THIS
MONTH'S TOPIC:
How Land Is Priced
An auctioneer was once heard to begin a land auction
by barking, "We're here to get as much as we can - you're here
to buy it as cheap as you can - what am I bid?"
How are prices established? Who gets to decide
on the final purchase price? Can buyers make a lower offer? The
price of property is obviously a major concern for all parties.
Here's a summary of pricing terms and how they affect both buyers
and sellers.
THE ASKING PRICE - Sellers are
responsible for setting the asking price. The property belongs to
them, and it is their right to price the property at a level acceptable
to them. Having said that, you can well-imagine the wide variance
in prices that are to be found in the market. It is also the primary
reason to begin your search through a real estate broker specializing
in land.
First consider "By Owner" land sellers.
These individuals can ask any price they like - and usually do.
Without the benefit of being represented by a broker, they lack
accurate pricing information upon which to base their price decision.
They've "heard" what others are getting for their land.
They've dreamed of getting even more . . . and maybe added an extra
10% on top of that for "wiggle room".
Buyers often approach individual landowners thinking
they can buy at a bargain price since the sellers are not paying
a commission. Nothing could be further from the truth. Our experience
shows that these sellers, not having all the facts about the current
market and actual sales, generally believe they can ask more rather
than less.
Worse yet, if a buyer happens to show interest
at their price, the sellers often back-peddle, possibly raising
the price. In short, buyers who approach the "By Owner"
seller are most likely to encounter indecision, inaccurate pricing,
misinformation, and wasted time.
If you contact a broker specializing in land,
you'll encounter a different situation. Serious, motivated sellers
engage the services of a broker because they intend to sell. One
service sellers receive is access to accurate, factual, current
pricing information. The broker knows what buyers have recently
paid for similar properties.
This information is incorporated into the seller's
pricing strategy, resulting in an asking price at or near fair market
value. It has been said that "fair market value" is defined
as "that price which a seller is willing accept and a buyer
is willing to pay, neither party being under any pressure to act."
Because most buyers comparison-shop before purchasing,
a fairly priced property will stand out from the crowd. Buyers will
compete to own such a property, and feel good about the price they
pay, rather than regretting it later.
THE OFFERED PRICE - Regardless
of the asking price on a property, buyers are free to make their
purchase offer at full price, or at any other price they deem to
be fair, and the broker is obligated to present all written offers.
Once buyers have made their purchase decision,
the broker will create a written "Offer to Purchase" that
includes the offered price, method of payment, earnest money deposit,
closing date, and any other terms and conditions proposed by the
buyers.
Once signed by the buyers, the broker will present
the offer to the sellers for consideration. The sellers can accept,
reject, or refuse to respond to the offer. The sellers may also
make a "counter-offer", which is then presented to the
buyers for their consideration. The negotiation can continue until
all parties are in agreement, at which time the offer becomes a
binding contract.
THE CONTRACT PRICE - This is
the final agreed upon price. This price is entered into the contract
signed by all parties, and is the final sale price paid at the closing.
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