Question for Real Estate agents/property developers....

[prozac]

I see a couple of replies came in whilst I was writing mine (2 figers) and answering the phone etc.

Yes what Biting Midge says also.

What they are offering as a fee sounds about right for Sydney.

If council already has plans for this area then a developer should only need 6 months of option. If the agent is worth his salt he should keep the vendors (sellers) in the loop about the developer's progress so they know that they can start looking around for somewhere to move to.

prozac

[abitfishy]

Thanks prozac,

Yes, it is definiately more than the market price - theres no way they would get 1.1 selling to just joe blo in todays dodgy market with interest rates etc. Probably around the 800K mark considering other sales in the area. Now obviously the developer is offering more than its current value, and although I can't see it gaining lots of value in 12mths, who knows. Also the property will be worth more combined with others, not to mention just with the DA approved for aged care residential units 4 high, the value to the developer is considerably higher than 800K. 1.1M was the inital price offered, I'm pretty sure the developer would still jump for 1.3. The location is one street back from the main road within walking walking distance to a large Westfields, library, buses at the door and train about 10min walk away. I can see why they would want this location.

I can see it being a problem getting it all done - for what sounds like its going to be a large complex that needs lots of surrounding properties, unless the developers offer ridiculous amounts of money I can't see everyone agreeing. Consdering its a multi story aged care facility, I have no doubt there is still squillions of dollars in it for the developer.

[bitingmidge]

Consdering its a multi story aged care facility, I have no doubt there is still squillions of dollars in it for the developer.

Now see, that's where greed starts to get dangerous. Never look at what the next bloke is going to get, just be happy with your return, and hope there's enough for him to make a profit, because if there is, he'll pay the 20% or so over the market that he's currently offering.

If there isn't, well the place has just been devalued hasn't it, because your inlaws expectations have been raised unrealistically?

Cheers,

P

[abitfishy]

That sounds very much like a developer speaking mate.

From a sellers point of view, of course, its the opposite - they want to get as much as they think they can, and in working out negotiations, obviously one thing to look at is the use the property is going to be used for. If the buyer was wanting to knock it down and camp on it, the potential sale value would be less. And as I said, if they've come straight out and offered 1.1, there is absolutely positively room to move, even if its just to 1.2M.

[bitingmidge]

That sounds very much like a developer speaking mate.

Yes indeed, and I don't apologise for it!

I wasn't suggesting you don't maximise your sale, just don't blow it because of what you think the next bloke is going to make.

I see people make that mistake up and down the food chain every day of the week.

Better to be sorry you sold than sorry you didn't sell!

Cheers,

P

[abitfishy]

No problem. The issue is if everyone wants an extra 100k and there are 20 properties, that adds $2 million to the developers costs.

[echnidna]

and that might be enough to stop it happening.

[abitfishy]

and that might be enough to stop it happening.

That was my intended point.

[bitingmidge]

mine too!

P

[echnidna]

or from the developers view, if one person gets greedy its sometimes not that difficult to forget them and develop right around them.

[abitfishy]

Thats possible, but how likely a major development as this (over 20 houses from what I gather) would be allowed around the one house without proof of unreasonable negotiations on the sellers part is another thing.....its not like the inlaws want 2 mill. We aren't concerned in the slightest at this stage. POSSIBLE, not likely. I'm sure its happened in the past.

As it is I'm going to advise them that the option period is 'reasonable' (I've spoken to the agent and its 12mths with a 6 mth option, 1% for the 12 mths, 1/2% for the next 6 if they take it. If anything its not really in the sellers favour - the developer is really getting an 18mth option but only paying for 12mths if they can get it done that quickly since the extra 6 is not 'optional' on the sellers part), and at $1.1M. Even after 18mths I doubt the place is going to be worth $1 M so its less stress more than anything to just take it, be happy with it and run.

[ian]

abitfishy

I've read the advice you've already recieved

my tuppence worth ...

If your inlaws do need to down size and are worried about whether the developer's timing will mesh with theirs, you could consider negotiating a matching PUT option.

The developer is currently offering a CALL option. meaning that the developer can call on the inlaws to sell him the property at a future date for the price that is agreed now. If it were me, I'd be looking to share any upside price rise with the developer.
i.e. agree to $1.1 currently offered, but if the market rises over the period of the option the price gets adjusted upwards by say 50% of the increase.

The corresponding PUT option would allow your inlaws to require the developer to buy them out after say 12 months or alternatively walk away from the deal allowing the inlaws to put the property on the market. Because you're asking the developer to stump up cash before his deal is consumated the whole deal, the PUT price would have to be less than the CALL price offered by the developer.
The idea is that your inlaws retain a limited ability to put the property on the open market if they are forced to cash out and move before the developer is ready to buy them out.


ian

[abitfishy]

Thanks Ian. Hey, as I'm more of a translator (and I only speak English!), I'm not going to even bother explaining that to them. Theres 2 chances they'd understand and want to do it - buckleys and none.

[ian]

Thats possible, but how likely a major development as this (over 20 houses from what I gather) would be allowed around the one house without proof of unreasonable negotiations on the sellers part is another thing.....its not like the inlaws want 2 mill. We aren't concerned in the slightest at this stage. POSSIBLE, not likely. I'm sure its happened in the past.

As it is I'm going to advise them that the option period is 'reasonable' (I've spoken to the agent and its 12mths with a 6 mth option, 1% for the 12 mths, 1/2% for the next 6 if they take it. If anything its not really in the sellers favour - the developer is really getting an 18mth option but only paying for 12mths if they can get it done that quickly since the extra 6 is not 'optional' on the sellers part), and at $1.1M. Even after 18mths I doubt the place is going to be worth $1 M so its less stress more than anything to just take it, be happy with it and run.

abitfishy

I've just read this one again.

The other motive the developer has for taking out a bunch of options is to silence any objections from the neighbours to the proposed development.
If they all think that they wont get bought out (and see the cash) unless the development is approved, then it's very unlikely that any of them will object.

but if the developer, once he's got his approval from Council, walks away from part of the site, where does that leave the affected owners?


ian

[echnidna]

That's unusual, the bigger the site, the more units so more money.