Selling to a developer? Read this first!

“Why do people get greedy as soon as development is mentioned when selling their property?”

You want to sell your house that sits on a lovely 6000m2 block of land?  It’s worth about $750,000.  BUT, the sales agent mentions, a developer might be interested and, suddenly, you are seeing $$$$ Dollar Signs on every door and you want $1,200,000 +

As a Buyer’s Agent, who works for various Developer’s, I see this all the time.  Owners almost doubling the value of their property because they think a Developer will buy it and make heaps of money from it.  If the Developer is going to make heaps of money from your house, it begs the question, why don’t YOU make heaps of money from YOUR OWN HOUSE!!!!

Well, there are usually several reasons why owners don’t do their own developments.  Mostly because they don’t know where to start and what to do it, AND it costs money, AND it may not actually make any money until 2 years down the track when you have finally finished your subdivision.

“Developers are greedy & rich people who will overpay just to get a site to develop” – WRONG.

Here’s a little bit of advice:

Developers have really big calculators!!!!

Which means they know what something is going to cost to purchase, to hold, to develop, to sell.  All these factors are included.  Developing property is a business, so it must make money.  If you are lucky enough to get a developer wannabe / newbie, then you might strike it lucky and they pay too much for your property. They won’t ever do again, because they will be broke and/or bankrupt.

A developer estimates around $150,000 per newly created block of land (house or townhouse) to develop.  If there are trees, water, slope, koalas, house, shed etc, that price goes UP.   So, your 6000m2 block, which may be able to be turned into 11 house blocks (in a perfect world), would means development costs will be approximately $1,650,000 as a starting point.

Yes, that’s a lot of money.  Somewhere on top of that needs to be some profit and these types of developments can take 18-24 months.  That’s a long time to have your money tied up, before you can ever sell the developed land and get your money back.

Along this 18-24-month journey, many things can happen.  Not only do you have to get a development approval from Council, you then need to get Operational Works on the property, which is the technical details on how you build the streets, the drainage, put in light poles, where the electrical poles go, retaining walls, driveways, water basin, vegetation management etc.

After all that, you finally get to put the bulldozers on site and actually start ‘developing’.  As you can see, at any turn, costs can drastically escalate: ie.  Need to move a telegraph pole, Council want you to upgrade the intersection etc.

When I say a Developer has a very big calculator, I mean they to have one capable of handling all the $000’s of work that needs to be done.

Yes, sometimes Developers do make a lot of money from a project.

But usually there are a few million dollars put up front, with a lot of risk and fingers crossed that council won’t be too difficult. AND then maybe 18-24 months later, after being millions of dollars out of pocket, the developer can finally sell the developed property.  If, constructing townhouses, the developer also needs to cough up the cost of building the townhouses, which can add up to millions of more dollars.  Presales are great, but only for the bank, as developers don’t get that money until everything is completed and sold.

Next time a developer is accessing your little piece of paradise to buy, there are literally, millions of dollars’ worth of things, for them to consider.  When you nearly double the price, because you think a developer can afford it, think again.  They have feasibility tables that are pages long, and every cost you can imagine is entered into that spreadsheet.

Also remember, often the higher the price you are demanding, the more conditions a developer wants to add into the contract. Possibly tying up the contract for 1-2 years while they get the permits in place before fully committing financially to the site.

Being greedy will complicate your sale

This is the cost for an owner being greedy, you will get your high price, but settlement will be 1-2 years down the track.

If the price is very realistic, a developer will often take the risk on the site and settle quickly and early.  This is the advantage of selling for a reasonable price.

For more information on this article or anything property related, contact us via 1300 66 77 89 or via email here.

Karin is a passionate property investor who owns multiple investment properties. She has spent many years researching property, law and literature in her previous job roles with McCullough Robertson Lawyers and QLD Libraries. Karin’s is head of Research at Real Property Advice, not just focusing on properties, but regions, suburbs, social trends, industries, infrastructure and demographics.