Offered the listing on a 62 unit development site. How do I price the work?

Site is entitled for 62 units, seller has held it three years and is done. They want it listed and they want a broker who understands development, which I am learning to be rather than already am. Commission on land at this size is negotiable and they floated 4 percent on a $2.1M ask.

My problem is the buyer pool. Every developer I've spoken to about it says the same thing, the entitlement is fine but nobody can get a construction loan to pencil at today's rents, so the site trades at land residual value based on rents two years out, not today's. That puts real value somewhere well under the ask and the seller doesn't want to hear it.

What I'm working out is whether to take the listing at their price with a short term and a hard conversation at day 60, or turn it down. Taking an overpriced development site and sitting on it for nine months is how new agents lose a year. But the relationships I'd build going through the buyer pool on a site like this are worth something on their own.

Anyone worked land listings where the seller's basis is above the market? What did you do about the price conversation, and did the seller ever actually come down.

Answer

3angela_burkeServicePRO6

Take it on a 90 day term with a written price review at 45, not 60. Put the review date in the agreement itself so it isn't a conversation you have to initiate cold.

On the price gap, stop arguing about value and go get the evidence. Send the site to eight or ten actual builders, get their responses in writing where you can, and present the seller with a page of what real buyers said. Sellers who won't accept a broker's opinion will sometimes accept ten buyers saying the same sentence. It also does the relationship work you're describing, since you're now the person who has spoken to every developer in the market about a real site.

The thing I'd budget for is that at a 4.8 or 5 yield on cost, the residual land value on that site may be close to zero or negative. If that's what comes back, you're not negotiating a price cut, you're telling someone their asset has no buyer at any price they'll accept. That conversation is worth having early because the seller may prefer to hold and wait for the rent recovery, which is a legitimate answer, and then you've saved yourself nine months.

Don't discount the commission to win the listing. If the price is wrong the rate doesn't fix it.

Offered the listing on a 62 unit development site. How do I price the work?

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