5 Steps to Buying Land for Your Dream Home – Chapter Four
Step 4: Negotiating For Real Estate
If you’ve lined up your real estate financing, found and evaluated the land, and everything looks good so far, it’s time to negotiate the deal with the owner.
I have found that the best results come from an honest, good-faith, and fair market value initial offer. You can try to lowball the owner to get a good deal, but I honestly haven’t seen that work. The owner either gets offended and breaks off the negotiation altogether, someone else comes along and offers a fair price, or the deal ends up back at market value after weeks of haggling.
There are two main steps to negotiating for the land:
- 1. Figure out fair market value and compare it to your budget.
- 2. Make your offer and negotiate the deal.
Determining Market Value
To determine fair market value, do some research on recent sales of similar properties in the area. See what they sold for per acre, and apply that price per acre to the land you’re looking at. Remember to objectively take into account unique factors of each property that might affect the value.
- comparable property only has 50 feet of street frontage, and the one you’re looking at has 300 feet.
- Maybe the property you’re interested in has a creek that runs year-round
- Or the other property is adjacent to an oil well lease.
All those things affect value, and I’ve seen people try to use the lowest price-per-acre comparable property. When it’s clear that the property they’re trying to buy is the more desireable one, thus worth a little more. Just try to be fair.
So how do you do the research on comparables? One of two ways: find a Realtor to help by pulling sale records from the Multiple Listing Service (MLS), or go to the county records to find land sale history in the area.
There’s a third option for finding the value. While it will cost money, it might be a worthwhile investment if the property you’ve found is the one—hire an appraiser.
It might cost around $400, but that might not be a whole lot of money when you’re talking about the dream of building your forever home on your land.
Once you’ve figured out market value, you have to compare it to your budget. Don’t forget to add the price of the land and the cost to get utilities and prep the site (see the “Evaluating Land” chapter).
After you add those items together, does it still fit within your budget? Is there room between that amount and the top of your budget to negotiate? You’ll want to know how much room you have before you make your offer.
Make the Offer and Negotiate
To give yourself the best chance of getting your first offer accepted, make your offer on a written form, preferably the legal form approved by the state’s real estate commission.
For South Carolina, you can find the approved form on the South Carolina Real Estate Commission website.
Depending on your comfort level with negotiating a deal, you can present the offer to the owner yourself, or you can engage a Realtor.
Be aware that if the land is not listed on the MLS, the owner (seller) is not obligated to pay the real estate commission that the Realtor will earn for helping you with the transaction. If that’s the case, you will need to pay the commission yourself.
Having the help of a professional real estate agent can be a huge advantage, so it’s worth the investment, in my humble opinion. I have engaged the services of a Realtor many times and happily paid the commission knowing I was getting more than that value in return.
When negotiating the price, remember what I said above: don’t try to lowball just to get a good deal. I’ve seen that backfire so many times.
Remember your budget—and the room you have to maneuver—and stay within it. If you use all your budget, that’s fine. It may be totally worth it if you get the land you are after.
Price is only part of the deal, which gives you other areas to negotiate if needed. Other items that are negotiable include:
- Closing date. Remember you’ll need to close on your loan (either land loan or construction loan) simultaneously, so make sure your lender is confident he or she can meet the deadline. You don’t want to lose your land at the last minute because the lender wasn’t ready to close.
- Concessions, such as including or excluding some item that exists on the property but isn’t really part of the real estate, such as equipment or supplies. That could mean a tractor or a small mobile home or a shed with a bunch of fence posts and wire.
- Whether you or the seller will pay for a pin survey.
- What will happen in the event the property turns out to be bigger or smaller than originally thought. This may seem weird, but it happens, and the difference seems to always be that the property is a bit smaller.
I once negotiated a deal on what was advertised to be an acre and a half of commercial property. The seller wanted a price that was more than market value and more than my budget.
On closer inspection, he was counting the area of land that extended into the right-of-way for the highway the land fronted on. When I recalculated the area for him, we agreed on a new price that still aligned with his perceived value per square foot, but fit my budget. We made the deal.
Once you’ve negotiated the contract, you can proceed with your survey and finalizing your loan, and then you’ll be ready to close.