Articles

Selling to a Developer? – Love thy neighbour – Super lots

The NSW State Government is rezoning areas close to Transport hubs, and you may be sitting on a gold mine. After years of living in close proximity of each other, your neighbours may be your ticket to winning the jackpot!

Developers are looking to maximise the developable areas of land and are persuading owners of adjoining blocks to sell up in one transaction. They lure the owners in by offering up to three (3) times the value of their property. If successful, single houses are replaced with multi-unit blocks.

Developers make offers in accordance with their feasibility calculations. Their decisions are purely impacted by end profit. Often they are experienced negotiators looking to secure a commercially viable deal as quickly and as favourably as possible.

Developers can work on the basis that the home owners do not appreciate the magnitude of potential value of their property. Change of zoning could mean a change of use from single storey family homes on quarter acre block to mixed use retail, commercial, residential high rise apartment complexes.

Unless the Developer can secure the right amount of adjoining land, they will walk away from the deal. This makes negotiations challenging when trying to deal with the emotions of home owners and the commercial expectations of Developers.

 

Prior to selling

To ensure the home owner is not getting ripped off, it is vital for the home owner to understand that they have as much power as the Developer does when the home owner’s interests are being protected. Each block of land has a different potential and each deal is unique, so sorting out what each home owner has to offer and entering into a Deed of Agreement reflecting the Vendors intentions is the first step.

When neighbours with differing intentions come together to sell as one, it is important to find a balance where the majority of people are happy with the price, timing, procedures and obligations imposed on each of them. It is important to talk with one voice so as not to confuse the Developer or divulge your strategy. True alignment is key to a smooth transaction.

The Deed should set your minimum requirements for the key issues as well as how the expenses and liabilities are divided. Each property owner will have individual and unique requirements from the transaction.

Once you have entered into a legally binding Deed with your neighbours, you have the security of knowing they cannot pull out or get greedy. It is advisable to use an experienced solicitor who is familiar with the process involved and has the resources to achieve the best outcome.

KREISSON is predominantly a Building & Construction law firm who has acted on behalf of Developers over the years and has recently expanded their services to act for land owners selling to Developers.

Vendors gain the unique advantage of our knowledge of how a Developer operates and our honest advice on the expectations of a price based on site feasibility calculations.

 

Entering the Market

Many home owners naïvely settle for what they consider a windfall but what is, n reality, a bargain for the Developer. Other home owners hear of neighbouring properties reaching astronomical prices that are suburb records want the same for their property without understanding the limits placed on the Developers. It is important to have realistic expectations and understand the full costs involved in selling and relocating.

With the recent re-zoning announcements, many owners have been keeping a close eye on what property prices are doing in their neighbourhood. By watching the market closely and maybe obtaining an estimate of selling price or valuation you will know what your property was worth prior to re-zoning.

If you are not selling directly to a Developer who has approached you, you will need to consider appointing an agent and marketing your property. The magnitude of the super lot sales means your local agent is not likely to be experienced enough to pull off such a large deal. You need to engage an expert with experience and a network of Developers, who can broker the best deal for you.

 

Negotiating

Negotiations are always challenging, but this is made more difficult when the playing field is not level. How many multi-million dollar deals have you successfully negotiated? Chances are none. This is why it is advisable to engage someone who has experience in negotiating multi-million dollar deals.

Selling the family home can be an emotional and stressful experience. For Developers, it is a commercial transaction in which they are buying a block of land. The quality and finishes of your home are irrelevant to the Developer as they will be demolishing your home to erect a much larger building.

It is not just the price and timing that needs to be taken into consideration, but there are many other issues, most of which the average home owner would not be aware of. It can be a long process to get everyone on the same page, especially when there are differing financial circumstances, cultural considerations and future needs.

A good set of terms is just as important as a good price. A commercial transaction by nature is a balance of price and terms, unlike the selling of a residential property through auction or private treaty where there is a widely accepted set of terms and price is often the only variant.  Commercial transactions are sophisticated deals where experienced professionals are recommended to protect home owner’s best interests.

 

Sale

There are several options that could be negotiated in relation to settlement. If the Contracts are conditional on the rezoning being gazetted or the DA being approved, then the settlement period can be quite lengthy. It is often a requirement of the Developer to enter into an “Option to purchase” with the Contract for Sale annexed to delay the stamp duty payment.

Generally a non-refundable option fee is paid and when the triggering event occurs, contracts are exchanged and the full deposit is paid. A clause to release this deposit can also be drafted to provide for the home owner to purchase of the next home. A licence agreement can also be drafted to provide for the home owner to stay in the property for a nominal rent until the demolition is about to commence. This allows the home owner plenty of time to find and secure a new home.

Clauses with bonus payments for uplift in the development can be drafted so that the Developer does all the hard work of getting Council to maximise your super lot’s potential and you usually benefit in proportion to the development potential.

As the property is being sold with other properties, each Contract of Sale should have an interdependency clause in it making the sales conditional upon each other home owners sale successfully settling.

Where there are ten or more lots (10+), this used to be a difficult and complex process. However with the latest technology and electronic settlements, everything is electronically signed and uploaded to a cloud based network waiting for the settlement, settlement then happens automatically as the clock ticks past the settlement time. The Reserve Bank of Australia oversees the transferring of clear funds directly into your account so the whole process can be safely and securely undertaken.

 

Future

The home owners will need to seriously consider what their plans for the future are and how to maximise the windfall. KREISSON can put you in touch with professionals who can make this whole transaction as smooth as possible.

These professionals include: Buyer’s agents who can find your new home, removalists who pack your home, move you and unpack at the new home, Mortgage brokers for bridging finance, Financial Advisors, Interior Designers, Charity organisations who collect unwanted furniture and more.

The home owners will more than likely have a substantial amount of money left over, after purchasing a new property, that may be invested into an income generating investment. The home owners therefore will also need to consider what their end goal is and talk to professionals about how they can achieve this.