Selling to a Developer

[Seattle Matt]

Hello, I'm relatively new to the forum, but I've been lurking for a few years.

I'm just about to list my home in Seattle for sale, likely with Redfin.  Since they have rezoned my neighborhood I have received inquiries from developers. 

I developer offered me 675K with an optional 12M closing.  My potential agent would like to list around 700K, I am thinking 725K.  Zillow has the value at 697K.   

What are some of the drawbacks to selling directly to the developer?  What if they back out and the market goes down?  Hidden costs, etc?

[Brian Hughes]

if your home is in good shape, has good street appeal and good amenities, is not an outlier in its location (last house on a block of apartments, last house on a commercial strip, busy street etc) and would appeal to non-investor non-developer buyers your best bet is to list the home on MLS and get as much visibility as possible. You can of course do that by hiring any respectable RE agent/brokerage, just make sure they don't want to do a 'pocket' (non MLS) listing which sometimes happens with redevelopment and other investor-focused properties.

If your home is likely to appeal mostly to developers (as was the case for my old duplex due its zoning and other circumstances)  then your best bet is to solicit them.   You can still of course hire an agent.   That will be more likely to guarantee the best sale price,  but of course you will pay a sellers commission.  If you go that route find an RE agency that specializes in commercial/redevelopment/investment properties,  there are many.   This is a 'safe' way to go if you are at all uncomfortable with the prospect of doing more legwork yourself.   You should also probably go this way if you are at all unsure/not confident of the value of your home.   

WRT "and/or assigns" an assignment just means that the original party who signed the contract with you to buy your home is giving those rights to a different party who would then continue the process.   In theory that has no impact on you as the seller,  but in practice it does.   First,  the party you originally determined to be legitimate/reliable/serious etc is no longer the buyer and you now have a strange party buying your home,  and 2)  assignments are usually done for a fee/price.    That fee would be payed by the the assignee (new buyer).    Since the ultimate buyer has a certain budget and will value your property at X,   they don't care whether they pay the owner X or split it between the owner and assignor (original buyer).  Basically what it means is if fees are paid to do the assignment,  you as seller ultimately get a lower offer "no fee" offer.   Unlike a RE comission where you know what this amount is and it is fairly standardized,   with assignments there are no rules/conventions.   It is all about the negotiation between assignor and assignee.  You as seller do not have any right to know the amount or be involved in the process.    If the assignor gets your property under contract below market,  they will use that to try and get a larger assignment fee typically,   making up the difference between the low sale price and the market price as profit for them.

Earnest Money (EM):    This is 'deposit money' used to guarantee the buyer will follow through.   The longer a property stays under contract but not yet sold,  the greater the risk that things will happen so the larger the earnest money should be  See exhibit 1:  COVID-19.    A "normal" EM for a normal retail residential transaction is around 1-2% of sale price.   Those transactions also usually are timed to close in around 30 days.   Since developers and middlemen both want longer closing times for reasons previously stated,  they will offer larger EM's in exchange.  Most of them I talked to wanted 6 months to a year closing and offered about 4% and up on the EM.   The EM I agreed to was about ~8% of sale price (50K) for 8 months to closing.   That worked for me since I needed the time to work on getting my already-purchased replacement home habitable and move stuff gradually.    Your situation may be different.   There are no regulations or rules around EM;   it is completely subject to negotiation.   If you are directly negotiating it please insist on it being nonrefundable,  and for it to be a significant sum proportional to the length of the contract.    Some of the money can typically be released to you before closing,  and that is a good thing to ask for  (harder to claw back for buyer if they decide to be underhanded about it)  but best to not touch it til sale completed lest they try.   If you can't qualify to buy a new home without funds (including an EM) from the sale of your current one,  It is probably risky to agree to a long closing time,  especially now that the economy has been seriously dented by COVID.   The risks of things being way worse or way different in 6 months is much greater right now.

I can give you the contact info for the attorney I worked with,  PM me.   He did a decent job and charged me far less than what a normal RE commission would have been on the sale.   If you do not want to hire a RE agent to represent you,  you MUST hire an attorney.   Otherwise you are putting yourself and your interests at significant risk.  Buying/Selling RE is complex.   I'm no expert but I know that.   Some buyers knowing you aren't represented will likely take advantage of the situation maybe not to offer you less money,  but to change terms to put more risks of the transaction onto you.   Don't go there.   Mic Drop.

If your neighborhood is changing,   everybody in the neighborhood is going to have to deal with that.   In my old 'hood I lived there for 10 years;   the last 3-4 years there were constantly active townhouse projects at various locations within 1 block of my house.   By the time I chose to sell I had townhome projects next door, and kitty corner across the alley,  and a developer owned the property directly across the alley too.   Interestingly the neighbors who were most upset with me for selling weren't the ones in remaining neighbor houses,  they were the townhouse residents next door.   They were upset at the thought of a year of construction and losing the view of greenspace/gardens on my lot.   I just reminded them that I had gone through the same thing,  and they had chosen to buy into higher density living in a redeveloping neighborhood.   Most of them I left on good terms with but one neighbor went from friendly to adversarial practically overnight.   They had other stressors in their life though and were in part taking it out on me,  off topic for here.  By then it was only weeks to my closing date so it didn't really matter though.

Good luck.