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  • Writer's pictureJason Stephenson

THE PRICE, THE BUYER, THE TERMS, HOW TO GET THE BEST OFFER

So, you have made the decision to sell in this crazy market and you’re receiving incredible offers. Are these offers legitimate? You’ve worked hard your whole life, raised a family, and with rezoning in the area it’s getting harder to stay put. You want the best price. No, you deserve the absolute best price. This is your once in a lifetime opportunity to set your family up. You don’t want to make a mistake and could really use some guidance. The good news is you’re reading the right blog.


There are three main factors to consider with any option agreement, The Price, The Buyer and The Terms.




THE PRICE – The door knocker offered $3M per acre.

We have all heard this one… a dozen times. But yes, it is truly happening. You have been offered an amount that the local real estate agent just can’t get you. You have won the property lottery. But what do you need to be careful of? The Terms & The Buyer.




THE BUYER – I don’t care who I sell to, as long as I get my money!

Another line we have heard 1,000 times, the key part being "as long as I get my money”. If you’re selling under an option agreement the sale will take time and you need to ensure that the purchaser has the means and ability to settle so that you will get your money. Can you ever be sure? No, but selling to a company with a track record of completing sales and developing land significantly improves your odds of winning. Selling to an Investment Gambler is a sure-fire way to lose.


What is an Investment Gambler?

When the market is good, as it has been, property investment gamblers come out. Their strategy is to offer well above market rates with poor terms. Their intention is to capitalise on a rapidly rising market by on-selling your property for a profit without having to put much money down. I.e., They are gambling that the market will keep going up.


If the market doesn’t rise, investment gamblers often don’t have means to complete the sale. In this circumstance, you will be left trying to re-sell your property in a poor market. Sellers beware!

How to identify an Investment Gambler?

- They often don’t disclose the true buyer of the property (they are acting on someone’s behalf)

- The buyer has no or very limited history in actually developing land

- They limit the up-front payments/deposit and request long or flexible settlement terms

- They write tricky Novation Terms into any contract, allowing them to sell to a third party without your approval and no ability to vet the third party


Expert tip: Ask an industry expert like Land Evolution to vet your purchaser. We will vet purchasers at no cost, you can’t lose.



THE TERMS – So you have a good price, and you have vetted your purchaser, let’s not get caught up with a set of bad terms.


Let me share with you this real-life scenario that we dealt with for our clients Sarah and Jim (actual names have been changed).


Sarah and Jim were offered 2.2million per Developable Hectare for their property in Western Sydney. This was the highest offer out of all the door knockers, developers and real estate agents. But this isn’t a straightforward sale deal, it is an Option Agreement and therefore has terms.


These terms were presented:

- $5,000 down payment to secure the deal

- 6 months Due Diligence Period

- After 6 months due diligence, $50,000 deposit would be paid to secure the property for 5 years.

- Novation Clause (the purchaser can on sell the land)

- The actual purchaser was not disclosed during negotiation, someone made the deal on their behalf.


CONFUSED? YOU SHOULD BE…


If Sarah and Jim accepted this offer (because the price is amazing) there would be multiple loopholes for the purchaser to exploit:

1. A Developable Hectare is not defined. Descriptions of terms are very important. For example, if a basin is required on site, or if trees need to be kept the price could come down. Are future roads considered part of a Developable Hectare, or just the lots? It depends on the definition.

2. A 6-month Due Diligence period is longer than required and a $5,000 deposit is not large enough to secure a development site for that length of time. It would be too easy for the purchaser to walk away. This would leave Sarah & Jim in a position whereby they would have to put the block back up for sale in what could be a completely different market.

3. A $50,000 deposit is not enough to secure a property for 5 years. As per Point 2 above, it is too easy for the purchaser to walk away from the deal and the length of time is significant.

4. If the contract has a Novation Clause, it needs to be reviewed by a solicitor. There are a number of Investment Gamblers out there that have no means to settle, they will on sell the land and leave you to deal with a third party that you don’t know.

5. If the true purchaser is not disclosed, you should not sell. Not only is this dishonest, but you need to do research on the purchaser to see if they have a track record of completing projects as well as the ability to settle on the land. If they don’t have a history, they might not be able to complete the option once the terms are up.


Our clients Sarah and Jim consulted with us over the offer, we assisted them in navigating the terms and ultimately given the facts they decided that this was not the deal for them.


These kinds of deals are rife at the moment, they are driving the market sky high, but will these option agreement deals fall over? Probably, they look great and super appealing based on price, but the terms have huge risks that may actually put your property and you in a horrible predicament. Believe it or not your real estate agents are working for you, they are trying to get you the right price when we are talking about a straight forward sales transaction, but when selling to developers under an option agreement it isn’t as straight forward.


Ok so Sarah and Jim decided to pursue an offer they were made for $2.1M per Ha. Terms were negotiated with the purchaser that ensured Sarah and Jim lowered their risks and had confidence that their purchaser would settle within the terms of the agreement. They took their deposit and purchased a block of land in Stage 3 of the release area that is earmarked for re-zoning in around 10 years. They plan on going through the process again when the time comes.


THE BEST OFFER

The best offer is a balanced offer. What’s included in a balanced offer?

- A good price, not necessarily the best price but certainly in line with current market value

- A vetted purchaser, someone who has evidence of a track record in delivering similar developments, you can always ask for this

- Fair due diligence terms, 3 months is often enough to undertake any required investigations

- A significant deposit. The deposit should be significant enough that they won’t want the deal to fall through. 5% of the purchase price is good, 10% is great

- Extension terms should only be applied when it is a fair request. For example, if the price is subject to re-zoning or DA approval. Timing of planning approvals are often out of the purchasers’ hands and are usually required to facilitate loan approvals that may be needed for settlement

- Novation terms should be transparent and easily understood. You should seek legal advice on any terms that could leave you exposed.


Of course, Land Evolution only deals with vetted developers, so selling through us will get you close to the best offer every time. Even if you aren’t selling through us, we offer a free service to research and provide background information on your potential purchaser and can often provide advice through your negotiation period to get you in the best position. This gives you some assurance that the offer you are considering will be the best offer.


If you or someone you know is going through this at the moment, get in touch with us, we would be more than happy to go through the finer details in order to get you the BEST OFFER.

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