LandThink » Due Diligence

The Right 20 Questions for Land Buyers

Jonathan Goode — Tue, 20 Mar 2012 14:28:33 +0000

What are the right questions for a buyer to ask when considering purchasing a rural piece of land? It all depends on the objectives the buyer has in mind when making their purchase.

A recent article on LandThink entitled, “Top 20 Questions for Land Buyers” garnered a lot of attention and created quite a bit of controversy among LandThink readers. I read many of the comments, and started thinking about what my list of questions would look like as I perform due diligence for myself or my clients when considering a property. That list would need to be tweaked a little depending on the objective for the purchase. For example, a person considering developing a tract into a subdivision on a river would have some significantly different questions to answer than a person merely buying a rural retreat for their family. So the following list would be my jumping off point for most buyers or rural tracts:

How is the property accessed? (Road frontage, deeded easement, etc..)
Are there any water features on the property? (rivers, creek, lake, springs)
Are utilities available to the property?Ease
What is the timber like? (stand types, age, planted or natural)
Has the property been surveyed? (Are boundaries marked?)
Who are the neighbors surrounding the tract?
Can I get a clear title to the property with title insurance?
Do the timber, mineral and water rights convey with the sale?
Are there any easements on the property? (adjoining owners, conservation, utility)
Are there any known environmental concerns or latent defects with the property?
How is this property zoned? (agricultural, residential, commercial?)
What are the annual property taxes?
Have the owners received notice from any governmental agency about possible assessments or actions in the near future that would affect this property?
Will the property be conveyed subject to covenant and restrictions? (If so, what are they?)
How does the land lay? (slopes, bottomland, elevation change, etc…)
Are there internal roads and trails?
Do all of the improvements to the property convey with the sale? (gates and fences, shooting houses, out buildings, etc…)
Does the land drain well or does it stay wet for much of the year?
If I had to sell this property again in a year, is it desirable to other potential buyers?
Can I pee off my porch in privacy?

Buyers that are considering purchasing land for growing crops would also be concerned about things such as:

What is the corn grain yield per acre?
Is it possible to irrigate with a center pivot?
Is an irrigation permit available from the Army Corps of Engineers?
What is the soil profile of the property?
Where are the nearest grain processors?

An investor purchasing timberland for their portfolio would ask questions like:

What is the site index of the land?
Is any of the timber merchantable now?
Is more than 70% of the property sloped suitably for growing and harvesting timber?
Where are the nearest wood outlets and mills?

The list could go on indefinitely for developers, hunters, farmers, investors, and survivalists. The point I am trying to make is that you need to know what your objectives for owning a rural property are before you can even know the right set of questions to ask. This is one reason a buyer should engage the help of a competent agent when purchasing a rural property. Having someone working for you that knows the right questions to ask can save you thousands of dollars and make your transaction much safer and pain-free.

4 Things You Should Do BEFORE You Shop For a Rural Property

Jay Frazier — Wed, 11 May 2011 13:48:17 +0000

When someone decides to buy a rural property, frequently the first inclination is to get out and “go shopping”. Viewing properties is usually fun, especially when they are located in the country and the sun is shining. But making that your very first step could lead to disappointment along the way. Unfortunately, I often meet folks that have only a vague idea of the steps involved in the real estate shopping process and as a result quickly get frustrated with the endeavor. To avoid such frustration, there are four distinct steps that buyers should consider to prepare for serious shopping.

1. Choose Your Price Range

Step one is so important yet many buyers procrastinate because it’s just not fun to get pre-approved for a mortgage. Yes, it’s certainly more exciting to look at properties and dream than to have your mortgage banker or accountant tell you the cold hard facts, but skipping this essential step will only lead to disappointment later. There are few things as disheartening as having your heart set on a property only to find that you just can’t swing it financially. Knowing what you can afford will help you shop with confidence. You’ll also save time by only concentrating on the properties that are within your budget.

2. Choose Your Area

This second step will require you to spend some time online and in your car researching the area where you want your property to be. Too often people short cut this step and as a result they spend days looking at properties in a certain location only to find that they like a different area better. One example is the Driftless area of Southwest Wisconsin. I frequently meet people that are completely unaware of the rugged beauty and reasonable prices just a few hours from their front door. A little time spent exploring different areas would have revealed this hidden jewel to them before they spent days looking elsewhere.

Some things to consider when doing your research are:

A) How far are you willing to drive from your principal residence? A property is of little good to you if you don’t use it.

B) What are your preferred recreational activities? Is there opportunity to enjoy the activities in the area?

C) Will your friends or family be willing to join you there? Too often I see buyers hoping to use a property to reconnect a family only to find that the family members seldom make the trip.

D) Do you like the communities in the area? Second homes often turn into primary residences at retirement so will you enjoy spending more time there?

A little time spent researching various location options will help you feel confident that there isn’t something better for you just over the horizon.

3. Choose Your Agent

Once you have an area selected for your recreational property or second home, it’s time to choose an agent to work with. While some people just call the agent that is on each for sale sign, most buyers find that working with a single agent is to their advantage. When you work with several agents, each one may pressure you to buy their listing instead of considering the best property for you.

When a buyer is committed to working with a single agent, it allows that agent to focus on the buyer’s needs and provide service without the pressure to buy any certain property. Most agents have access to the listing info for all of the available properties in the area so your agent can work with you on virtually any property you are interested in. Enlisting your agent in writing as your buyer’s agent allows him/her to represent you (not the seller) in the transaction and allows them more freedom when advising you.

Choose an agent that can provide the proper tools (i.e. GPS, mapping, ATV) to help you get a really good feel for each property you view. You’ll also want an agent that is experienced in rural property transactions. You wouldn’t expect a medical malpractice attorney to be as familiar with divorce proceedings as a family law attorney. Similarly, an agent that specializes in urban properties won’t be as familiar with the intricacies of rural properties as an agent that does it on a daily basis. Even as I write this, a fellow agent commented to me in exasperation “Is there ever a transaction that is easy any more?” The fact is that rural real estate has changed a lot in the last few years and “perfect” transactions are a lot less common. Having an experienced agent representing you can mean the difference between obtaining your dream property and a lot of disappointment.

4. Choose Your Priorities for a Property

Once you have an agent that you’re comfortable working with, it’s time to have a good heart-to-heart talk. To help you find the perfect property, your agent will need to know how much you can spend and as many details about your ideal property as you can provide.

A list of priorities is also helpful when you start visiting properties. In some cases you just won’t find everything on your “Perfect Property List”, so decide which features are absolute requirements, and which ones you could live without or add after the purchase. Look into the future especially if you intend to keep the property long term. Will it still work when you retire and could it be modified to meet your needs as you age? Finding the perfect property is often a process and your wants and needs may fluctuate slightly as you shop. Be sure to keep your agent abreast of those changes so the properties he/she suggests are relevant to your current desires.

With these simple preliminaries out of the way, you will be able to enjoy the property buying adventure. Before long your agent will introduce you to a property that you fall in love with and want to pursue. He/she will be there to guide you through the negotiation process, inspections, permits, surveys, title commitment, etc. With the proper preparation, you’ll look back at it and say, “That went well.”

Notes from the first LandThink Summit

Curtis Seltzer — Tue, 12 Oct 2010 12:26:11 +0000

I represented the buyer’s perspective at the LandThink Summit at the Gwinnett Center in Duluth, Ga., last week. The four buyer guidelines I wanted the audience to remember are:

Buyers should resist making land investments on the basis of first impressions and positive emotional reactions;
The key to controlling risk and understanding the assets and liabilities in a land investment is for a buyer to thoroughly research the property in all of its dimensions, a process I call “scoping,” and which is commonly referred to as “due diligence”;
Buyers should use a value approach to investing in land in which they look for cash or cash equivalents (such as, merchantable timber, depreciation, conservation easement potential for tax benefits, other ways to monetize environmental attributes, income potential and sale of an unwanted parcel, etc.) and ways that the property can finance its own acquisition to a significant degree;
Buyers should determine their “buyer’s price,” what the property is worth to them as an investor in terms of its assets, liabilities, risks and uncertainties and in light of their plans for the property and their financial and other resources. If the seller will sell for the buyer’s price, the buyer is safe. If the seller will not sell for the buyer’s price, the buyer should look for another property.

My answer to the question put to me — Land Investment: Now or Later? — was Now. It still is.

I say this for two reasons.

First, all properties can be researched broadly and deeply, though many aren’t (which is how buyers get in trouble). States impose different disclosure requirements on sellers of land, but the general requirement across the country is minimal. Buyers must ask for disclosure and depend on their own resources to research their target property.

With a little money and some time, a buyer can thoroughly understand a land deal. When this occurs, non-systemic risk is removed from the investment, contained, minimized or otherwise provided for.

Second, individual buyers can’t do much, if anything, about systemic risk affecting a land investment…or most other investments. Systemic risk involves the national and global aspects of finance, economics, trends, environmental issues and so on. It might be possible to predict a short-term move in commodity prices or interest rates, but mid-term and long-term predictions are souped-up guesses based on history and current circumstances. I think some significant part of economic history is no longer very predictive, particularly as it applies to the American economy. This means, I think, that land investments must be made in a context where systemic risk is largely unknowable and forecasts are probably highly uncertain.

The best that I think an investor can do with systemic risk is to price it in to the investment decision. Calculating a buyer’s price that factors in systemic risk will help a buyer analyze a decision, but it won’t protect against systemic catastrophe, such as a war or protracted drought.

The buyer’s focus should be on non-systemic risk, that is, the property-specific risk that the buyer can deconstruct, understand and price in through research.

My reading of the last couple of years is that political systems in developed countries have come to an informal agreement that economic systemic risk should be managed when market forces push the trend line either below some scary bottom or above some scary top. Within a not-very-well-defined band of tolerance, trends will be allowed to fluctuate according to market forces. Whether this should is operationalized is anybody’s guess, along with the details of putting it into effect.

I think we saw evidence that the American political system will not allow too much crash, a trend that goes below the bottom of the band of tolerance. Discussions are under way as to whether and how some managed cap might be applied to the bubbles and exuberance that push the trend above a much-harder-to-define top band. It may be that we end up with no limits on the top and some on the bottom.

If my reading is more or less correct, land investors may find themselves operating within a sort-of managed band of tolerated ups and downs. That, to me, is okay. Systemic risk is not eliminated, but the highest ups and the lowest downs will be subject to certain public, preventive interventions. It’s probably politically easier to intervene on a downward trend than it will be to cap a line going up. The degree to which these interventions succeed cannot, of course, be predicted or even agreed on in hindsight.

There exist non-systemic risks that no amount of pre-purchase scoping can uncover. I can’t guarantee that a 1,000 MW coal-fired power plant won’t be built 15 years from now across the road from a 200-acre farm that I’m scoping today. But most non-systemic risks can be figured out.

Now is likely to be a better time to buy than later. Prices will move up eventually, even if they haven’t bottomed yet. Interest rates are as low as they will ever be. Motivated sellers are as motivated as they’re going to get. Buyers are hanging back, which means that a motivated buyer equipped with the will and skill to investigate a target property will do just fine buying a thoroughly scoped property today, bought at a buyer’s price.

Want to sell real estate? Then don’t play hide the ball

Curtis Seltzer — Mon, 30 Aug 2010 17:39:08 +0000

Every so often I get fed up with having sellers play “hide the ball” with buyers, including me. Since, unlike residential housing, so few state disclosure requirements apply to land, sellers and their brokers may decide that their best marketing tactic is to disclose as little as possible. That approach may have worked in the champagne days of the past, but I think it’s self-defeating in times like these.

I emailed an inquiry to a seller of some 15,000 acres in the Southeast not long ago. The seller’s “marsh” was pitched as a timber tract. The seller’s property manager emailed me a “map” and excerpts from a timber cruise done more than a decade ago, about the time when the current owner bought it. Let’s say the price was $2,500 an acre.

The tract was part of a very large swamp. Some of it may have been marshy, but my guess was that most of it was very swampy.

A reputable outfit had done the timber cruise. But it appeared that the cruise was done for the current owner in advance of the tract being purchased. I could not tell from the materials whether the tract had or had not been cut after the cruise date. My guess is that it had been.

I suspected that some portion of the merchantable timber counted in the cruise would be on ground too wet to actually harvest. Such timber should not be counted as merchantable, because it’s either economically or technologically out of reach. No definition of operability was provided. I could not determine whether merchantable timber on inoperable ground was counted in this cruise.

I asked whether the seller owned the minerals. The property manager said he didn’t know! He said he would find out and get back to me, which he never did.

A fee-simple sale — where the seller owns and conveys all surface, subsurface and air rights in the property, less only recorded restrictions — is vitally important to a buyer. Subsurface minerals can be a source of lease and royalty income. If the surface owner doesn’t want mineral development because of its surface impacts, he should stay away from property where the subsurface minerals have been split from the surface, either by lease or sale.

There’s another reason why fee-simple is important, which has to do with a conservation easement. Mineral ownership is almost always required for any conservation easement applying to the surface, except when the applicant can show either that minerals aren’t present or that they are of no commercial significance. A conservation-minded buyer would not be interested in this tract if an easement could not be arranged.

The seller’s email contained what was represented to be a “timber type map” that stated in very small print: “Property lines…drawn from a combination of survey plats and aerial photos and are not guaranteed to be exact.” A state-registered forester drew the map. A buyer could easily mistake this map for a survey. When I asked how the seller’s acreage figure had been calculated, I received no answer. I also received no answer to my question as to whether boundaries were marked on the ground.

The property manager informed me that no boundary survey existed, and the “price could be adjusted based on final acreage as determined by a survey.” Getting boundaries settled and fixed in the field is a seller responsibility in my opinion. When a seller doesn’t have a recorded survey, the least that can be offered to a buyer is a computer-generated deed-mapper printout on a topographical map that follows the calls in the seller’s deed. When a seller proposes to me that we split the cost of a survey, I am always inclined to answer, “Sure, as long as we lower the asking price by my share of the survey’s cost.”

The “timber type map” showed two parcels, amounting to several hundred acres, with disputed ownership. I asked the property manager whether any boundary disputes still existed. He chose not to answer this question.

I asked whether any federal endangered, threatened or sensitive (ETS) species — or their habitats — were found on the property. He replied: “To our knowledge, there are no ETS on the property.” I spent five minutes on Internet research looking up the website for that state’s natural-heritage division and discovered three endangered species and more than a dozen threatened and sensitive species were present in this county, likely in this area and probable on this tract. Maybe the seller’s representative actually did not know this readily obtained information. Maybe, he chose not to know. Maybe he knew and preferred not to say.

Was the seller conveying with a general warranty deed or something less? The answer—“The deed structure is to be determined.”

I asked what the tax-assessed value and annual tax hit were. No answers.

I asked whether any zoning or land-use restrictions applied. No answer.

I asked whether the seller had a mortgage on the property. No answer.

I asked whether the tract joined public land. No answer.

I asked whether the property would convey with any encumbrances or reservations of interest. No answers.

Sellers have three ways of dealing with due-diligence questions from buyers: 1) stonewall and provide as little information as possible; 2) provide all information in the seller’s possession and identify items that require additional research; and 3) some middle ground between providing almost no information and providing everything.

When I run into a seller playing hide the ball with me, alarms go off very loudly. Something is being hidden—maybe a lot of things. Non-answers of the type above discredit a seller in my eyes. I trust nothing after that kind of response. And, generally, I don’t waste time with sellers who play this game.

With markets the way they are, sellers should consider leaning far more toward full disclosure and away from hide the ball.

And if a buyer wants to test a seller, he should ask what the seller paid for the property. Some states require that this figure be made part of the public record. It’s a required due-diligence question, whether or not a seller chooses to answer. When a seller does answer, I’m encouraged to go forward. It’s a sign that the seller wants to sell.

What might landowners learn from the Gulf oil spill?

Curtis Seltzer — Tue, 29 Jun 2010 12:26:54 +0000

As I write this at the end of the first week in June, the cost estimates to clean up the BP oil-blowout and compensate for damage are over $30 billion, and going up. Some portion of that will find its way to beachfront property owners whose land and/or businesses were negatively impacted.

Beachfront landowners could have their properties permanently devalued if the oil stays around over many years as it has in Alaska, as well as by buyers who fear future blowouts and long-term effects.

Environmental disasters — some caused by human activity, others not — often ruin or devalue property. The killing of the buffalo on the Great Plains in the late 19^thCentury certainly ended the utility of those lands to Native tribes and ended their way of life. We are familiar with the many ways that land value has been discounted by wildfires; floods; water pollution from industrial plants (Love Canal), waste products and agriculture; coal-waste mismanagement (Pittston’s 1972 gob-pile failure in Buffalo Creek, W.Va.; Massey Energy’s Martin County, Ky., sludge spill in 2000; TVA’s Kingston Fossil Plant’s fly-ash spill in 2008); land adjacent to the approximately 1.4 million acres that have been mined through mountain-top removal methods, principally in East Kentucky and West Virginia; landslides; sinkholes; underground coal fires; surface subsidence from underground mining; hurricanes; tornados; water issues from land-based oil and gas drilling; volcanic eruptions, acid rain from hydrocarbon combustion; timber diseases and pests; and on and on.

Disasters happen, though episodically. Some can be expected in certain areas. Hurricanes routinely smack the Gulf Coast and the Southeast Coast, and tornados are more frequent in the southcentral states, on both sides of the Mississippi, and especially in Oklahoma. Heavy rains produce floods in mountainous areas and then downstream.

Environmental assessments may or may not include discussions of all the environmental risks a buyer faces. My experience with these assessments is that they focus on the sale property itself, and not much, if any, on its surroundings.

Here are a few guidelines that might help land buyers think about environmental risks in property they’re evaluating for purchase.

Research the past, present and future.

Buyers have to look in three time dimensions to assess the type of environmental risks a property presents.

The past and present can be accessed through documents, newspapers and conversations with neighbors, public officials and the buyer’s local lawyer. The buyer has to know the questions to ask.

For example, I live over a karst formation. Though no sinkholes are visible on my acreage, the caves in the limestone beneath us can carry pollutants a long distance and sinkholes can appear. Its good dirt for pasture and timber, but you might not be able to have a new pond seal unless you line it with clay. A buyer should ask me about how karst might affect water quality and reliability, among other things.

Research below, above and next to.

Surface-land values are at risk when sub-surface minerals are severed in ownership and present prospects for mineral development. Old underground mining works may underlie the surface, which can cause surface subsidence, floods and smoldering fires.

Where possible, buyers should purchase land in fee simple, with all rights included in the sale.

The buyer should be aware of air-quality issues that might affect the seller’s property. What is the property downwind of? I recently recommended to a client that she not purchase property in a West Virginia county along the Ohio River, because she was concerned about air pollution. Several coal-fired power plants were located west of the county she preferred, and EPA data showed relatively poor air quality in that area.

If you’re in a windy spot, might you face the prospect of a large wind farm being developed next door? Has your seller, or the neighbor, sold wind rights? Wind turbines may or may not be a negative aesthetic; some buyers view them as eyesores.

Consider what can be “carried” above the earth’s surface—fog, rain (or not rain), noise, smells, pollution, snow, dusts, light and so on. Think about how each might affect your target property.

Nuisances from neighboring properties — loud noise, barking dogs, smells, night activity, high-intensity outdoor lighting, wind-borne “pollution” (like GMO seeds or Roundup-resistant weeds) and teenagers — are frequent complaints from new landowners. As buyers, they did not “see” these irritations on the sunny Saturday afternoon they visited the property. Buyers need to look beyond the property they’re buying to protect themselves against unpleasant surprises.

Research the site, the immediate surrounding area and the region.

A buyer can see what’s in front of him on the day he visits, but he needs to think about what might be around this property in the future, both adjoining and further away.

Most buyers quickly glance at neighboring properties. A much smaller number ask specific environmental questions about neighboring properties, and even fewer ask about what goes on a couple of miles away from the seller’s tract.

The Gulf beaches have been affected by a regional environmental accident that is miles away. Water and air risks need to be considered regionally from the seller’s property.

Understand that improbable events happen, and risk is not always subject to preventive management.

Low-probability events — a 200-year flood, an oil spill on an inland waterway, a 10-year drought, a bug that destroys the money trees in your timber stand — always happen, but not often. When your property research indicates some historic pattern of occurrence, you might want to look elsewhere.

Any property near a large industrial site must be approached with great caution. We cannot assume that our system of public regulation, inspection and enforcement will prevent environmental accidents. We cannot assume that companies are not pushing their envelopes on environmental safety or cutting corners.

Buyers need to ask themselves what risks are being assumed with the purchase of a particular property. Probabilities are difficult, if not impossible, to calculate. Therefore, a buyer should assume that a not-very-probable event will befall the property in some form or another, sooner or later. I think that’s one lesson of the BP spill that landowners should learn.

Finally, buyers should consider that the likelihood of being made whole after an environmental disaster is not high. A percentage of damage will be paid in most cases. But it won’t cover long-term issues that persist after the compensation check is cashed. And it will take a long time to get paid.

At some level of consciousness, beachfront homeowners on the Gulf knew their property was at risk from a well blow out, or a tanker spill or a rupture in a sub-sea pipeline. They bought anyway, because location trumped caution. Maybe, it’s time for buyers to rethink that balance.

Would a seller fib to a buyer?

Curtis Seltzer — Tue, 19 Jan 2010 13:43:07 +0000

Buried on an inside page of Thursday’s Wall Street Journal (January 14, 2010) was a headline that snagged my jaded eye: “What Home Sellers Don’t Tell Buyers.”

Reporter M. P. McQueen says that the tough market of the last few years has “…made buyers more wary…” of “fibbing by home sellers.” Despite disclosure laws in more than 30 states, McQueen writes about a “gray area involving the disclosure of problems the seller may not know about….”

McQueen writes that the most common “misrepresentations” problems are: 1) disputes about property dimensions; 2) infestations, mold or radon in the residence; 3) flooding; 4) neighboring nuisances; and 5) planned projects that fail to deliver promised amenities, like a community pool.

I’m not sure that I know the difference between a fib and a lie (in its simplest form of telling a falsehood), or a fib a lie and a failure to disclose a material defect in what a buyer is about to purchase, or a fib and a lie that deliberately distorts a property’s assets or liabilities without exactly saying something that isn’t true. These are not “gray areas,” in my opinion, and I’m not generous enough to call them “fibs.”

Buyers, of course, also have motive, opportunity and means to be equally fibby.

They often provide sellers with false information regarding their financial strength, need for seller financing and intentions for the property. These, too, can be misrepresentations or outright lies. The difference, I think, is that sellers deliver a “good” in the transaction that is not what the buyer thought he was purchasing whereas when, all is said and done, the buyer almost always gives the seller a lump-sum cash payment. The seller is getting 100 percent of what was agreed; the buyer may be getting something less.

The areas of seller “misrepresentations” in country real estate — including lies, distortions, concealments, misdirections, silences, failures to disclose, white lies, crossed fingers andfibby-wibbys usually involve the following:

Acreage. The buyer needs to know the specific acreage that the seller claims to own and does own. The buyer can start by looking at the acreage number in the seller’s deed. (A title search will have to confirm whether that number is accurate, which is a different story.) The buyer should have a surveyor run the deed’s legal description through a mapper program to determine whether the “calls” generate the deed’s acreage and whether the calls close, which indicates accuracy. Then the buyer should compare the deeded acreage with the boundaries in the field to make sure that all of what is deeded will in fact convey without disputes with neighbors. Tax-map acreages may or may not be accurate. The deeded acreage should be the same as shown on a survey and on a mapper program.

Access. A property that is accessed by a road that crosses the property of one or more parties is often embellished with seller-supplied legal opinions. The buyer should insist that such an easement (or right of way) be in writing, recorded and be of sufficient width that large trucks can use it. If the recorded easement contains restrictions, the buyer must be willing to live with them.

Roads into properties are often legally informal. A permission to use a road does not constitute a legal right, and it can be revoked at any time. If a seller says that he “owns” an access road by “prescriptive easement” or “necessity,” a buyer needs to understand that it will may take a court case to establish these claims and the buyer, now the new owner, may not win. Talk to a lawyer if that’s what a seller says to you.

Nuisance and annoyance. Most sellers do not disclose issues with neighbors, such as unusual levels of noise, odors, behavior and night-time light. A new owner has the option of taking such an issue to court as a nuisance, but success is unlikely. More often, the new owner is dealing with an issue that is an annoyance, but not a nuisance. In either case, buyers need to ask about both.

Value of assets that the buyer cannot immediately and cheaply confirm. Minerals, merchantable timber, rental income from and rental demand for pasture or crop land, water rights and personal property to convey (farm equipment and materials) may be difficult to value, even with expert help. An inexperienced buyer often takes the seller’s word for such values; often not such a good idea.

Problems that may not be manifest but are not seller-concealed. Floodplain, wetlands, navigable waterways and habitat for listed species constrain what a landowner can do with the property and can, in the case of floodplain, present a threat. Sellers should be asked to disclose what they know about such environmental issues.

It’s easy for a buyer not to ask about strong episodic winds, earthquakes, forest-fire threats, diseases/pests in timber, tornados, chemical residues from past use (lead and arsenic ground contamination, for example), buried stuff, karst, ground instability, among others. Don’t take the easy path.

Buyers lose nothing by including language in their purchase contracts that make the purchase contingent on the seller disclosing all material and latent defects in the property and conditions in and around the property that could negatively affect the buyer’s use, possession and enjoyment of the property, including but not limited to, the following:

Make sure that the contract includes a warranties-to-survive-the-contract provision.

Get help with this language from you local lawyer.

Buyers are responsible for doing adequate due diligence. Sellers should be expected to be honest about what they say, don’t say, what they know and what they should reasonably be expected to know. A fibby seller should be made aware that he risks blowing up a deal or a post-deal lawsuit.

If the seller tells you to go jump in his lake, ask him if it’s stocked with killer guppies. Resistance to disclosure reveals a lot.

Finding and Buying the Right Property for You

Robert King — Fri, 04 Sep 2009 13:41:52 +0000

Many people start out looking at property without a clear idea of what it is that they are actually looking for. If you will follow the process outlined below, the entire process should be easier, more systematic, and predictable. It will save you time, effort, and money to take a logical approach to the locating and buying process.

1. What are your goals in buying a property? Investment, income, recreation, hunting, peace of mind, or all that and more? This is the first question you should answer when you begin the process of looking for a property.

2. The next step is to find out what type of properties that are available and meet those goals.

3. Then you should figure out your budget and how you will fund your purchase. These two things must be done together. Both will vary some, based on the other. For more information on how to pay for your investment see this post, “Land Purchase Funding Options.”

4. Once you have these taken care of, you need to figure out where you would like this investment to be. This area can be very limited or very open. I would suggest leaning toward a more limited scope though. Too broad of a base will lead you to feeling a bit overwhelmed and under prepared.

5. Next you should visit the area. Spend a weekend in the part of the world you have selected and see if you like the area and if it meets your goals.

6. Now its finally time to start screening properties. The first thing I suggest is searching the Internet. Many of you are already at this point. Please, may I humbly ask you to go back, and complete steps 1-5 before going on. You may find it helpful to write down your findings from each of these steps. There are many search sites out there. Look around. This is very important to educating you about the current market in your chosen area.

7. Once you have done all of this, contact an agent. Find one that specializes in land transactions. Let the agent know what properties are of interest to you and why. Let him know the answers to the questions in the first 5 steps. A good agent can serve you best if he has a complete knowledge of your goals, budget, funding, needs, likes, and dislikes.

8. In step six, you should have prepared a list of many, many properties. Once you have made this list and given me the information in step 7, your agent can help you screen out some properties and screen in others.

9. Then schedule a time for first meeting with the agent. This is a time for you to look at potential properties and to get to know your agent. Looking at a few properties with you will help calibrate your agent as to what you like and dislike. It may change your mind about some things as well.

10. It may take several meetings to find a few potential candidates. Once you have looked at properties that you really like, narrow the list to two or three that meet your needs best. Please keep in mind that there is no “perfect” property. All properties have issues and the likelihood of you finding everything you want, exactly the way you want it, is very slim. Find those that fit the mold best.

11. Then look carefully at these properties. Spend time investigating these properties. Get a feel for what the property is and what it is about. Don’t forget to look around the area surrounding the property. Compare the property to the goals you set out in the first step. If it fits these goals, the location is right, and it is within your budget, then it is time to compare it to the others on your shortlist.

12. Rank the properties in order of your preference. Then figure out what each property is worth to you…regardless of the market, regardless of the listing price. Each property will have a personal value to you. A value that is consistent with how you will use the property. This might be more or less than the listing price. I would suggest that you go after those that you value more than the listing price, or at least the ones that are as close as possible.

13. Now is the time to really turn the top candidate inside out. Make doubly sure it is the best fit for you. Make sure there are no issues that you cannot live with. Ask any questions that you have left at this point. Understand the property. This is where you do most of your due-diligence. (making sure the property is suitable and what it appears to be)

14. Now you are ready to make an offer. Do this in writing in the form of an offer to purchase. The seller will take an offer more seriously if it is a written one. I cannot tell you what to offer. I can tell you that most buyers do not offer their top-dollar right off the bat. Most buyers expect a counteroffer from the seller. You should expect one too. Don’t let the offer process get to you emotionally. This is a business transaction and should be treated as such. The buyer and seller are both out to get the best deal for themselves. You should not blame a seller for trying to sell a property for everything that he can get out of it. That does not mean that you must meet the seller’s price though. Remember that not all negotiating is on price. There are many conditions, terms, and other things that can come into play. Do not overuse these things, but protect yourself as best you can as well. Your agent should give you some guidance here.

15. If you have an offer and acceptance, move on to step 16. If not, continue the offer process until you have reached an agreement or ruled the property out. You should not offer more than the property is worth to you, or you can justify logically. If you rule the property out in the offer process, go back to your list and start at step 13 with the 2nd property on your list.

16. Contract! Once you have an offer and acceptance you will have a written, binding agreement to purchase the property, as long as the terms and conditions outlined in the contract are met. Now you should begin doing anything that the contract requires you to do. Getting financing, a closing attorney, inspections, whatever the contract calls for. Again, a good agent will help you in this process.

17. Once all of the terms and conditions have been satisfied and you are ready to fund the transaction, it is time to close on the property. Your agent will work with you, the closing agent, the seller and anyone else to schedule a time or course of action to get the closing completed. We complete many transactions via overnight delivery services, fax, and email today.

18. Close on the property. Get the keys, transfer utilities, make sure you are properly insured. Find out how the property taxes are handled and make sure you have a good understanding of that process.

19. Enjoy your new land investment!

Again, this is a logical process to proceed through when buying a property. Many people are overwhelmed by the process but it need not be something that people fear or dread. Taken one step at a time, you will find the property that is right for you, at the right price for you. There are many of these steps that I will need to be there to help guide you through. No worries!…An agent who is experienced and specializes in land transactions has been there, done that! You should know, however, that every transaction is different. I learn new things every time. 10+ years of experience has taught me many of the pitfalls to avoid, and the easiest ways to get from the beginning of the process to your owning a piece of rural property.

93 Plus Potential Land Disclosure Issues

Lou Jewell ALC — Wed, 22 Jul 2009 14:00:46 +0000

Anyone involved in a typical Land transaction, leasing, buying or selling may be exposed to 93 plus potential Land issues. For years now I have advocated for need of a “Land Disclosure” form throughout our country. So far only four states have such a document available for the real estate industry and they are Arizona, California, Georgia and Tennessee.

Most states have “Residential Property Disclosure” forms which are executed at time of the listing by the sellers and reviewed and signed off by the buyers during the offering process. We recommend these forms to also be used even in cases where you are selling without the assistance of a real estate firm.

North Carolina’s “Residential Property Disclosure” form has only twenty-one issues, far less than the Land form who should have and fewer than other comparable forms found around the country.

Here are a few examples of the ninety-three plus potential Land Disclosure issues currently in place by the four states previously mentioned.

“Are you aware of any?”

Encroachments
Easements
Endangered species: Plant Animal
Flooding whether currently or previously
Forfeiture of rights (mineral, timber, development, etc.)
Government sponsored clean-up of the property
Goundwater contamination
Illegal uses (manufacture of liquor, methamphetamine, marijuana cultivation, etc.)
Landfill operations: legal or illegal or previous planned
Mineshafts or tunnels
Noxious fumes or odors
Pipelines (natural gas, petroleum, etc.)
Well water contamination: current or previous
Conservation Easements
Stream Restorations
“Are there any Gravesites on the Property?
“Are there any animal cemeteries or animal burial sites?
“Are you aware of the presence of:”
Asbestos, Benzene, Fuel/chemical storage, Paint (Lead based paint) (Other paint/solvents), Methane gas, Pesticides, Radioactive material, Radon gas, Underground storage tank(s), EPA Phase I, II or III studies.
“Are you aware of any past or present issues or problems with any of the following on the property?”
Soil settlement/expansion
Drainage/grade
Earth Movement
Erosion
Flooding
Fissures
Dampness/moisture other than around rivers, streams, lakes, etc.
Sliding
Wetlands or previous wetland areas
Do you have a survey? When was it done? Who did the survey? Do you have a copy? Has it been recorded?
Is or will it be subject to protective covenants, conditions or restrictions?
Is the legal owner(s) of the Property a foreign person or a non-resident alien pursuant to the Foreign Investment in Real Property Tax Act (FIRPTA)?
Is the Property located in an unincorporated area of the county?
Is the Property subject to extra territorial jurisdiction?
What is the current zoning of the Property?
Has the property been timbered in the past 25 years?
Harvest monitored by a Registered Forester?
Timber replanted after the harvest with (species)
Is the property in an Agricultural or Forest tax deferment program?
Coming soon “Carbon Credits” that will also need to be disclosed.

Land can have a lot of issues and knowing all the aspects involved is critical for all involved in any of these transactions.

The Real Estate Industry “Realtor®” program has an established “The Realtor® Code of Ethics” as a guideline for practicing real estate. This code has seventeen articles. Article 11 states:

“The services which Realtors® provide to their clients and customers shall conform to the standards of practice and competence which is reasonably expected in a specific real estate disciplines in which the engage; specifically, residential real estate brokerage, real estate syndication, real estate auction, and international real estate.” (Our Professional Standards Committee voted unanimously in Washington in May this year at the NAR Mid-Year Convention meeting to include the four letter word “Land” in Article 11 of the code, subject to the Executive Committee final approval this fall).

“Realtors® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth.” (Amended 1/95)

See: http://www.realtor.org/MemPolWeb.nsf/pages/Code

Unfortunately when one goes to real estate school around the country and takes the 160 +/- hours of classroom instruction and testing, they are not taught about Land, Commercial real estate, Property Management, etc., only about residential property and real estate law. Do not assume that all real estate agents have the knowledge in the specific areas of brokerage.

If you are buying or selling Land or Farms or Ranches, make sure to find a member of the Realtors Land Institute to help you in this process. Specifically look for an Accredited Land Consultant, their Designation for those experts in Land who have worked hard to achieve it.

See: http://www.rliland.com for the nearest RLI agent and the RLI programs and educational opportunities.

Consult with a Land attorney if you plan to create your own “Land Disclosure” form. If you are a real estate agent, please check with your Broker-in Charge before creating or using even if your state has a standard required “Land Disclosure” form already approved. The potential risks and liabilities created because of non-disclosures can be very costly.

Does a buyer need a survey for country property?

Curtis Seltzer — Tue, 16 Jun 2009 13:01:55 +0000

The question in the title of this column can be answered in the following way: yes, no and maybe. It depends on the circumstances.

A recorded survey done after 1950 — to choose an arbitrary date — by a licensed surveyor should prove to be accurate and competently done. Earlier ones may also be just fine. The drawing produced by the surveyor will reflect the boundary description as set forth in the owner’s deed with whatever corrections were necessary. The acreage enclosed should be a trustworthy number. The older the survey, the more vague and error-prone they’re likely to be.

A survey sets forth the legal description of a property, using a drawing to locate boundaries and other important features like waterways, improvements, fences, roads, easements and encroachments. Some real-estate transactions require recorded surveys, which would typically be the seller’s responsibility.

A deed’s boundary description may contain an error. Some are simple matters of mistakes in copying, but others are serious and substantial. The surveyor should catch errors of both types.

If no survey is available, the buyer needs to have a surveyor examine the legal description of the boundaries and plot the calls to check for errors in acreage and location, among other things.

The surveyor is likely to use a deed-mapper computer program to draw the deed’s boundaries on a topographical map as well as plain paper. The program will calculate acreage contained within the drawn boundaries. It will also determine whether the deed’s calls close. If either acreage or closure is off, something is wrong with the boundary description. At that point, the surveyor will need to research the chain of past deeds to find the error.

A buyer should not need to repeat a recent recorded survey.

Buyers should be wary of unrecorded surveys. A conceptual drawing showing division lines even those marked on the ground is not a survey. A computer-generated map of boundary lines is not a survey.

A buyer can hire a surveyor to run the deed descriptions through the deed-mapper program without having to pay for a full survey. I’ve often seen deed-mapper plots reveal that the acreage enclosed by the deed’s boundary description is either more or less than the acreage figure set forth in the deed.

The seller may or may not be aware of a discrepancy between the acreage the deed specifies and the acreage the deed’s description actually contains when plotted.

Assuming that the acreage described in the deed matches the acreage figure used in the deed, the next task that a surveyor can perform is to walk the property’s functional boundaries to determine whether the boundaries in the deed line up with the boundaries on the ground. This is not a field survey, in which the surveyor uses his instruments to shoot and measure every deed call.

A walk-around, usually done with boundary lines drawn on a topographical map and a copy of the deed description, is a quick look to determine agreement between deed and dirt, and whether any encroachments exist. The most common encroachment is a fence line that either fences out property belonging to the seller or fences in property that does not belong to him.

I advise clients to have a surveyor plot a deed before submitting a contract offer. The next step, if warranted, would be a walk-around. If problems exist in the deed or on the ground, these two tasks will reveal them.

I advise buyers against agreeing to split the cost of a survey as part of their due diligence during escrow. I always suspect that the seller who wants to share a survey’s cost is, at best, trying to finagle the buyer into paying half the cost of what needs to be done on the seller’s nickel, and, at worst, hook the buyer into a deal by getting him to invest his money in the seller’s property.

Surveyors may give cost estimates for a full-scale field survey at a fixed price, but I’ve generally found that they bill either on an hourly basis or more commonly at a fixed rate per foot.

It should not be necessary to pay for a survey as part of a buyer’s due diligence, but I have found numerous properties with boundary issues that a surveyor or a consulting forester has discovered for me in mapping out the boundaries and/or doing a walk-around.

If you do find it necessary to have a survey done, make sure it includes marking the boundaries on the ground. Some surveyors consider this an add-on task.

I think the best policy is to have a surveyor indicate on the survey any encroachments, but some may disagree. A buyer can point out an encroachment to the seller and ask that he resolve it to the buyer’s satisfaction. This requires a contingency in the contract that provides for the buyer at his expense to undertake a survey check (deed-mapper run) and the agreement of the seller to get it fixed.

When the buyer discovers during his research that the seller will be selling more land than the acreage number in the deed, should he reveal this to the seller? If the seller is competent, I would say no. If the actual acreage is short of the deed-specified acreage, I certainly would point it out, because the asking price is pegged to an inflated acreage number.