WHEN PROPERTY DEVELOPERS COME KNOCKING

A brief guide to getting a great result.

by Neil Jenman

Reading time: 9 mins apx

If there’s one segment of the property market where homeowners are likely to under-sell their properties, it’s selling to developers.

Therefore, if there is one segment of the property market where homeowners need to have patience and “think it over”, it’s when they are approached by property developers.

To be sure, if your property suits developers, you’ll likely to get a higher price. In your delight, however, there is one question you must ask yourself before signing up: Is this the best price I can achieve?

To help you answer this question, here are some points to remember.

ABSOLUTELY RUTHLESS

No matter how pleasant they (or their representatives) appear, many (most?) developers are ruthless. It’s part of their business.

One of their golden rules is: “You make your money when you buy.” Therefore, the lower the price they can pay, the more profit they make.

And believe it, many developers make massive profits – especially if they buy your property below the amount they are willing to pay. Even if you are naïve enough to think that the developer is kind, always assume they are ruthless.

You don’t have to be rude. Just don’t trust them.

DODGY AGENTS

Most agents are dodgy. But when agents are aligned with developers the dodginess reaches great heights. Especially if the agent “gets the re-sale” from the developer.

For instance, if the developer will build 24 apartments, then that friendly agent who’s approaching you to “negotiate” has a huge conflict of interest. The better the deal the agent gets for the developer – in other words, the less you get – the more the agent will win favour with the developer.

And likely get to sell the end development.

Here’s another “rule” between agents and developers. The developer tells the agent: “Get this property at the right price and you get to sell the apartments (or whatever I build).

The “right price” for the developer is often the wrong price for the homeowners.

You will often get a better deal if you hire an agent not connected to developers. If you can’t resist using such an agent, then, at least, be sure the developer pays the agent’s commission.

RESIST HEAVY PRESSURE

When dealing with agents and developers, you’ll face enormous pressure.

“This is the best offer you’ll get.”

“This is your last chance.”

“They are looking at another property.”

“They need an answer by five o’clock today.”

And dozens more “reasons” for you to act now, to have less time to think, to be prevented from getting good legal or professional advice.

No matter how heavy it gets, you must resist heavy pressure.

Here’s a great truth of property selling: When someone is putting pressure on you to make a fast decision, you can be sure that the decision is more in their best interest than yours.

Do not sell before you are sure you are getting the best price. Seriously, I have seen homeowners sell for millions less, all because they succumbed to high pressure.

Turn your phone off if necessary. Don’t speak to them each time they call. Play hard to get – it works in your private life; it will work in business too.

Here’s another rule: If someone is offering you what seems a “great deal” today, you’ll almost certainly get a better deal tomorrow. At worst, the same deal will still be there days from now.

Take your time. Fast decisions when selling to developers are almost always wrong decisions.

And be sure to follow this rule: Never reveal the lowest price you are willing to accept. Indeed, don’t reveal any price.

HIGHER AUTHORITY

To relieve the pressure on yourself, to give yourself time to think, to be sure you are not rushed into a decision you’ll regret, use the “higher authority” technique. This stops pressure coming at you – plus it gives you time to think.

“Higher authority” means that you select a person (ideally, a relative or friend – even your life partner) as the person you consult before making a decision. So, when you are pressured for a decision, simply say: “I don’t make any decisions without speaking with [Whomever].”

GOOD LAWYER

This is not the time to be stingy. Don’t use a discount conveyancer. Hire a good lawyer, the best you can find – hopefully, one recommended by someone you trust.

A “good lawyer” will fight like a tiger to protect your interests and, ideally, choose a lawyer with experience dealing with developers. Maybe make your lawyer your “higher authority”.

And please, for your sake, always follow this golden rule: Do NOT sign anything – no matter how innocuous – without checking with a competent lawyer.

CHECK THE DEVELOPERS’ WEBSITE

This idea can save you from being badly hurt.

Recently, we supported an owner who’d been approached in writing by a developer. An internet search soon uncovered a web site, a Facebook page and a YouTube channel. One of the videos was of the director of the development company giving a speech on “wealth creation”.

Here he was – looking as dodgy as dodgy can look (ugly beard, shocking wardrobe and clearly in need of regular exercise) – telling an audience of hopeful wanna-be-get-richers, his life story. Ten years ago, this developer migrated to Australia. He had done his research and decided that property was where to make a fortune.

He then said: “I came to Australia to kick a…”.

When we showed the video to the owner, he said, “He’s not kicking my a….!”

It’s amazing what you find when you do some internet research.

OBEY THE LAW

No matter what, always obey the law. If someone suggests you do something dodgy, they are going to be dodgy to you before long. At worst, you’ll end up in front of ICAC having to explain what is meant by a “brown paper bag”.

No matter how much they deny it – or how much abuse I may get – the simple fact is this: Corruption is rife in the property development world. Do not participate in it – no matter what you are promised. You could end up in jail.

If you suspect corruption or any illegal activity is used to harm your interests, speak with your lawyer. Here’s an example: A homeowner applied to council for an “uplift” on their zoning. They wanted to change their land use from residential blocks to townhouses. Had the uplift been granted, the value of the property (4.5 acres) would have increased by around $13 million. Instead of being worth $15 million, it would have been worth about $28 million. The council rejected the application.

Never mind, the owners managed to get another couple of million dollars. They sold to a developer for $17 million, a tidy sum, for sure.

But then, a few months later the council approved the land for townhouse use. When submitted by the original homeowners, the development was rejected. Once the developers bought the land, it was approved for townhouses.

The original owners sued the council. The council had to pay the homeowners an extra $11 million.

Corruption is rife in the development world. Don’t participate, but don’t let it hurt you, either.

DO IT YOURSELF – MAYBE

A homeowner was offered $22 million for his rural property on the outskirts of a city. The owner told the agent: “The developer will probably make about ten million dollars profit if we sell at that price.”

The agent replied: “And the rest.”

The homeowners asked themselves a question: What is the developer doing that we could not do for ourselves?

The property was going to be subdivided into housing blocks. It was a simple development. The end value of all the individual blocks was well over $40 million. Even allowing for infrastructure, the owners stood another $12 million.

Here’s an interesting point: Many owners have held their land for decades. Along comes a shrewd developer who obtains more gross dollars in months than the owners obtain in decades.

Is it worth doing the development yourself?

Maybe.

It’s not hard to get people to help you – for a small share in the profits. Many agents will assist homeowners at no charge, especially when they’ll soon be selling dozens of allotments.

DISCOVER THE END PROFIT

If you know how much profit the developers will make, you can often get a higher price. Agents are fond of saying that developers work on “a third, a third and a third”. A third of the cost goes toward acquiring the property, another third towards development and the final third is profit.

If you can discover, even roughly (to start), the profit the developer is likely to earn, you can often persuade them to pay more. Especially if you hire an agent who can negotiate well on your behalf.

For example, if the end profit to the developer is likely to be, say, $15 million, a good agent will say: “Surely, you’ll be happy with $11 million profit?”

Given the choice between making $11 million and walking away with nothing, surely the developer will accept the $11 million?

Just remember how Sir Alec Guinness made the greatest financial profit of his life. In addition to his base payment, he negotiated a gross percentage of 2 per cent of the takings from the first Star Wars movie in 1977. By the time he died, at 86, the wily actor had earned $95 million from one movie. Think of Sir Alec and realise the importance of focusing on profits.

DON’T FEEL BAD ABOUT A GOOD PROFIT

In our home, my wife and I sometimes have intense discussions about wealth, especially the way it’s acquired. I get concerned about how so many people make massive amounts of money (many millions of dollars) when properties are re-zoned. While normal capital gains are expected, those who are lucky enough (and often it is just luck) to have their properties re-zoned earn many times more than normal capital gains.

I often ask: “What have they done for society to deserve such a windfall?” I have seen families reap close to a hundred million dollars from properties that were bought (often by a now long-dead father or grandfather) for less than $500,000 (back in the 1960s to 1980s).

As a lover of philosophy, the words of wise people from ages long past often come to me. Such as Mahatma Gandhi who said, “Seven things will destroy you. And the first is wealth without work.” Just check what happens to many lottery winners.

But if you don’t get the best price for your property, you are effectively giving away the surplus – the difference between what you get and what you could have got. And you are giving it away to the most unworthy recipients, ruthless developers and greedy agents.

To do what? Make lease payments on flash cars?

When you under-sell your property, you are not giving your excess wealth to whomever you choose. And it should be your choice to do what you wish with your own money. Help deserving family members. Help your community – in some way, especially if you live in a small town. Or select your own charity.

Helping others who deserve your help will feel a lot better than underselling your property by a few million dollars – even a few hundred thousand dollars.

Any amount, even $10,000, is too much to undersell a property. How many people in our society genuinely need extra cash? Even $10,000 may be life changing for some people. If you do secure a multi-million-dollar windfall, imagine the good you can do.

Not long before he died in 2011 at age 61, firebrand journalist Christopher Hitchens quoted Horace Mann (“the father of American education”) who said: “You should be ashamed to die until you have done something wonderful for humanity.” Both Hitchens and Mann did plenty to improve society.

Given the chance, what would you love to do?

Then the first challenge is simple: If you own a property that’s appealing to developers be sure you sell it for the very best possible price.

To achieve the best possible price, find the best possible negotiator – or learn how to negotiate yourself.

HOW TO GET THE BEST PRICE

How do you know when buyers, especially those whose business is buying and selling properties, are offering you their best price? How do you discover their ‘walk-away-price’?

The answer is simple – although again challenging: Hire the best negotiator. And please, no matter how persuasive agents may be, never sell your potential development site by public auction. That’s the surest way to undersell by millions – even tens of millions of dollars.

Look at the nation’s most successful property developers. Do they ever sell several dozen apartments by public auction? Of course not.  Developers know what they are doing. They know that auctions are the place to buy for less, not sell for more.

The way to sell for more is to hire an agent who’s a genuinely great negotiator. Someone who will find you two or more buyers. Someone who will extract the best price each buyer is willing to pay not demand you reveal the lowest at which you will sell. Someone who knows – and remember these three words – how to use a ‘BUYERS PRICE DECLARATION’. If the buyers won’t sign such a document, then don’t sell them your property.

ONE FOR YOU

Here’s an idea. It’s a bit cheeky but often works well. When you are sure as can be sure – that you are being offered the best price the developer is willing to pay you, do this.

Ask for “one for you”.

That’s right, ask them for one of whatever they are ultimately selling. If it’s blocks of land, get them to give you a block – at no extra charge, of course. If it’s apartments, get one for you – or a friend.

Sure, the developer will squeal but believe it, to “get the deal done”, many agree to the ‘one for you’ proposal. Or maybe, at worst, one for you – at cost price.

It all depends on how good you – or your agent – are at negotiating the best result for yourself.

KNOW WHEN TO SAY ‘WHEN’

Be careful not to be too greedy. The ideas and points in this article will help you get the very best sale price. They will reduce the chance of your property being undersold. But there comes a point when enough is enough, when you have truly got the best price. Don’t hang out for some miraculous price. You could be waiting years. And then your relatives, not you, will be winners. Especially after you die. As the saying goes: “Where there’s a will, there’s a relative.”

So, once you have got the best possible price, sell now. Help your children or other family members now. Do some good for your favourite charity – now. Do something wonderful for your community – now. And finally, do something good for yourself – now.

As my wife often tells me: “You’ve done so much work in your life helping people with no financial reward for you, don’t be embarrassed about treating yourself in some way.”

The same applies with many people. If you are lucky enough to have a property and the developers come knocking, just make sure you get the best price. Help yourself and others.

And feel really good about your good fortune.

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PLEASE NOTE: If you would like to see a copy of the Buyers’ Price Declaration, it’s on page 336 of the book, Don’t Sign Anything! With instructions on how to use it. You can purchase the book, by clicking here. If you just want to see the document itself, send us an email with your details and we’ll get one to you – probably by return email. Please click here.

And finally, if you have not read the 88 Reasons Why You Must Never Sell by Auction, you can buy a copy from Booktopia by clicking here.

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