Selling house directly to builder? (Arlington, Vienna: for sale, real estate, rent)

[Jankatcla]

We live in a small house on a big lot in a desirable neighborhood in North Arlington. We're pretty sure that our house would sell as a tear-down, since that seems to be the trend in the neighborhood.

Has anyone had any experience with selling a house directly to a builder/developer rather than going through a real estate agent? If so, could you walk me through what you did and some of the pitfalls I need to watch out for? Would there be an advantage to using an agent if we're pretty sure that no one would be buying it intending to live in the house as it currently exists? (I'm pretty confident on setting a price, and would bring a real estate lawyer in before any documents are drafted/signed.)

Many thanks for any help!

[TyroneBiggums]

Originally Posted by Jankatcla

We live in a small house on a big lot in a desirable neighborhood in North Arlington. We're pretty sure that our house would sell as a tear-down, since that seems to be the trend in the neighborhood.

Has anyone had any experience with selling a house directly to a builder/developer rather than going through a real estate agent? If so, could you walk me through what you did and some of the pitfalls I need to watch out for? Would there be an advantage to using an agent if we're pretty sure that no one would be buying it intending to live in the house as it currently exists? (I'm pretty confident on setting a price, and would bring a real estate lawyer in before any documents are drafted/signed.)

Many thanks for any help!

My experience is that builders normally work through real estate agents to handle the transaction. Your experience may be different if you contact the builder directly, as I was always contacted by agents on behalf of builders.

You probably should brace for a real low ball offer as well. Builders buy their profits, so they will try and get your house/lot for as little as they can. Don't be surprised if the offer is just for the value of land (vs. the assessed value of the house + land).

[michgc]

I've never done it so have no experience, but our neighbor put his house on the market this past summer with an agency. He got 7 offers within the first two weeks. Either 4 or 5 of them were from developers/builders. So they were bididing against each other and drove the price up. The house sold for 3-4% above asking price. They also had a nice lot (almost half acre) with a rundown house. So, it still might be worth it to put it on the open market to get them to bid against one another. Good luck!

[NC211]

The first offer you get will probably be a market rate for the land, minus the cost the builder will incur to remove the house from. Learn what prices per acre, half acre, 1/4 acre are selling for in the area.

Then, take that estimate number, and look at what completed homes with similiar lot sizes are selling for. For instance:

Say you sell an acre for $500,000. Say these new homes in your area have 1/4 acre lots and are selling for around $600k a piece. The developer paid you $600k, and sold it for $2.4m. The difference is in the costs he/she incurred to zone, subdivide, perk, and build the new homes. My guess would be about $120 per square foot of cost per home to do all of this. 4,000 square foot home on 1/4 acre = $480k cost, $600k sale, $120k profit per house. Or, $480k net profit for the developer for your one acre. Assuming of course the houses sell (1) at that price and, (2) quickly to get his construction loan he has paid off. Longer it takes to sell, the more payments he makes on his loan. Welcome to the math behind the bust of Florida and Nevada over the past 4 years. Build too many, and buyers have too many options to choose from, which then puts competitive pressure squarely on the price. Too low and too long kills profit. I say this all of this, because if you see land being gobbled up around you for this, the builder will probably discount his offer to you even further to compensate for the competition he knows he'll probably be facing when he delivers the new houses to market..

[Carlingtonian]

Sigh. I respectfully ask you to reconsider. As you mentioned, the builder will put up some hideous McMansion. Do you really want to contribute to the ruination of a neighborhood and the reduction of the supply of semi-affordable SFHs in 22207? You'll still make plenty of money if you sell to an individual buyer who will merely expand the house.

[stpickrell]

I did that in Vienna; I got about $30k lower than what I'd have gotten it through a regular sale. BUT:

1) Lower RE commission (3.5% instead of 6%)
2) Lower chance of running into some buyer who's thinking it's a super buyer's market and will demand $1,000s of optional fixes, or who ends up imploding.
3) Lower chance of an inspector who finds something really wrong that's worth $1,000s to fix.

I did ask for a significant earnest money deposit up front however.

[Jankatcla]

Thank you all for the advice. Very helpful!

I understand your dismay, Carlingtonian, but trust me, my dismal little house will be no great loss to the charm of the neighbhorhood. I wish we could afford to expand it ourselves, or fix it up so it would be more desirable to modest home buyers, but we lack the time, skill and money.

[boyd888]

North Arlington is very popular and I think putting it on the market, if only to get that it's available out there, will bring in more bidders that should raise the price about what you'll lose by hiring a real estate agent to list it.

You could consider putting it on the market "as-is" and not accept any offers with many contingencies and no FHA financing. Any offer from someone wanting to tear down will be likely be cash anyway.

[Carlingtonian]

Originally Posted by boyd888

North Arlington is very popular and I think putting it on the market, if only to get that it's available out there, will bring in more bidders that should raise the price about what you'll lose by hiring a real estate agent to list it.

You could consider putting it on the market "as-is" and not accept any offers with many contingencies and no FHA financing. Any offer from someone wanting to tear down will be likely be cash anyway.

FHA fiinancing is the most solid financing out there; I know, because we went that route. The financial documentation FHA requires is exhaustive.

If someone presents the seller an EMD in a sufficiently large amount--enough that anyone would hate to lose--and is prequalified for a loan, then the seller really shouldn't care who that loan comes from.

[ACWhite]

Jankatcia, have you investigated whether the zoning law in your neighborhood would permit a builder to subdivide the lot and put TWO or more houses on the lot? If so, the land is far more valuable to builders than it is to someone who would renovate the existing house, and than it would be to builders, if only one house could replace the existing house. So you really need to find out from Arlington county whether it is a buildable lot (I am assuming that it is, based on how you describe it) and if so, what can be built on it.

For an example of how this process can get incredibly messed up, even when an architect who should have known better is involved, you may want to investigate (online) the history of a house at 623 S 19th St. 22202 (The renovated/added onto house was for sale a long time; I think it is now for rent). Basically, the house was placed many years ago too close to the lot line on the left side, even for the zoning codes at the time. The lot was about the size of one and a half lots today. The architect thought he had approval to subdivide the lot into two, to renovate and add onto the existing house and give it only a small distance from the right edge of the house to the right lot line of the newly subdivided lot, then build another house onto the remaining area of the lot. After renovation was well underway, Arlington later told him that he had to give the existing house more of the lot on the right side, such that the remainder of the lot would be too small to build another house on. While this sounds like a bureaucratic outrage, etc., if you delve into the details, you can see where Arl. was ultimately correct and that the initial decision wasn't as clear cut as the architect claimed (and the first official did not have the authority to do what the architect wanted). Given that he was in the business, lived in the house/Arl., and had an attorney, he should have known better, IMHO.

So I would recommend researching the zoning laws. It could be worth several hundred thousands of $$$ to you.

By the way, I'm sure the architect wouldn't care about my opinion on his skills as an architect, but I think the renovated house is very cool (from the photos that were online); it's just a bit tall and skinny, which may be (along with the lot legal mess), why it hasn't sold for the price he wanted.

From what I have seen, builders in my Arl. neighborhood typically go through agents and manage to pay less than the land alone is assessed by Arl. Co. to be worth at the time of purchase. They may have an inside track or may be buying multiple parcels to get deals like this. They probably get a discount on agent fees too, and seem to use the same agent multiple times.

One more PS - the land's value varies tremendously based on whether it's on a busy street. For example, if the house/land is on Washington Boulevard or even Military Rd. (to a lesser extent) in the same general N. Arl. neighborhood, the same house/land is worth much less than if it is tucked away on a quiet street nearby. However, if you're looking at the Arl. Co. real estate assessor's valuation, you'll see that the county doesn't really factor this in. Although this is probably obvious to everyone here, I've had my eye on the Arl. market for a long time (in certain price ranges and neighborhoods) and I shake my head a lot at the number of sellers who don't seem to "get" this. Buyers and builders do, though.