Selling Land

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

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

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.

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About the author

Curtis Seltzer

Curtis Seltzer is a land consultant, columnist and author of How To Be a DIRT-SMART Buyer of Country Property, available at Curtis-Seltzer.com where his columns are posted. He also does commentary for Virginia public radio. His new book, Land Matters: The “Country Real Estate” Columns, 2007-2009, which includes 14 commentaries on CD.

8 Comments

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  • First of all.. every element in posting an article needs to offer Relevance… the first part of relevance, in my humble opinion, would be affordability..

    How many people are out there buying 15,000 acres and where do you find such a large parcel…

    I offer parcels from 2 acres up to 2400 acres in one location in Ohio… Swamps are not a big part of most of the lands in S.E. Ohio… but creeks, rivers and lots of fields and woods.

    Now your information regarding a cruise of woods and mineral rights is relevant because everyone needs to know the worth of property prior to purchasing…

    In my neck of the woods. The Amish have already knocked on every forested parcel’s door 100 times.

    Each and every farmer knows the worth of the woods.

    Buyer beware is the best advice to be given to anyone. So Good luck to all buyers and if you are looking for Ohio.. S. E. Ohio.. I am your first phone call…

  • You’re right about being helpful to the buyer. I simply don’t understand why an owner or listing agent would be stingy with information that would help buyer make a good decision.

    One thing you have mentioned in several articles that is surprising to me is asking the seller what he paid for the property. I know it is public in some states, but I can’t imagine a seller disclosing that unless it would be to show a buyer that he isn’t making any money or actually losing some.

    In my opinion that would be like a seller asking a buyer “What is your highest and best offer?” at the outset of a negotiation. It would definitely take me by surprise to see that question actually work in moving toward a successful deal.

    Have you seen sellers that actually answer that question? If you were representing a seller would you advise them to answer that in every circumstance?

  • I agree with Jonathan’s comment. What is the underlying reason for knowing what a seller paid?

    What if his Great Great Granddad paid $.10 an acre for it in 1902?

    What if he just walked out of a closing 10 minutes ago and paid $2500/acre?

  • In most real-estate conveyances, but not all, the seller will pay tax on taxable gain. Tax, whether at the ordinary or the capital-gains rate is figured on the seller’s adjusted basis in the property. Adjusted basis begins with the original acquisition cost, which is then adjusted for capital improvements and sales, among other things a seller can do as owner. Tax is calculated on the difference between sale income and adjusted basis.

    As part of a buyer’s due diligence, it’s important to estimate the seller’s tax hit. It makes a great deal of difference for a buyer to know whether the seller will have to pay $10,000 in tax or $100,000. A buyer can offer to pay in three lifts, for example over the course of a year and two days (spread over three calendar years), which will help a seller on taxes if they are significant.

    Second, knowing a seller’s acquisition cost (and an estimate of his adjusted basis) can give a buyer a sense of how much flexibility the seller has on price.

    Third, knowing the acquisition cost helps a buyer get a sense of whether or not the tract is realistically priced. If I buy 100 acres for $100,000 today and reprice it a year from now at $250,000 (while doing nothing else to it), a buyer would have a pretty good idea that it’s not worth that price and that I have room to negotiate.

  • Curtis, that is a great answer. I think in scenario #1 a seller could conceivably benefit from that. In scenario #3 we all know that a seller can ask whatever he wants for his property, but it is only worth what someone will give for it.

    You obviously know way more about land purchasing than I do, but it seems like you work on the buyer’s side of the transaction more than the seller’s. I would encourage my seller’s not to disclose that information without careful thought as to the consequences.

    Thanks for the comment. I know you have better things to do than answer my questions.

  • Curtis,

    I read the article and was inclined to make some of the same comments as Jonathan and Ryan did. I agree 100% that sellers that want to attract buyers in today’s market should be close to full disclosure. However, I would point out that business is done differently in various parts of the country. Values in business change from region to region. From my experience here in Alabama, there is a much different expectation of the seller than the scenario that you paint. Much of Alabama has not been surveyed other than original rectangular survey. Much of it does not need it to provide good boundaries. That particular aspect changes dramatically at the Georgia line where everything is done in metes and bounds.

    My point is that hard and fast rules may need some wiggle room for the individual transaction and for different areas of the country.

    As a representative of sellers in today’s market, I recommend disclosure of all the pertinent facts about a property. I also recommend getting most properties surveyed prior to marketing. Many sellers today simply are not in the financial condition to pay for a $5,000 boundary survey though. Therefore, it is my job as their agent to present the property in its very best light.

    I try to provide enough information that a reasonable buyer should be able to make a determination as to their having enough interest to look at the property. If there is an overwhelming negative, believe me, I will disclose it prior to my spending time showing the property. On the flip side of that, since I have already provided so much information about a property, I view it as the buyer’s move to demonstrate enough interest to make it worth my time to help them with due diligence questions that can take excessive time to answer. Most of the questions you have posed above would not fall into that, but some would. Some will be regionally affected as well. All over Alabama we have issues with burned courthouses and property records. In some counties this creates some real uncertainty in mineral rights ownership. Our state law is poor in this area as well. That’s not a seller’s fault, its just the circumstances that we deal with. I cannot get an attorney to give more than a verbal opinion on mineral rights issues here in my home county. Most will tell you that you can pay them to do a $2,000 mineral rights abstract and not know any more than you did to begin with. Should a buyer hold fast to this rule when so much of our state has the same issue?

    We need to be careful in our attempts to educate the market. We need to leave room for some common sense variations. What is reasonable and prudent in Maine might or might not be reasonable and prudent in California.

  • With respect to Robert King’s comments:

    He’s right: different places have different ways of doing things.

    From a buyer’s perspective, the questions I asked the seller to answer fall into two categories. First, there are trust-building questions, like the one about ETS species. It is hard for me to believe that the sellers after more than a decade of ownership had no knowledge of ETS species and habitat on their property. A non-answer answer suggested to me that the seller was playing hide the ball. I could, of course, be wrong.

    The second type of question was seeking information that the seller would know, should know, or would know quickly. An example of this was the question about boundary disputes. Again, I was stonewalled.

    Now I can readily understand why sellers don’t want to spend time providing information. My own inclination as a seller is to provide as much information as possible in written form.

    I am amazed that tracking a mineral deed costs $2,000 with a disclaimer that you might not know anything more about the mineral ownership than when you started.

    I’ve never researched a mineral deed in Alabama, so I’m willing to be educated. The buyer needs to know whether or not minerals convey with the surface. This should take no more than an hour, if that. But, again, my experience with these deeds is elsewhere. C

  • This is a great post with good comments. I have to laugh at how Curtis tells it. – Its a great setup.

    Down the road from Curtis a lumber company had 30,000-acres. For Virginia this is LARGE. The property was not contiguous, but about 15,000-acres was. The lumber company sold a large quantity to a legal pension fund out of Washington, DC. So it was managed by – You Got It LAWYERS. So, how much information do you think this group gave out about its land? I’ll put the answer at the bottom.

    I believe that it is important for the listing agent to learn as much as he/she can about the subject property. It saddens me when I here from the listing agent that they never even attempted to locate the boundaries. So, if they haven’t done this I feel they are less likely to raise other important questions about the property. Sometimes the lack of disclosure does not come from the seller, but because the listing agent does not know the questions to ask. Because of this I feel that both buyers and sellers should look for Realtors with the Accredited Land Consultant (ALC) designation.

    In Virginia it is not difficult to find out what an owner paid for land, if they acquired it by deed. If they acquired it by will you would need to ask the owner what their basis is. If the owner does not know I ask them to speak to their accountant and find out so that we can structure a sale that may reduce their taxes. I also find it good to know the basis because you may be able to do a 1031 tax exchange.

    So, what did the lawyers’ disclose? Nothing. They purchased land from a company that is known for excellent timber cruises, internal road work, and management reports. When I asked their representative why they wouldn’t I was told they were afraid the information was incorrect.

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