Transcription
Sh! I actually, I got to keep my voice down a little bit, because otherwise the agent might hear me. Because this information I'm going to share with you, the real estate agent, they're not going to tell you. And yet this information is so valuable, and it could even be the make-or-break difference between selling your land successfully and winding up in expired listing Purgatory, which, believe me, you don't want to go there.
My name's Alex, and in the past couple of years, I've successfully bought and sold over a hundred separate pieces of land in markets across the United States. In this channel, you're going to learn everything there is to know about buying land, selling land, selling land to private buyers and investors, selling land for Top Dollar on the open market, the pros and cons of both different approaches, land markets, economic cycles that relate to land—everything that you, as a land owner or potential land buyer, will need to know to be successful with land.
So the first thing that the real estate agent's not going to tell you—and this one's a little bit juicy—is that they don't actually know what your land is going to sell for. It would be hard for them to provide a range estimate that they would even have that much confidence standing next to. And the reason why: the typical agent, and even those that have experience in land, it's just not their cup of tea; they don't really understand it. The commissions are typically, when they get paid out, they're lower, so they don't make as much money; it's not as easy to sell land; and you have to learn a whole lot of new information to be successful uccessful with every new property that you sell. So the combination of those things together makes it a very difficult business model for a lot of real estate agents, and so they don't really mess with it much. They're supposed to be the authority, so they're not going to stand up and tell you that, but it doesn't change the fact that it's true.
Now you may be thinking, okay, well, fine, Alex, but at the very least I can just get an appraisal done. Right? The appraiser knows what the land is going to sell for. And the problem is that the appraiser is even worse. I don't mean in terms of their accuracy—and their accuracy, it's a very mixed bag. The problem with appraisers is that we're supposed to take them seriously as like the utmost Authority about a property's value. Appraisers mess up a bunch; appraisers will make mistakes frequently. If you don't know what to look for, you won't be able to detect it, and neither will your agent or the buyer's agent. I see these appraisers messing up all the time. Is it just me in my own Echo chamber, or are other people noticing this too? And of course they do, because if you go online, I found a thread on Reddit the other day about a home buyer who was talking about how the bank's appraiser messed up their appraisal. One of the comps that they used to value the home was like a totally different style of construction and a totally different location in the same town, where the surrounding home values were very different. The fact that they made a mistake on the comp cost that buyer the ability to get that loan approval from the bank, and apparently the bank was just standing behind this really bad appraisal, and they were like, "Hey, man, like we have to stand behind this," and she's like, "But it's bad." And what she ended up doing was challenging it; the bank wouldn't give, so she went to a new lender who got a new appraisal done. That new appraisal came in like $18,000 higher than the initial one, which was exactly what she had forecasted initially, and ultimately the new loan got issued, and the other bank didn't get the business.
We had a deal where we were selling a property for $53,000—it was a 10.5-acre piece of land—but the appraisal came in low at $488,000. The comps that they used were totally irrelevant; one of the two comps was in like a Township that was on the other side of the county, like 20 minutes away. And they had like a price per acre for each comp, and then based on that price per acre, they just multip—they just like created a blended number. What, like, okay, you're 10 and 12 acres, it's like closer to the 12 acres, so we'll just take a price per acre that's closer to that number and multiply it by the acreage. It's like some random number. Like, appraisals aren't a waste of time; they're—they're not without value. But if you are relying on an appraisal without doing your own analysis or checking the numbers that the appraiser is going to give you, you're like trying to play checkers on a chessboard, because there's just depth and nuance to the process of valuing the sale price of a piece of land that the appraisal report is never going to capture.
Part of—part of why we take them seriously is because when they appraise a property low, the trans—the people on the transaction, the buyer and seller, have to deal with that. So it's almost like a self-fulfilling prophecy where they like say it's worth $48,000, and then it is, because the lender won't issue a loan for an amount that's greater than the appraised value of the property. So they—they just have a piece of paper; they put it on a table, and then people have to like scatter around it and deal with it. Whereas we actually, when we buy property, like we put our money up, so when we sell it's property that we already have skin in the game; we already have financial exposure. And that's why we learn so much faster, is because I can't just hide behind a piece of paper that says it's worth X; I have to figure out what a buyer is actually going to pay in the market for the property, and that's after I put up all the cash to pay for the property when I buy it. So if I'm wrong, I—I—I sure as heck learn a lot faster than the appraiser does when they're wrong, because they don't really learn that much at all.
The next secret is that price per acre for residential land is a fallacy, and you shouldn't take it seriously. The idea is like, well, hey, man, what are you talking about? Because if I have 18 acres, that's going to be more than 12 acres, so like wouldn't that make it more valuable? The fatal flaw with that reasoning: the idea is that you're selling a commodity where the commodity that you're selling, if you have more units of it, you'll just get more money out the other side. And that's not true—true—because you're not selling multiple units of something; you're selling one thing, and that one thing you're selling is the property; it's the APN. So the question is, what's the value of that property—the four corners of the land and everything in the middle—because that is what you have to figure out the value on, not the acreage.
So much of the value of land has to do with the surrounding neighborhood values, because so much of the value of a building lot has to do with the value of the finished Construction in that neighborhood once you finally develop that lot. Neighborhood that has cookie-cutter homes that has uh two different lots for sale—one is a half-acre and the other one's one acre—they're not going to have a substantially different value in the market on the basis of acreage alone, despite the fact that one of them is twice the size of the other one. So does—does a home in the same subdivision that has a bigger yard on average sell for a higher price? Absolutely. But it's not a multiple of the size of the acreage; it's just on the margins. And instead, a lot of the value of a piece of land has to do with the economics of the construction itself, in addition to the home values once the construction is finished. If a property is on well and septic, City water and city sewer could save between $10 and $15,000 in construction costs. So if two properties with neighborhood values that are similar are for sale in these vacant lots, one has utilities, the other one you have to put well and septic, I mean, do you really think that they're going to have the same sale price? Because they won't.
You might be thinking, well, hey, man, but my property is 10 acres or 20 acres, and so I have 10 more acres than the other guy. But the same reasoning applies as you scale up: 10, 20, 40, 60, 80 acres; it's the same exact reasoning. Because you could have 100 acres of swamp land that has 10 acres on the front, and you would market it as 110 acres, but you could have a 25-acre property that lies real flat next to the road that has a couple thousand feet of road access, where you have potential to subdivide that property into multiple building lots, and that 25 acres, all else being equal, would be way more valuable than the 110-acre property that's mostly swamp land. And that's just an obvious example.
I've learned a lot from these guys and gals that have sold a bunch of land in their local markets, and I have a ton of respect for them, but they make the same mistakes. I was buying a property, and I had a broker walk the property because he was going to go get the listing when we were finally—when we bought it and we're ready to bring it to market to eventually sell it. And he walked the whole property—it was a 22 and 1/2-acre property that was mostly cleared cropland—and I was talking to him after his site visit because I wanted to see what he thought the value was in today's market. When he asked me—remind me, Alex, how many acres was it again?—the minute that he asked me that, I knew what was going to happen next. So then I told him it was 22 and 1/2 acres, and what he did was he's, "Well, 22 and 1/2 acres farmland is about, you know, $4,000 an acre, give or take." He's like, well, he's thinking maybe $90, something like that. He's like, "I wouldn't list it any higher than $90 to $99,000." And I almost fell out of my chair, because what I knew was that it was going to sell quickly at $120,000. But his issue was that he was counting all the trees, and yet I could just plainly see the forest. Because what he was looking at as farmland, I was looking at as a farm, where it's not the cropland, and it's not the crops, and it's not the annual or seasonal harvest; it's all of that plus the fact that you can put a home on the land and have a private residence. It's a rural home; there's a difference. So if I had taken his advice, I would have lost about $20 or $25,000 in value. Punchline is, I wouldn't have even sold it any faster, because we still sold it right away at $120,000.
Look, you got to learn to read comps, guys, and with land you never have good comps; there's no such thing as a good comp for land because there's always intrinsic differences from one property to the next. You have to be able to qualitatively analyze the difference between the sold comp and your subject property. Acreage is one of several variables that impact price, and the biggest things that impact price are qualitative. I can't even tell you how often, when—when we're right on these deals, we project a value that's higher than the data would ever suggest. And what it all comes down to was a conversation that I had with my analyst two weeks ago where I asked her, "Hey, did you see Street View in front of the property?" And she was like, "I was going to ask you the exact same thing." Because even when you have everything right, if your neighbor across the street has a bunch of junk in their front yard, you missed it. And on the other hand, if you have like Woodlands that on a county road that opens up to cleared farmland off to the side with the sun coming through the trees perfectly in the afternoon sunlight, as you look at the front of the comp, you look at the curb appeal, you look at the curb appeal of the property that you're buying or selling, and there's a difference; that difference matters. And it's the qualitative differences with land that the appraisers don't understand, and a lot of the top land brokers don't either.
The next secret is that inexperienced agents like to overprice land, but the best agents like to underprice it. And I know you're thinking, hey, well, like that's kind of a controversial take, because aren't these agents fiduciaries like for the client, where they have to like get them the top dollar for this or that property that they're selling? And the answer is yes; it's not intentional. What ends up happening is that rookie agents, they're just starved for commission checks, and trust me, like I—I know what that's like starting off; you just got to be scrappy. I get that. They don't screen their client properly or manage expectations, and so they take these listings from landowners that like don't really have intention of actually selling; they just want to put the sign out front, look at a big number, and like talk to their friends about it. And so they take—they take these listings where six months down the line they do a renewal on the listing agreement, and it's still on the market, and they get an offer that's like really good, but the problem is the landowner is like not willing to let it go at a price actually like the market will bear, and so it never sells; they never get paid. And even if that landowner changes their mind later, the problem is that the process of overpricing it initially still hurts them on the back end, because everybody in the market that was looking to buy land understands that this—this listing hasn't sold, and so they like, when the prices actually come down to normal towards where the market would actually clear, the buyers in the market assume that there must be something wrong with that property. And—and—and often times not; it's just the landowner wasn't real about it up front, and it cost them. So overpricing land, typically in my experience, will actually cost you more than underpricing.
And this is why under—underpricing for land, it's not what you think. I'm not talking about, oh, like it was worth $100,000 and we sold it for—like we listed at like $35,000; it was crazy. Like, oh, no. I'm talking about like not overpricing, honestly. See, if you think a property is going to sell at $80,000 and you list it at like $79,000, you might—you might underprice it, but what do you think is going to happen? You're going to sell it. And actually, on the other side of the equation, experienced agents that have a gauge on what land is actually going to sell for, they want to be conservative because they want to be—they want to manage the client's expectations up front, and they also don't want to waste their time on listings that'll never sell. Because the offer comes in, and it's a good offer, and the—the owner just doesn't see it. So what ends up happening is that they—they approach the listing really conservatively, and they provide a value estimate that maybe it's like 90% of what they really think, just to provide a level of expectation management and also just to test the owner to make sure that they're a real seller. And so I have respect for that, and I think that when you underprice land a little bit, it's underrated, because what ends up happening is if it's actually worth more than your agent thought and what you thought, then you—you may still get compensated, cuz you get into multiple-offer situations; you get into situations where you sell the land faster, and it's more competitive in the marketplace of buyers, and you end up not paying for it, and sometimes you actually sell at a higher price than you're even asking for.
Hey, look, if this was really helpful for you, please like the video, leave a comment; I'd love to hear your thoughts. And please subscribe to our channel if you haven't already. And also, if you want more content on selling your land, and there's a video I'm going to leave it, I think right here on this screen that you can click, and uh, you can check out some of the mindset and some of the mentality and psychology of successful land sellers. Thanks for watching.