Like income taxes, property laws change all the time. Local zoning, land use and restrictive covenants should be checked periodically so property owners can determine what effect those conditions might have on their real estate.
Some folks move away and have management firms look after their holdings. These can range from apartment houses, to single-family homes and vacant land. While competent managers can usually solve most problems regarding improved property, keeping current with the potential of vacant land can be another story.
In many areas of the country, growth management regulations have flip-flopped the past two decades. Building restrictions that were absolutely taboo 10 years ago may now be acceptable, and vice versa. To compound the problem, some jurisdictions have not been communicative regarding current building codes. Most of the time, it’s up to the consumer to ascertain how a specific parcel can be developed, and when.
For example, there are forested areas in the Puget Sound that cannot be developed during certain months of the year because of bird migrations and nesting patterns. Eagle habitats are common, curtailing and sometimes even eliminating the possibility of building a home.
Recently, a retired couple that spends winters in Arizona and summers in Southern California wrote regarding their 76 acres of Northwest forested land they’ve owned for 27 years. The property had appreciated greatly in recent times because of a growth boom and a zoning change, but the couple thought it was still limited to 20-acre minimums. The couple did not discover until after they had entered into an agreement to sell the 76 acres that 5-acre lots were now permitted in the area.
According to the couple, an agent representing three investors had put the deal together. The investors planned to divide the property and sell parcels. The agent had several potential customers interested in purchasing the smaller parcels and stood to make sizable commissions on the sale and resale of the same property.
Under the terms of the purchase and sale agreement, the purchase price would be $400,000, with a down payment of $50,000 paid at closing. The balance of $250,000 would be paid in annual installments of $50,000 together with an interest rate of 4.5 percent per annum.
All this looked acceptable to the couple, but there were also some questionable requirements deeper in the agreement that would have been contested by an objective agent or real estate attorney:
• There was no cash offered for earnest money. The purchasers “tendered a note” for $5,000 to be paid at closing. This means the purchasers signed a document stating they would pay $5,000 when the deal closed, but no money was going to change hands until the deal was done. When so many unknowns are involved, it’s usually best to require cash as the earnest-money deposit.
• The date of closing was 120 days after acceptance of the purchase and sale agreement. The purchasers asked for this time period so that they could start, and attempt to complete, the division of the land. The purchasers have now tied up the property for 120 days with no cash.
• The transaction was to close in the offices of a closing agent selected by the real-estate agent. The closing agent (typically a title company, attorney, lender or credit union) should be familiar to the seller or at least a recognized name.
The most difficult discovery for the sellers came after the agreement was signed. The couple contacted other real-estate agents in the area and learned that property similarly divided was selling for two and three times what the couple was offered.
The couple has spent a great deal of cash on attorneys trying to determine if the agent was truly representing only the buyers. A potential nest egg had turned into a nightmare.
It has been a trying, painful year for the couple. A great deal of anxiety could have been saved by showing the agreement to a real-estate attorney or checking with two or three agents about comparable sales in the area.
Be particularly careful when you live a distance from the property and are unable to monitor what is going on around it. The value may have risen or fallen significantly since your last visit, and it’s best to seek several opinions before making any major decisions.
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