Sellers agent - recommendations

Over the last couple of months, we have been in consultation with a real estate agent who has sourced a developer to build 4 units on my fathers block (Croydon, VIC). Now we have done our dd in regards to the developer, we believe they are a good fit for our situation and we would like to proceed with negotiations (over up front payment to us), heads of agreement, get the solicitors to check it over and so forth. The deal is trickier than most because it's not as straight forward as sell, take money and run. My father will retain one of the four titles on completion as his ppor.

We need the developer on board because we can't fund it ourselves and we need someone with experience who won't stuff it up.

We will be in close consult with the developer throughout the length of the project and I am certain that the sale will be subject to many clauses and conditions, as stipulated in heads of agreement (not that I have ever done one of those either).

We would like to have another person on our "side" other than the real estate agent, preferably in the room with us when negotiations take place for the up front sale price, as we know the developer has put in a ridiculously low offer to start the ball rolling, we are asking 3 times as much.

We just want someone to be able to give us that support and confidence, tbh I'm not ready to trust the agent with fully yet(if ever?)

Any helpful recommendations greatly appreciated.

 

hi loanshark

Good idea under the circumstances, but I agree, who do you use ?! First thoughts would be maybe a retired agent that has development sales experience (but not one who may have moved in the same circles/area as your developer), a solicitor who acts for a lot of developers - but that will get expensive, or perhaps try calling the REIV and see if there is anyone on staff there who have had sales and developer experience who would do it outside of their role there, (sometimes the trainers/arbitrators are part time) .

Alternatively, someone who has succesfully project managed multiple developments

Good luck

 

You are asking 3 times as much as what the developer offered? That does not sound right. PM me the name of the developer or the company name. I might know them.
It sounds like you need a good lawyer that understands JVs.

 

If they can work out a fair and safe deal for their dad it may work really well for them. They already own the land and most likely like where they live. The flip side is if they do what you suggesting is they don't need to wait and will be most likely exempt from stamp duty. I just hope they are not being taken for a ride. I like making money but I hate when someone rips off an old person that has no time on their side. I have helped a lot of people in situation like this free of charge whether it is buying a property after they sold or tidying a deal so its as safe as possible for them to proceed. That is why I am asking who is the developer because I might give them some insight in to how they operate.

 

Jeez, you'd hope any commercial/property lawyers articled clerk could understand a JV!

I think @LoanSharkJR needs a representative who is experienced and fully understands the financial and logistical process so they are not baffled by developer/builder bullsh@t and can ensure all development partner(s) are diligently meeting their obligations over the full term of the project

 

That is exactly my point. You and I can see through it very easily but from the post LoanSharkJR made I think they need some help connecting with the right people. I am sure you have seen lots of things going badly for people in their situation.

 

And those that thought they did alright but never realised they paid for the developer's renovation of his beach house and half of the builders next job.

 

Thank you @Agent30yrs. Thank you @MrFox - both of you have understood my position. A couple of developers who are not related to this particular deal have offered to 'help me out' in terms of being that second opinion or just to run numbers by to see if it is all above board. It still blows me away how generous and kind people can be to each other when the need arises.
Honestly I am humbled to be part of the wonderful PC community, I can't imagine how I managed this far without this invaluable resource.

Thought had crossed our minds, more than a few times. But when all said and done, we know most of the risks, and probably lots still to discover, but we are mitigating as best we can because it IS what my father has always wanted for the destiny of his property and I would rather give it a good crack at getting him everything he wanted, than regressing to a procrastinator mentality that has had dad stagnant and frozen for the past decade. Fomo, yes, a little lets be honest. But this opportunity has been a long time coming and we have chosen a developer that has so far displayed transparency, accountability, understanding and been considerate and accommodating of my father's 'requirements' for the project.
If they just won't come to the table with a reasonable offer then we will find another developer or subdivide ourselves(daunting as I have never done it before) but I know it's just a matter of education myself so that I can get the best outcome for dad.

 

Here's the background to our story, it may make more sense after reading the thread below:

1420sqm in Croydon: Options please

REA values the site currently as is $850-900k
After development value: 4 lots@ $720k each
Dad would be given one title (worth $720k) and also ask for cash of $475k before the commencement of the development. (We are willing to neg but no lower than $350k)

This means developer has paid 475k for a site which will cost maybe $1.8m to build(total inc everything) and sell 3 lots at $2100060
That leaves profit of $360k. This does not even cover the 475 that we are asking initially.
Perhaps if we asked for 300 it would be more viable for the developer.
Maybe, probably not. I would want to walk away with more than $60k for 18m work!!

They have offered $120k (and title to one unit) and to pay for the legal fees to draw up a heads of agreement .

We just need a helping hand with all those costings that are subjective and at the moment only assumptions. I am slowly realising what dad wants may not be realistic with regards to the cash amount.

If he doesn't get the cash, he is left to scrape by on a pension and that is a very gloomy fate indeed.

 

Have you considered the tax implications? Is this currently his PPOR? If so I suspect you'll find the cash in hand at the end of the day will not be all that much more than just flogging the site on market and will involve a hell of a lot more effort, risk and time.

Personally what you're describing, a $720k property +$350k + risk -rent elsewhere in the meantime-consultant fees - contingency orballowance of some sort of reduction in end value at handover just in case etc seems like a far too small margin vs getting $900k in hand now.

You'd really be wanting a decent chunk more than that to take all that risk, keeping in mind you've already indicated your dads financial future will be greatly affected by The result of this deal


That being said though, maybe speak to @OC1, Oscar, although I don't think he posts here anymore. Being an experienced developer in Melbourne for similar lots he may be able to help you out in terms of mapping out pros and cons, introducing the correct consultants and negotiating with the developer. If not him he may be able to recommend someone else.

Sometimes spending an initial small amount to have him potentially come back with a tighter feaso for you to make an informed decision on can be the best money you'll spend, especially if it prevents you from potentially making a costly error

 

@sanj my dad does have another unit he lives in just around the corner from this site, he owns it, no rent to pay, no mortgage to pay.
As you say, risk+consult fees+allowance for reduction in end value is noted and responsible thinking, thanks for that reminder.
The point of reaching out to the PC community is just as you suggested, a name or resource to help us along the way.
Maybe after speaking to a couple more experienced developers/consultants we will decide that selling without development is the best option, but I won't give up on the current expectations until we have covered all pros and cons and made an informed decision. Thank you for you input.

 

Why is your dad paying retail price for the unit? Build cost would be about $350K plus $120K cash is $470K total cost to the developer. No stamp duty or holding cost on top of that.

 

I'm not quite sure I understand your question, "retail price"? I have explained the simplest way I could so I did not confuse myself, but that $450k build cost is not just materials, but factors in all costs of the project from start to finish (plans/permits, sub-div, open space contributions ($50k), council tax etc) tbh your figure of 350k build cost seems reasonable to me, but the developer must be paying holding costs like interest on loans for the project, and CGT when he sells the three lots at the end.
Your estimate 350 v their est. 450...
Until I compare apples with apples, we're just guessing.

Using your estimates:

Build unit1 $350k and sell $720k = $370k profit
Build unit2 $350k and sell $720k = $370k profit
Build unit3 $350k and sell $720k = $370k profit
Build unit4 $350k and GIVE title AND $120k to dad = $470k cost to developer PLUS 350 x 3 cost to build the other 3 units = $1,520,000.

Profit from sale of 3 units 3 x 370 = $1,110,000

The developer is $410,000 in the red. Why would the developer want to proceed, unless they see something we don't, we have overlooked something perhaps?

 

Also, if we did sell it, chances are a developer would buy it and put the 4 units on anyway, at least this way instead of them paying $900k for the land, they pay $120k and forgo the sale of unit 4's potential profit of $370k, so it's cost them $490k for the land instead of $900k therefore one could argue they saved $510k on the land, and can afford to "give"my dad some (but still not sure how much) and this is where it gets muddy, because different people work it out in different ways, apples with apples would be a good start.

 

Few things to consider. Your dad will get a unit worth $720,000 plus $120,000. In total that's $840,000. You can potentially sell the land for $900,000 so where is the upside for the risk associated with letting some one else develop his land?
The developer has a very little risk so that should be worth something to them.

 

If I am to understand your comment, there is little"benefit" to my dad if he lets another develop his land.
Could you elaborate on what you believe to be the risks, that my dad would put himself in and what risks the developer has reduced for himself?

 

Some of the risk for your dad:

- Developer does not finish the job.
- Builder that the developer is using can go bankrupt. (Very difficult to appoint another builder to finish the job due to builders warranty insurance)
- The builder will build inferior product.
- The builder takes too long to finish.
- The market could move down. This is 18 months to 24 months process before your dad can move in to his new home.

The advantage for the developer:

- No holding cost on the land purchase.
- No stamp duty payable as there is no sale.
- Much easier to walk away if the market changes or the deal does not stack up.

These are just a few. It all depends on the JV agreement your dad signs with them. You also need to find out how are they going to finance the project. The bank might want some collateral and I would strongly discourage your dad to let them use the title for this.
Your dads tax position is also something you need to look in to. He is basically becoming a developer.

Don't take this the wrong way. I am not trying to discourage you from doing it, just highlighting some of the issues that may come up.

 

Hi

Lots of potential risks all depending on the heads of agreement/contract that is drawn up. It is great the developer has offered to pay for the heads of agreement to be drawn up, just make sure it is you having the agreement drawn up by your lawyer that is an expert in this field and not drawn up by their lawyer where you will need to spend another $5,000 on legal fees to have it checked over before you sign it.

Should you wish to take the matter further I would at least get 3 x separate developers to offer you their best deal, I know that Bayland Group do this sort of thing and at that size of building site but I can't confirm if they are good to deal with or not.

Regards,

alicudi

 

A valued suggestion regarding creating competition between developers. It definitely is a wise move to not hang your hat on the first one that comes along.
We have thankfully engaged a lawyer familiar with these types of agreements and will not be exorbitant cost wise when it comes to reviewing the HOA, less than $1000 anyhow.
You mentioned Bayland Group: a brief Google reviels mixed reviews, from their numerous and extensive completed projects they seem to have a lot of projects on the go at once. Can't say whether this may be of significant importance to us or not. Thanks for suggesting them, how did you come to know of them?