Commercial Property and Finder's Fee questions.

[Philip Lamachio]

Thanks in advance for your answers. I was following up on several FSBO offerings I saw while driving near my home. I was actually looking for cash flowing rental property, but when I got a call back on a property with two homes on it, the owner said he wanted $275K for the two properties. Rentals for the two older homes would bring at most 15-1800k a month total, so I asked him why he had it priced so high. He believes that the 2.7 =/- acres that the homes sit on will be prime commercial development land, as this is the only exit that has not been commercially developed off this highway going out of town. He expected that whoever bought the land would hold it until they had a development plan, then bulldoze the homes and build.

I told him that I was only interested in rental homes at this time, and was not a speculator, at which point he volunteered the land had been on the market over a year and indicated he was ready for an offer, presumably much lower. 

He then offered me a finder's fee if I could bring a buyer. 

My first question is this:....what is a typical finder's fee? A percentage of the sales price? If so, what percentage? 

Second question: How do I approach a potential land speculator? I haven't yet begun to get to know the local investors or go to any local REI meetings yet.

Any other random thoughts related to these questions welcomed! 

[Joel Owens]

I used to do land development assemblage on the commercial side. The fact that there are 2 homes on the property is good because the rental income can offset holding costs until development comes.

If it was just raw land with nothing on it then a land speculator has sunk costs year over year until the land can be sold for a profit or they develop themselves or do a JV partnership. They can also keep the land and do a ground lease.

I usually look at traffic counts for the area and what they are doing year over year. Additionally I look for water and sewer connections and capacity for the area and if other utilities are readily available. If traffic is growing then when is the road going to be widened and how long will that take? What is the shape of the 2 + acres and slope? All of the 2 plus acres may not be usable for development. The current and future land use map for zoning in the area should show what the county or city has planned and wants to see in the area for the future.

The seller is seeing future dollars signs selling at a premium but doesn't want to take the risk. A land buyer has to bring them down to reality on what they can pay.