Property Business Can Be Very Frustrating

byAlanJE

2.6K followers

8 months ago

Hi Everyone,

I hope you had a great last weekend, and a good start to the week.

My day was spoiled yesterday when a seller with whom we have been dealing for around 8 months, suddenly withdrew from the sale of the building to us. (we actually first offered on this building more than 3 years ago, and were not successful, and I really thought we could clinch the deal this time.

We have invested quite a lot of money in this transaction already, expending a Non Refundable Deposit of $12500, plus legal fees around $10,000 and architects fees and local authority planning application fees $5000.

It is disappointing and certainly hurts to lose that money, however it may be that the seller will try to sell the building for a higher price than we were prepared to pay.

The seller is fixated on getting around £1.7m for the building, more than $2m. How do we evaluate what the building is worth for us?

Well we start off with how can we convert the building into higher value useful assets, for example residential flats (it is currently a closed down care home). Then we deduct all the costs of carrying out the conversion which includes profit and overheads, legal fees, consultants fees, construction costs, building control fees (code compliance), planning approval fees etc etc, it all adds up to quite a lot of money!

What is left is the amount for purchase of the site, and this is usually where the contention lies. Owners usually overvalue their sites (like in this case) and people who want to develop the sites usually want to pay a lot less because of the high costs and risks involved.

Although this property is quite large and has a floor area of more than 7000 Square feet, and it has c3 residential use class granted by the local planning authority, to split it into flats/apartments needs further permission from the Local Authority, hence this takes time and money.

We had been going through that process since February this year (although we first initiated a dialogue about it more than 2 years ago), and we were about to receive the Local planning authroity's response, which they indicated they had a mind to reject, when the owner pulled out of the transaction.

Our seller wants more than $2m for the site whereas without a planning approval that allows more assets to be built on the site, the value is significantly less, probably only $1.5m.

We had thought that the seller was sufficiently motivated to want to sell quickly, since she has been trying to sell it since September 22, when i first visited the site, but it appears she wants to go into another round of negotiations with someone else.

Maybe we should just write off the money we have lost and find an easier site for development, an easier fish to fry.

Enjoy the rest of your week wherever you are in the world.

Cheers

Alan