Some Problems We’ve Seen (and Solutions) When Working with Land Investors:
1) Many land investors only or primarily assign or double close properties, which means they don’t actually intend to buy and take title to the property for any length of time. They won’t close the transaction until and unless they find some other end buyer for the property. This practice is also known as “wholesaling”, which is legal but has some specific requirements in Arizona and some other states. Unfortunately, other investors often don’t disclose that they are wholesaling to the property owners or end buyers as ARS 44-5101 explicitly requires. AND they often actively work to mislead the owners into thinking that the investor is actually buying the property themselves. If you own land you want to sell, ask if the investor plans to take title in their own name before finding a buyer, or if they only plan to close when they find someone else to buy the property. If they say they’re taking title in their own name before finding another buyer, then demand they open escrow with a licensed title agency and make an Earnest Money Deposit (EMD) that becomes non-refundable after a reasonably short due diligence period (15 or 30 days). An investor who is buying in their own name should have no objection to making a deposit, since they’re planning to pay the full purchase price anyway and the deposit goes towards that. If they admit that they’re just looking to assign or double close the contract to another buyer, then know what you’re getting into: The investor may or may not find another buyer, and if they don’t you’ll be right back where you started, probably months later. If you are buying a property from an investor, ask whether the investor owns the property (or look it up on the county web site). As always (see item 4 below) insist on using a state licensed title company to close the transaction. If the investor doesn’t own the property, make sure the sales contract discloses that the investor may not be able to deliver title to the property, and if they don’t deliver title then any Earnest Money Deposit you (the buyer) made is immediately and fully refundable to you. Unlike some other investors, over 90% of our transactions are bought in our own name and then later sold. We do occasionally do assignments/wholesaling where it makes sense (and sometimes it does), but when we do it we disclose that as required in ARS 44-5101 so it’s clear what’s happening to everyone involved.
2) Some land investors offer unrealistic prices to get properties under contract, planning to later negotiate the owner down below wherever they have an end buyer lined up. If the owner won’t take the lower offer amount, they just leave both parties hanging. This is particularly nasty when combined with wholesaling as described above, which it always is. If an investor is offering you near full market price, market price, or above market price for your property be suspicious and find out why. That would be like a car dealership offering you the full blue book retail price for your trade in. Renegotiations on the contract price should only occur when there’s some significant new information about the property that wasn’t apparent or disclosed before the offer was made, such as an access route that is not legally or physically traversable. We always make offers at the price we fully expect to pay for the property, leaving us room to pay our expenses and make a living after reselling. Renegotiations on our contracts are rare, and always for a significant and clearly stated reason.
3) Some land investors imply they are real estate agents whenever it’s convenient, to owners and/or buyers, or won’t challenge it when others characterize the investors as “agents”. Investors should correct anyone who refers to them as “agents” unless, of course, they are in fact licensed agents. Licensed real estate agents have additional duties to buyers and sellers that investors do not have. If you are unclear about whether the person you’re dealing with is a licensed real estate agent, ask directly and assume that they’re not agents unless they clearly say they are and display the trademarked symbols. We are not real estate agents, don’t claim to be, and will correct anyone who mistakenly says or implies that we are. We have nothing against agents – on the contrary, we highly respect what they do. We sometimes list our properties with agents for resale, and even when we don’t we will pay a cooperating commission to any licensed agent who brings us a buyer with an accepted offer on one of our properties.
4) Some land investors routinely do self-closes with end buyers, which means they close the transaction without using a licensed title company or attorney and without getting title insurance. Further, these other investors often don’t appropriately warn the buyers about the risks of closing without a title company. As a result, sometimes the end buyers don’t actually get good title to the property they’re buying. This is a big problem especially in areas with low priced land. Since the land itself is cheap the title costs are often a substantial fraction of the total purchase costs so there’s a temptation to all parties to just skip it. If you’re buying land, always insist on using a state licensed title company to transfer title. Make sure that’s specified in the contract. Our sales contracts specify a title company by default. If you have a strong preference to use a different title company than the one we specify in our contract, we’re happy to accommodate as long as they’re licensed. Though it is ultimately the end buyer’s choice, we strongly advise against and will resist transferring title to a buyer without using a licensed title company and the buyer getting title insurance.
If you have questions about land investors in general or what we specifically do, don’t hesitate to contact us!