So, we bought our dream home in north Ballard (Whittier Heights) in 2014. However, we were upzoned to LR1 last year, into the Crown Hill Urban Village, along with the adjacent block. Our area of Whittier Heights predominantly has lots around ~6,500sf, which is among the largest you tend to see in Ballard. However, the houses, for the most part, are large and fixed-up, so I did not expect that developers could afford to entice many of these folks to sell.
That, it turns out, was naive. We just learned that 6 houses on the adjacent block are in the process of being sold to a developer, who will put town homes (37 units total) on those 6 lots. The lots sold for $170/sf of lot area. Now many of the families on our block (including us) are considering pursuing a similar deal, mainly in order to avoid being surrounded by 30ft-high HardiePanel boxes 5ft from their property lines.
As we explore this possibility, some of the questions I have are:
1) How much of a premium can I really expect from a package deal vs. selling individually? Particularly given that the package deal means a longer close, and then likely competing for a new home in this same neighborhood with some of my current neighbors.
2) If we hold off on selling for a couple years until the nearby development actually starts to impact our quality of life, how (if at all) does that shift our bargaining leverage? Is there a sweet spot of some kind whereby we want to sell while others are selling, after which our lots somehow becomes less valuable relative to the market? Or would we be better off not throwing in alongside the sudden burst of supply on our street?
3) How can I find the most active multifamily developers in my area? I can find a thousand websites, but many of them seem to be inactive.
4) Any other advice on strategies for pitting developers against one another to get the highest price?
Seattle, WA · Member since 2017 · 275 posts · 223 votes
6y
I'm no expert having gone through this once, but I went through a similar experience recently with my duplex (1 unit was owner occ) in georgetown. It was zoned L2 the entire 10 years I had it, but for the first few years (recovering from the great recession) the neighborhood was stable. Starting in about 2014 one particular developer "discovered" the neighborhood and systematically bought up and ended up developing about half the lots over the next few years. At first it was the couple remaining vacant lots, then the small run down homes, and then a few decent homes started to sell out to them.
I decided to sell once two the the 5 adjacent lots to mine had been redeveloped (2 either side, 3 across alley), and a third had been purchased by a developer. The remaining two neighbor houses were both smaller and somewhat tired. Other reasons I chose to sell were to start unwinding my rental portfolio in seattle (I will reinvest someplace south of seattle, once I know what the legislature tries to do WRT rent control this coming session), that location was getting increasing negative impact from RV camping and property crime, and because while structurally sound and in decent condition, it was 120 years old and would have required a lot of updates if I wanted to keep it another 10 years as a full on rental.
I had been collecting all the "we buy houses and land" flyers I had been receiving and keeping a spreadsheet. I also did some research and figured out what all the neighboring lots had sold for and to whom. There was quite a bit of variability, all 5000sf level L2 lots and some had sold for 300K and the top sale was $740K. the highest one happened to be the property right across the alley from mine. Of course there was a time component too and some of the lower sales were much earlier on.
At that point I approached several of the authors of those "we buy" letters, and as expected most of them while offering "off market" transactions were brokers working for clients behind the scenes. While they claimed no commission, of course the buyers were paying it and just deducting it from their offer. A lot of these parties also wanted to do assignment deals, e.g. they were wholesaling, birddogging or whatever you call it. Most of them also wanted extended closings (up to a year) I was ok with about 6 months since I needed that time to make my new SFR home habitable before moving there.
I also did enough digging to come up with the mailing address for the LLC that had bought the property across from mine at $740K. I wrote them a snail mail letter and sent it to the address of some house in bellevue with a description of the property, general terms of sale, etc same as I was sending to everybody. In a couple weeks they contacted me and we eventually reached an agreement on price - $700K. I took a bit less than they had paid for the property across teh alley even though mine was a much better property - fully functional and habitable - the one across the alley was not such - but by that point the market on townhouses had started to cool. I didn't want to get greedy and it was a good move I think. The closing period was 8 months to coincide with the tenant's lease ending, and the agreed EM was $50K, nonrefundable. Half was released to me after signed around PSA, thought I did not touch it til the sale closed.
The next best offer I had from the horde of brokers and middlemen was $650K, most were around $600K. Lowest was $500K. I did have one developer who I met with in person who wanted me to 'partner' in the redevelopment - basically by letting him build on the property while I still owned it, then I would be compensated with a "percentage of the profit". He seemed decent enough, but we stopped talking after I said "Percentage of sale price" instead, and I voiced my concern about the point in the economic cycle we are in and 2-3 years til payoff.
The terms of sale I offered were basically - best offer up front - no inspections other than what can be seen by walking interior and exterior property - no "and/or assigns" on offer (no middleman, assignments, etc) - as is no repairs - tenant renewed with month to month agreement before closing - substantial nonrefundable earnest money if extended closing period - no owner financing - buyer pays all non government mandated fees/commissions. I also made it clear the sale was not a distress sale, and while dated the home was fully functional and habitable and occupied to try and discourage lowballers. I did say in my offering that I was contacting multiple interested parties. Some of them were put off by that, but those are the guys most likely to be looking to get a below market price. So if they make a fuss about it, let them walk.
I did try to get my adjacent neighbor to sell at the same time as me, since with a 10000sf lot an additional townhouse unit or two could have been crammed in due to ability to use the space between lots otherwise needing to be set aside for setbacks, and theoretically we both could have gotten a bit more. However, the neighbor was not ready to sell yet. I didn't want to wait another couple of years so I went ahead on my own.
Once I got to an agreed price and basic terms with the buyer, I got a good recommendation for a RE attorney and worked with him to review the written terms and negotiate details with the buyer. It was worth the $1200 or so it cost me.
I guess if I were you and I decided I was committed to selling:
1) I'd work with neighbors and coordinate selling adjacent properties together if at all possible. Either negotiate together or communicate openly amongst yourselves. 2) Talk with people who have already sold (sounds like you have) and make sure you know what the going terms are. Don't take less unless there is a good reason, like unbuildable portion of your lot, etc. 3) Find an attorney. 4) Target developers who have a pipeline of projects nearby already. Talk to people working at the sites - especially if they are NOT wearing a hardhat and swinging the hammers - and you can probably find somebody in charge pretty fast. Also you can find the investors by going to the open houses on completed units and talking to the agents. You can also do this with other townhouses just built - go in and ask the agent who the developer is and their info. They will surely share. This might also give you some control on the style of building that gets constructed to replace your house since different developers use different plans, etc. 5) Make it clear to interested parties you are not doing a distress sale and the home is in good condition and price needs to reflect that. 5.5) Try to avoid middlemen. That means no brokers, and nobody who wants to wholesale or do an assignment. If their offer says "and/or assigns" on the buyer's name, thats what they want to do. It means they want to turn around and assign the sale to somebody else for a fee. 6) Try to avoid being the last one to sell out. If there is a lot of redevelopment activity going on now, now is probably a good time to sell. 7) Don't agree to an extended closing period without a substantial EM (say about 1% of sale price per month) nonrefundable and paid up front if possible. Note that just because the agreement says nonrefundable doesn't mean you won't have to sue to get it depending on circumstances. Don't touch it til closing.
Seattle, WA · Member since 2017 · 275 posts · 223 votes
6y
I'm no expert having gone through this once, but I went through a similar experience recently with my duplex (1 unit was owner occ) in georgetown. It was zoned L2 the entire 10 years I had it, but for the first few years (recovering from the great recession) the neighborhood was stable. Starting in about 2014 one particular developer "discovered" the neighborhood and systematically bought up and ended up developing about half the lots over the next few years. At first it was the couple remaining vacant lots, then the small run down homes, and then a few decent homes started to sell out to them.
I decided to sell once two the the 5 adjacent lots to mine had been redeveloped (2 either side, 3 across alley), and a third had been purchased by a developer. The remaining two neighbor houses were both smaller and somewhat tired. Other reasons I chose to sell were to start unwinding my rental portfolio in seattle (I will reinvest someplace south of seattle, once I know what the legislature tries to do WRT rent control this coming session), that location was getting increasing negative impact from RV camping and property crime, and because while structurally sound and in decent condition, it was 120 years old and would have required a lot of updates if I wanted to keep it another 10 years as a full on rental.
I had been collecting all the "we buy houses and land" flyers I had been receiving and keeping a spreadsheet. I also did some research and figured out what all the neighboring lots had sold for and to whom. There was quite a bit of variability, all 5000sf level L2 lots and some had sold for 300K and the top sale was $740K. the highest one happened to be the property right across the alley from mine. Of course there was a time component too and some of the lower sales were much earlier on.
At that point I approached several of the authors of those "we buy" letters, and as expected most of them while offering "off market" transactions were brokers working for clients behind the scenes. While they claimed no commission, of course the buyers were paying it and just deducting it from their offer. A lot of these parties also wanted to do assignment deals, e.g. they were wholesaling, birddogging or whatever you call it. Most of them also wanted extended closings (up to a year) I was ok with about 6 months since I needed that time to make my new SFR home habitable before moving there.
I also did enough digging to come up with the mailing address for the LLC that had bought the property across from mine at $740K. I wrote them a snail mail letter and sent it to the address of some house in bellevue with a description of the property, general terms of sale, etc same as I was sending to everybody. In a couple weeks they contacted me and we eventually reached an agreement on price - $700K. I took a bit less than they had paid for the property across teh alley even though mine was a much better property - fully functional and habitable - the one across the alley was not such - but by that point the market on townhouses had started to cool. I didn't want to get greedy and it was a good move I think. The closing period was 8 months to coincide with the tenant's lease ending, and the agreed EM was $50K, nonrefundable. Half was released to me after signed around PSA, thought I did not touch it til the sale closed.
The next best offer I had from the horde of brokers and middlemen was $650K, most were around $600K. Lowest was $500K. I did have one developer who I met with in person who wanted me to 'partner' in the redevelopment - basically by letting him build on the property while I still owned it, then I would be compensated with a "percentage of the profit". He seemed decent enough, but we stopped talking after I said "Percentage of sale price" instead, and I voiced my concern about the point in the economic cycle we are in and 2-3 years til payoff.
The terms of sale I offered were basically - best offer up front - no inspections other than what can be seen by walking interior and exterior property - no "and/or assigns" on offer (no middleman, assignments, etc) - as is no repairs - tenant renewed with month to month agreement before closing - substantial nonrefundable earnest money if extended closing period - no owner financing - buyer pays all non government mandated fees/commissions. I also made it clear the sale was not a distress sale, and while dated the home was fully functional and habitable and occupied to try and discourage lowballers. I did say in my offering that I was contacting multiple interested parties. Some of them were put off by that, but those are the guys most likely to be looking to get a below market price. So if they make a fuss about it, let them walk.
I did try to get my adjacent neighbor to sell at the same time as me, since with a 10000sf lot an additional townhouse unit or two could have been crammed in due to ability to use the space between lots otherwise needing to be set aside for setbacks, and theoretically we both could have gotten a bit more. However, the neighbor was not ready to sell yet. I didn't want to wait another couple of years so I went ahead on my own.
Once I got to an agreed price and basic terms with the buyer, I got a good recommendation for a RE attorney and worked with him to review the written terms and negotiate details with the buyer. It was worth the $1200 or so it cost me.
I guess if I were you and I decided I was committed to selling:
1) I'd work with neighbors and coordinate selling adjacent properties together if at all possible. Either negotiate together or communicate openly amongst yourselves. 2) Talk with people who have already sold (sounds like you have) and make sure you know what the going terms are. Don't take less unless there is a good reason, like unbuildable portion of your lot, etc. 3) Find an attorney. 4) Target developers who have a pipeline of projects nearby already. Talk to people working at the sites - especially if they are NOT wearing a hardhat and swinging the hammers - and you can probably find somebody in charge pretty fast. Also you can find the investors by going to the open houses on completed units and talking to the agents. You can also do this with other townhouses just built - go in and ask the agent who the developer is and their info. They will surely share. This might also give you some control on the style of building that gets constructed to replace your house since different developers use different plans, etc. 5) Make it clear to interested parties you are not doing a distress sale and the home is in good condition and price needs to reflect that. 5.5) Try to avoid middlemen. That means no brokers, and nobody who wants to wholesale or do an assignment. If their offer says "and/or assigns" on the buyer's name, thats what they want to do. It means they want to turn around and assign the sale to somebody else for a fee. 6) Try to avoid being the last one to sell out. If there is a lot of redevelopment activity going on now, now is probably a good time to sell. 7) Don't agree to an extended closing period without a substantial EM (say about 1% of sale price per month) nonrefundable and paid up front if possible. Note that just because the agreement says nonrefundable doesn't mean you won't have to sue to get it depending on circumstances. Don't touch it til closing.
@Brian Hughes, holy cow, thanks very much for typing that all up--that is incredibly helpful insight! I will have to spend some time to digest that. A couple of follow-up questions if you don't mind:
re: the long close - did you ever propose or discuss any sort of indexing of the acquisition price to insulate you from market/reinvestment risk? I have no problem in principle with a long close (I know multi-lot deals can easily reach 18 months or more), but I don't feel like bearing the risk that the market rises 15% between signing and close, and now I've lost purchasing power and can't buy something commensurate.
"Try to avoid being the last one to sell out" - I'm curious, what is your specific rationale there? Is that a market timing consideration, or loss of bargaining leverage? One one hand, once I'm surrounded by developments, my BATNA has pretty clearly deteriorated, unless I'm willing to go full-Edith Macefield. On the other hand, as long as the market is there, in theory I should be able to instigate a competitive bidding process between developers at any point in the future, right?
Seattle, WA · Member since 2017 · 275 posts · 223 votes
6y
Hi -
Yes, I am mr. detail oriented.
1) On long close - no I didn't propose about any kind of interest or indexing. In theory if the sale fell through within that 8 months I would get the full EM, which was $50K in my case. To put that in perspective the upper unit was generating about $14K/yr in rent income. Also in theory that meant even if the sale fell through and I had to either list it on MLS or agree to a sale price of $650K with a new buyer I would end up in the same place more or less. OR worst worst case the construction market tanked and I could not sell at all - then I had renovation budget for the building to fix up, rent, and hold for a few more years. I was operating under the opinion that building lot sale prices had peaked and were either flat or declining a bit, so I did not want to get to aggressive in negotiating and I think that ended up being a good move. But yes the longer the closing period the higher the risk of thing going sideways - if prices go up you get screwed as seller, if prices go down too much the buyer walks and (best case) forefeits the EM without a fight or (worst case) comes up with some excuse to try and keep it and you end up in court. I was pretty worried the whole time that the buyer (backed by chinese capital) would walk for various reasons including obvious slowdown in townhouse new construction sales in the area and several resales competing with the new construction, but in the end the transaction closed on time and with no drama. They ARE operating it as a duplex however I have noticed, they rented out the lower unit I had occupied. (without any of the updates I would have done)
Developers want long closing times because it gives them time to plan, find capital for construction, and they don't have to maintain, pay taxes, or chase out squatters during that time. If its a middleman or wholesaler they use the time to shop the place around to the ultimate final buyer who will pay the biggest assignment fee.
2) Reasons for not wanting to be last one to sell - If the individual lots are being developed as opposed to a much larger parcel (like the edith macefield situation) being assembled its probably less of a risk, but once a large percentage of the housing has been redeveloped to townhouses where I was a couple things started happening - first the feel of the neighborhood changed from charming, historic residential to modern urban, and a lot of the initial people who moved into the townhouses said they moved there because they like the lower density but could not afford a "real" house. Next once a lot of the housing is of the same type as new being built, there is competition from resales right nearby and around here it seemed the slightly "used" townhouses though still fine were holding down prices on the brand new ones, which caused them to take a lot longer to sell. One of the developers (the one who lowballed me the most on his offer) said he was basically done with the area because there was too much competition now. If you were the last to sell there would be 30 or 40 other townhouse units on your block that the developer would potentially have to compete with after building their 4 or 5 new ones. Final reason I guess is better odds of being able to time the sale of your property with an adjacent or very nearby one to same buyer, which is an economy of scale and/or would allow them to build more units, meaning worth more to them and they may be willing to pay you more. (if you let them know you know it too)
That makes total sense. Thanks again for all of this!
After some subsequent conversations, it's sounding like our block might end up being spared from multi-lot scraping + max density town homes. Our block has slightly larger and more fixed-up homes than the adjacent block where the multi-lot deal is happening. Additionally, the town home market has softened somewhat since the deal in the next block was priced, more than a year ago. So it may turn out that a developer's preferred strategy is to keep the existing homes, subdivide, and build units in back, which in turn would significantly diminish any economies to be realized from buying multiple lots together. We'll see what happens though.