Why would a Seller NOT want to separate their property?

Question

I'm noticing a lot of sellers have a house or a building AND a vacant lot next door, and when they go to sell they are selling both as one listing. I have twice now tried to work a deal with the sellers to split the listing and sell me the lot and list the property with the building separately, but they just say they're not interested. I just got off the phone with an agent who told me that his client wasn't interested in splitting the listing "because it would decrease the value of the property" .... but I just really don't see how that's possible! Obviously the value of the property with the house or building would go down SOME if the total land area was lower, or if they didn't have a yard ... but we offered $35k for the lot. And in the other case I beleive it was $45k. That's not a small chunk of change for an empty property!!

Based on my understanding of the values around here, I really just don't see how a slightly smaller yard will decrease the total value of the property by that much. So if someone was going to sell their property for $400k including the lot, but they decide to split it and sold the lot to me for $35k, I really think they could still sell the other property for at least $380k and make MORE money at the end of the day! Why is this so hard to explain to people? Or am I the one who is missing something???

Do any developers have tactics they use to get people to understand the value of their raw land? I just feel like most people see raw land as relatively useless, even when there is a cash offer on the table, all they are thinking about is how it will negatively impact the value of the house or building they are trying to sell to not have the yard space, instead of seeing the bigger picture of total value.

Any tips on how to communicate with sellers on this?

Dustin Allen · Answer

@Leilah Davis

This is not uncommon and people will often pay more to have the land next door to ensure nobody builds a big home in what they would rather be their yard. Many times, we will see the seller at least give first right of refusal to whoever buys the house. If they don’t want to pay for the lot also then they will sell it separately after the house sells. Selling the land separately before the house sells takes away a number of potential buyers.

Theresa Harris · Answer

I agree with Dustin.  If you want it, why not buy the house and empty lot as a package, then split it and sell the house.  Once it is sold, start building on the empty lot.

Phillip McDonald · Answer

I also agree with Dustin's comment.  Often, the owner of the property wants to control what happens next door.  From a value standpoint it is not a linear equation of Market Value of House + Market Value of Lot = Total Market Value.  The owner of the house is placing a different value on the lot called Investment Value, which means it is worth a different value to this particular owner or buyer because they own the property next door.  This same owner or buyer is probably not interested in owning any other parcel with similar utility in a different location, they are only interested in owning the parcel next door, so it is worth more than market value to that particular investor.  However, to a developer, such as yourself, it is just another parcel with specific utility and is worth the same to you as any other parcel with similar utility.  This is typically why they are not interested in selling the parcel separately at market value.

Aaron K. · Answer

@Leilah Davis I think you probably have a couple things going on here

1. Most of these people are going to be owner occupants who have memories on the property and used it as extra land and don't want to see it developed, it'd be like if your childhood home was bulldozed for a park, sure it makes the neighborhood nicer but you had memories there.

2. The listing agent probably doesn't want to deal with vacant land alone, probably because they or their broker would want to/ have to charge a much higher percentage commission and do twice the work.  They discourage the seller, and the seller agrees because they don't want to pay yet more fees to offload their asset.

Mike Cumbie · Answer

Hi @Leilah Davis

I get asked this quite a bit and in many cases I recommend they don't sell off the separate parcel alone.

First problem is a house on a double lot is more desirable in my area. Second is if after you buy it you don;t cut the grass, their house is next to an overgrown mess while they try and sell it. Even worse is if you start developing before their primary sells...... Construction noise during showings.

Now if they have say 20 acres and ask about leaving the house on 5 and selling 15, many times it's OK to sell it off.

Just my thoughts and good luck, you will find one though. Look in some newer developments, many times you can find properties in there that were never developed and the town took for taxes or the developer wants to ditch.

Leilah Davis · Answer

Interesting, I didn't know any of this. Thanks for the insight!!

Leilah Davis · Answer

Yes, but then we'd have to wait until the first home sells to even buy the package, and then wait again until the newly acquired home sells in order to start building. We're trying to move very quickly, hence why we want to purchase the lot now, get our design and permitting done while the first deal is wrapping up and gets on the market, so that we can roll that money into the next build immediately. We're a little impatient LOL.

Robert Dobbs · Answer

Many times, "homestead exemption laws", may save a homeowner some tax money by NOT "splitting-off" an adjoining vacant parcel.

Also, the "homestead exemption", allows most homeowner's insurance policies to cover "as one parcel".

In addition, there are favorable "liability issues" by having all undivided parcels included in a "homestead exemption".

Just saying ----------------> "some food for thought"! LOL!!!

Theresa Harris · Answer

@Leilah Davis  If you are using money from the sale of your first deal to pay to develop the lot, just change the strategy a bit and use it to buy the package, then once the house sells, you free up that money to build the home.

Allan C. · Answer

@Leilah Davis whether seller is a home owner or investor is irrelevant as that person will want top dollar for the asset. Highest and best use of adjacent lots is often higher density structures, so it often does not make sense to sell the lots separately, zoning restrictions aside.

I once lived in a city where residents on the same street often banded together to sell their homes to high density developers. If one homeowner was not on the same page, it would cost the others a very large sum of lost opportunity.

Why would a Seller NOT want to separate their property?

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