing costs? My answer is: It’s negotiable. But it is generally unwise to negotiate! Regardless of the side you’re on, agreeing to split costs is in your enlightened best interest.

But first, what are “closing costs”? Let’s concentrate on the big ones and set aside the miscellaneous costs. The important closing costs in California are title insurance, escrow, and natural hazard reports. Three other cost items are also significant but not considered “closing costs:” back taxes, other liens, and the real estate commission. So, to discuss all the big numbers, I will touch on those too.

The negotiation on “who pays what” starts when the buyer submits an offer. The buyer proposes “who pays” in paragraph 3 of the standard California Vacant Land Purchase Agreement. The buyer makes their proposal by checking boxes.

There are two customary patterns for sharing closing costs:

First Common Pattern for Sharing Closing Costs

Split all closing costs 50-50 between buyer and seller like this:

The 50-50 split is the pattern I prefer. I’ll explain why below.

Second Common Pattern for Sharing Closing Costs

Another standard pattern is where the seller alone pays for title insurance, the natural hazard report, and miscellaneous costs. The buyer and seller divide the escrow fee 50-50.

The seller is responsible for delivering a clear title. Therefore, the logic of this pattern is that the seller pays for title insurance to show the buyer that the title is clear. Further, California law requires the seller to disclose any natural hazards. Hence, the seller pays for a natural hazard report to comply with the law.

This second pattern is typical for houses and condos in California, so it is also often used for vacant land.

Who Pays Back Taxes, Liens, and the Commission?

Now consider other big-ticket items: back taxes, liens, and the real estate commission. These are not considered “closing costs.”

The boilerplate language says the seller will pay for those items:

Paragraph 16B says, “Title is taken in its present condition … except for…monetary liens of record …. Seller will take any necessary action to deliver title free and clear of such lien….”

Paragraph 20 says, “The following items shall be PAID CURRENT … real property taxes and assessments….”

Further, the seller likely signed a separate listing agreement with his agent, agreeing to pay the entire commission, including the buyer’s broker commission. This will change with the recent National Association of Realtors legal settlement, but at this writing, the seller generally pays all. Ask your Realtor what the current customs are in your market.

So, the escrow officer will deduct liens and back taxes from the seller’s proceeds. Escrow will also likely deduct the commission from the seller’s side.

Because these items are not considered “closing costs,” there are no checkboxes for them in paragraph 3 of the agreement.

Let’s summarize. Unless there is some agreement to the contrary, the seller will pay back taxes, liens, and (probably) commissions. The buyer will not pay for these.

Asking Sellers to Pay for Everything and the Kitchen Sink (and There is No Kitchen)

Buyer’s agents occasionally check every box in paragraph 3 and ask the seller to pay for all!

They write that they want the seller to pay for a well test, and sometimes they ask for that when there is no well! They also want a perc test, the corners marked by a surveyor, and this and that. Offers where they throw it all in and see what sticks are usually prepared by an agent accustomed to selling houses, not land.

When receiving an offer like this, it’s best to take a deep breath and pull out the counteroffer form.

While all items are negotiable, it is not customary for sellers to arrange or pay for “extras.” I generally advise my sellers to decline to pay for these items.

When sellers decline to pay, it is still customary to allow buyers to perform any surveys or inspections they care to do. So sellers, if you receive an offer asking you to pay for everything and the kitchen sink, prepare a polite counteroffer. State what you will and won’t do and what you will and won’t pay for. Invite the buyer to arrange and pay for any due diligence they care to do.

Buyers and Sellers View Not Sharing the Cost Burden as Unfair

Buyers dislike it when sellers ask them to pay what they perceive to be the “seller’s” costs, and sellers hate it when asked to pay what they think are the “buyer’s” costs. If asked to carry the other person’s load, each party will think the other is an unfair meanie or a trickster. They will think you’re trying to slip costs into the fine print, which will affect the success of the negotiation.

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

Thus, it is in the best interest of both parties to accept the costs of transferring real estate. Negotiate only on the price.

Advice to Buyers

You should propose to split all closing costs with the seller 50-50, consistent with pattern 1.

Why?

Keep your end goal in mind. As a buyer, you want the seller to accept your offer as written without a counteroffer, right? You also want the seller to accept it before another buyer submits a higher offer, yes?

If you ask the seller to pay for all costs on some items, consistent with pattern 2, the seller may wonder if this is customary. He may phone Aunt Bessie, who was a real estate agent in South Dakota back in 1940. He will ask her whether she thinks this is fair. He may email Cousin Bernie in Long Island, who recently sold his house, to see what closing costs he paid. He may communicate back and forth with his agent on how to respond to your offer. He may request an estimate from escrow to see how significant of a hit all these costs will be.

All this flagellation takes time. The risk of time passing is that another buyer may appear on the scene in the interim.

The annoyed seller may give you a counteroffer on who pays what closing costs. The seller might reason that as long as he is countering on closing costs, he might as well ask for a higher price, too. After all, no extra effort is required to slip the price into the same counteroffer. Suppose you, the buyer, are not offering full price. In that case, the seller may factor in your unequal cost-sharing proposal and “take it out on you” on price.

As a buyer, you want to fly under the radar. You want your first proposal on how to share closing costs to seem fair and reasonable. You want the listing agent to take your offer to the seller and describe it as “clean.” You hope the agent will recommend that her client accept it as written. The best way to increase the likelihood of that is to propose sharing all costs 50-50.

Here is an example illustrating the issues: California land buyer Sally calls her agent. She wants to submit an offer of $13,000 on another agent’s land listing priced at $13,000. Sally’s agent reminds Buyer Sally that she must also pay closing costs. Her part of the closing costs would be approximately $850. Buyer Sally replies that she only has $13,000 and does not have $13,850. Buyer Sally wonders aloud whether she should ask the seller to pay all closing costs. The wise agent recommends that Sally not do that. She suggests that Sally submit an offer at $12,000 and offer to pay half of all closing costs. Sally does that. The seller counters at $12,500, Buyer Sally counters at $12,150, and the seller accepts. Sally pays a price of $12,150 plus $850 in closing costs for a total of $13,000. Both the buyer and seller are happy.

Now imagine if Buyer Sally had submitted an offer at $13,000 and asked the seller to pay 100% of closing costs. The seller would be pleased with the full-price offer, but he might have countered by asking Sally to pay her own darn closing costs. Then Sally would have had to back-peddle on her offered price to afford her part of the closing costs. The seller would have felt annoyed at Buyer Sally for walking back on the price, and the deal might have fallen through.

This hypothetical example demonstrates why buyers should offer to split closing costs. That way, the buyer and seller can negotiate on one thing, price, not two things, price and closing costs.

Advice to Sellers

You should agree to either of the two cost-sharing patterns described above. Both are common and customary.

If the offer is less than full price, do not negotiate closing costs—negotiate on price only. Why negotiate two things (price and closing costs) when you can negotiate one thing (price)? It all comes out the same in the end, anyway. Don’t nitpick over details.

Here is an example: Seller John has his parcel listed for $100,000. Suppose Buyer Mark offers $70,000 and proposes that John pay most of the closing costs. Seller John will be tempted to reply, “Well, I’ll accept Buyer Mark’s (low) price if Mark pays 100% of all closing costs. But, John’s savvy agent knows that Buyer Mark may balk at a request to pay what Mark perceives as Seller John’s part. The negotiation will become all about the principle of the thing. If John were to pay the bulk of the closing costs as the buyer requested, his costs would be $3000. So, the listing agent advises John to give Mark a counteroffer of $75,000 and agree to share closing costs as proposed. Buyer Mark feels the counteroffer is quite reasonable in light of his low offer. He accepts the counteroffer. Seller John admires his competent agent, whose advice got him more money than expected. Both the buyer and seller are happy.

Advice to Agents

As a good fiduciary, you’re likely thinking that when you represent sellers, you want the buyers to pay, and when you represent buyers, you want sellers to pay. Remember, though, that you don’t want to win the battle on closing costs only to lose the war on price.

A good fiduciary should tell both buyers and sellers that they should carry their own weight.

Don’t sweat the details on closing costs. Negotiate only on price