SELLING YOUR DEVELOPMENT SITE
Some common questions and answers
You may have been living in your current home for a long time and have recently discovered that it has potential to develop. What does this mean and how does this help you obtain a better sale price when the time comes to move?
The following information attempts to answer this and a number of other questions that arise when selling your development property. If you have any additional questions, fill in the form at the bottom of the page to ask Scott!
How do I know if my property is subdividable?
There are many factors that dictate to what extent a given property can be subdivided. Below are a few of the factors that a developer will take into account when making an assessment:
The land’s zoning and overlays.
Precedence for other development nearby.
The setback from the curb of adjacent homes.
The dimensions of the land.
The positioning of the existing home (if it is to be retained).
Easements on the land.
The presence of protected trees and their positioning (both on the given land and immediately next door).
Single dwelling covenants found on the title.
Slope of the land.
There are a couple of websites that help if you want to do a bit of your own research.
www.landchecker.com.au – This will show you a range of information including zoning and overlays.
https://www.planningalerts.org.au/ - This will show you planning applications nearby. Be sure to sort by most recent and cross check with www.landchecker.com.au to make sure the property you are looking at shares the same zoning.
If you don’t feel like working it out yourself, Scott will be happy to look into that for you.
Will I get a higher price selling to a developer?
Often when sellers hear the words “potential to subdivide”, their eyes instantly light up and their pupils turn to big dollar signs!
Unfortunately there’s a lot more to it than that.
The first step when assessing any property, a real estate agent will ask themselves “what is the highest use of the land?”.
Another way to say it is “what type of development will possess the greatest financial value?”
Sometimes it’s townhouses, sometimes apartments, on occasion a commercial property. However, very often, the existing home’s condition is such that demolishing it to build will actually devalue the site!
How does a developer decide what they can afford to pay for my property?
No two developers are the same and the differences don’t end when deciding what they will be prepared to pay for a development site.
Ultimately, every developer conducts some form of feasibility study. Some are extremely detailed while some are rudimentary. See below example.
Some areas where one developer can differ from another are the following:
The expertise of the developer/developer’s architect.
The speed with which they can build a site.
The number of units they feel are possible on the site.
The opinion of value of the finished units (12-18 months from the day they buy the site).
The level of risk and profit margin they are willing to accept.
Ultimately, because of these differences, it’s very important to employ a selling strategy that doesn’t let one developer know what another is paying.
Why does a longer settlement generally mean a better sale price?
One factor that affects the sale of a development site is the length of time between when the sale takes place and when the developer takes ownership (i.e. the settlement date).
Generally speaking, the longer this period is the more the developer will be comfortable to pay. But why is this?
Provided the seller gives the developer access to the home prior to settlement to begin the planning process, the answer is simple: The developer will pay less interest to the bank if they have a longer settlement.
This means that the development process will be well underway by the time the developer settles on the site.
The other important factor is that a longer settlement will reduce the risk the buyer is taking. It allows them longer to obtain finance, the opportunity to on-sell, and the ability to have continuity of work for the tradespeople they employ.
If the house is going to be demolished, can I remove things prior to settlement?
It’s logical to think that because your home will be demolished it doesn’t matter what is taken from the home.
However, sometimes, the developer will chose to rent out the home after settlement and this means they would need a home that is rentable!
Having said that, if the settlement is long enough, the developer, depending on their plans, may be happy for you to remove things that would normally stay.
The golden rule is when signing a contract to sell your home be sure to clearly state in writing what you intend to take with you. This will make it clear from the start and avoid confusion later.
Can I rent the property out before settlement?
Yes you can, provided you can fulfill any obligations to provide the buyer with vacant possession (if required by the contract) at settlement. Another factor to consider is that you are required to maintain the condition of the home as it was when it was initially purchased. If you place a tenant in the property you have to be aware of the risk of the tenant damaging the property and the buyer requiring it to be fixed prior to settlement. If you intend to rent the property out prior to settlement, it’s a good idea to make the buyer aware and to always obtain advice from your legal representative.
Can I rent the property off the developer after settlement?
More often than not, a developer will rent out the home after settlement in order to obtain an income whilst the final planning preparations are completed. Depending on your plans, it can be useful to offer to rent the home back after settlement. A special condition should be included in any contract that clearly states your intentions as to how long you will stay and what you propose paying by way of rent.
If I went and obtained planning approval myself, how much more can I expect to get?
There are both advantages and disadvantages when it comes to making the decision to go and get endorsed plans prior to selling.
Those that do it and benefit, largely fall into one category. They were able to obtain approval for something that wasn’t likely prior to commencing the process. Some examples are as follows:
Approval for an extra unit than previously expected.
They were able to legally remove a tree that was previously protected.
They were able to apply to have the zoning changed for their specific block.
All of those circumstances can have a positive impact on the final sale price as they all remove a great degree of uncertainty that was previously overshadowing the site. The amount you will receive on top of the home’s previous value will be proportional to the advantages you have obtained by going through the planning process.
In most cases however, the risk of spending the money obtaining plans isn’t worth the payoff unless you intend to go through with the build. Those risks involve:
The market falling during the planning process.
The plans you get approval for are not a design the developer wants to build.
If the application is too optimistic and eventually fails.
If you do decide to obtain plans, be sure to seek advice from a local architect/town planner that has experience dealing with the council you live in.
Should I consider a joint venture with a developer?
A joint venture (or JV) is a scenario where the developer and the home owner team up to “do the job” together.
Generally speaking, it involves the seller making the property available to the developer and the developer using their skills to build the units. At the end of the process the units are sold and the profits are shared.
This provides both the owner and the developer with a number of advantages:
The owner is able to develop a property they were previously unable to obtain finance for.
The owner has the chance to get a larger profit should the development be a success.
The developer is able to make money without the holding costs of the land.
There are of course risks involved in such an arrangement. It is very important to only work with a developer that both has a great track record of similar developments, and one that you feel comfortable working with over a long period of time. Legal advice should always be sought before agreeing to enter into a joint venture.