You’ve finally come to a decision that you want to part with your vacant land property. You are not sure though, if you should sell that property through a land buyer or through a real estate agent.
Below are three points to make – all admittedly self-serving from a land buyer’s perspective, but are still very real points to be taken into consideration regarding real estate agents:
Real Estate Agents Can Be Quite Expensive
It’s no secret that real estate agents must make an income in order to survive, just like everyone else. So – how do they typically get paid? The typical real estate agent will charge 3% – 6% in commission to sell a home, depending on your market, area, and home. This cost is usually paid for by the seller, not the buyer, so when the seller sells the property, the real estate agent’s commission is taken out of the seller’s proceeds, reducing how much the seller puts into their pockets after the home closes to a new buyer.
For vacant land however, that commission amount is usually much higher – usually 10%! This commission cost means you must bake that into your sales price, forcing you to list the property at a higher price, which can lead to taking longer to sell as well.
Everyone needs a place to live, but not everyone needs vacant land. Most people when shopping for a home look for something that is already built on. For this reason – vacant land has fewer buyers than home buyers and thus takes significantly longer than the typical days on market that a residential home might take to sell. When land is priced higher due to real estate commissions, that adds even more time on market before a buyer can be found.
When you do finally find a buyer for your property and get to the closing table, the real estate gets his 10% share out of the proceeds, along with any closing costs you may have had to share as well, further reducing the transaction amount.
(Side Note: At Land Pearl Ventures – totally shameless plug – we do not use real estate agents to purchase property, saving you commission costs, and we typically also pay for all closing costs when buying vacant land, saving you even more money!)
Agents Will Lock You Into a Months-Long (or Annual) Contract
Most real estate agents, if they agree to list a property for you, will first require you to sign a listing agreement, which locks you into a contract. This contracts can be anywhere from 6 to 12 months. When they do this, if you happen to find your own buyer during that time period, you still must compensate the real estate agent their 10% commission during that time period.
When locked into such contracts and not satisfied with the progress you’re making, it may not always be easy to get out of that contract until that time period is up. You won’t often know how good your agent is at their job until they have had your listing for a while. By the time you figure out they may not be so good at their job – you may be forced to wait a long time before you can get out of the listing agreement.
If you have plans for the funds or need the funds much sooner, but they’re locked up in your vacant land property, waiting a long period of time to find a buyer might not be an ideal situation.
Most Real Estate Agents Would Rather Sell Residential Homes Vs. Vacant Land
Most real estate agents are employed and trained to sell primarily residential homes. Homes can be more of a complex transaction – there is often insurance, mortgage issues, home inspections and repairs, appraisal issues and other things to know and navigate in the home buying and selling world. Few real estate agents specialize in land only transactions, so when a typical real estate agent comes across a land listing it is often put on the bottom of their to do list and may get marketed much less than one of their home listings might.
At any given time, the buyer pool for homes is much greater than the buyer pool for vacant land, and real estate agents naturally focus their attention on where most of their income will come from – home sales. It’s only natural to do so.
In times of higher interest rates, the buyer pool for vacant land is even lower, particularly for more expensive vacant land properties. This is because there are few all cash buyers, requiring lenders to allow a buyer to afford to purchase a vacant land property. There are far fewer lenders willing to lend on vacant land properties than there are home lenders, and when a lender does lend on a vacant land property, since there are often no improvements on the property and the vacant land tract may have greater market risk, lenders normally require a much higher down payment versus a home lending situation. The vacant land buyer must then have much more saved for a down payment in order to purchase vacant land. This further reduces the buyer pool for vacant land, particularly in times of higher interest rates, when the amount people can afford is much less due to higher interest rate payments.
Land Pearl Ventures has come across opportunities to purchase land numerous times on the open market where a real estate agent may have neglected marketing their vacant land listings and chose to focus on their home listings instead. In some cases, vacant land properties have remained on the market for for as long as two years, with no viable offers or buyers in sight. Some vacant land properties may take even longer to sell, depending on the market, zoning, size, pricing and other factors. If you are looking for a quick exit, using a reputable land buying company like Land Pearl Ventures may be something to give serious consideration to, in order to avoid the waiting game.