Selling or buying properties in remote locations
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Sellers face many of the same challenges as buyers do. Still, given current market conditions in many South American markets where we operate, we are finding the market is slow for remote properties. They are often owned as second or third investments outside their home location and are only visited once or twice a year.
Each Seller’s motivation clearly varies. However, there is a broad spectrum of Sellers, from those content with fair market value and others who really don’t care what fair market value is. They are only willing to sell if the price matches a winning lottery ticket. We call them speculators, and they are quickly identified, as they always price their properties above recent sales, and their properties have been available for sale for years.
Traditional methodologies for valuation on land or income properties can be competing property options, cost of replacement, capitalisation rates, EBITDA formulas, or in some cases, discount rates. Pricing South American property can be challenging because South American properties are demonstrably unique, and at this point, the brokers’ intuition and experience become essential factors for a realistic valuation. One must consider country risk, future saleability, access, the rule of law and several intangibles that may not be apparent to a vendor not experienced in current market conditions.
South American sellers who have placed a premium value against what a Buyer may experience after visiting the property can anticipate a longer sale cycle and likely significant valuation differences on any offers.
“The best tourism location”, “a trophy property”, etc., in South America are very subjective selling points. It occasionally may support the justification for an irrational value, but this is atypical. Most sellers in this situation will likely become frustrated and even disappointed when the market does not see the property in the same light as they do.
Buyers for these properties with the economic resources to fund a purchase from USD 3 – 30 million for remote locations are generally price savvy and understand the real value of the unique real estate.
Virtually all these buyers will ask at some point in the sale cycle, “how did you arrive at the list price.” Sellers will want to have this discussion with their agent prior.
Having a salesperson on the Seller’s team who can objectively and logically explain the offering and value to the buyer’s interest is a critical and essential ingredient for success. Those Sellers whose objective is to place irrational value in hopes of finding an irrational buyer can be successful from time to time, but the Seller may be in for a longer than normal sale cycle. Usually years rather than months. Even in covered locations, it is rare for an offering to rise to the level of a name-your-price “trophy” property; conversely, a dictatorial marketing approach might work.
Property values have always been established by Buyers, not Sellers. The Seller’s ability to capture over-the-top irrational value not supported by competition properties or income generated is directly proportionate to the Seller and/or Seller’s agent’s ability to convey the story and de-risk the investment.
The world’s most effective marketing campaign may attract qualified buyers in large numbers, but nothing will happen if the value is not to their expectations. Even the most exclusive properties quickly become stale in the market, losing value if they are not priced correctly.
Sellers often try to place value on what they believe the “potential” presents to a buyer. For example, if a Seller is looking for a value three times that of the market value because the Seller believes a Buyer “may” build a lodge in the future or may mine some gold and make money, that Seller will need to de-risk the deal for the buyer to realize that type of premium.
Smart Buyers and Buyers Agents know not to fall into that trap unless the site is genuinely a one-of-a-kind iconic offering and the Seller understands de-risking the investment. Valuing remote properties is as much intuition and experience as it is analytical, and competition sales are driven.
Divesting this asset is no longer simply an ad and a handful of pictures. Sellers should prepare for a marketing and sale process anywhere from 6 to 24 months. Like lawyers, not all real estate Brokers and Brokers are the same. Sellers may want to interview several firms and agents before deciding which is the best fit for them. Lastly, Sellers, you get what you pay for! With a probability curve at or near 50%, the right brokerage can bring buyers who know how to add value.
Here are a few things you will want to consider as a seller for a remote property
- Collect as many high-resolution images and drone videos as possible beforehand. A broker cannot be expected to produce a library of images that capture grandeur and distinctive beauty from season to season in a 24-hour visit.
- Buyers always appreciate transparency; no one knows more about your land than you. Discuss with your lawyers the possible downside of providing a seller’s disclosure to qualified buyers. The vendor can be protected by using an NDA (non-disclosure agreement.
- Succession is top of mind for virtually every Buyer who will look at the property. Be prepared to answer the questions about who will succeed you and how it will take you as the Seller to convey all the institutional and functional knowledge about the property you have acquired over the last 10–20 years.
- Consider an owner’s manual or property guidebook with all helpful information a Buyer would get at settlement, with contact info for certain types of support, supplies, and repairs, as well as manuals and safety equipment. The most successful sellers understand the importance of de-risking the investment for the Buyer.
- Picking the right broker can be key to your success. Not all brokers and brokerages are the same. Selecting a broker, in some respects, is more challenging than selecting a suitable lawyer. The right broker should be able to create value, and opportunity, reduce risk and confidently advise a seller.
- Buyers new to a region expect when communicating with brokers that they have some real-world experience and knowledge of the region they are selling.
- Real Estate firms vary, and much like individual agents, there are some very high-quality firms in South America. As a seller, one of the keys to your success is getting your offering in front of the right demographic with the right message.
- Things a Seller may consider when selecting a brokerage include the number of unique visitors per year their website generates for their region and, as a subcategory, how many potential buyers look at their listings, the number of webpage visitors it takes to get a listing sold, how much experience the firm has evaluated and selling remote properties.
- Ask questions of the firm, such as how they market, what is their most effective marketing tool and how many of these properties they sell per year.
- Be prepared to invest time in your agent, and be prepared to invest time telling your story to multiple buyers. While on occasion, the first buyer that comes across your offering will buy it sight unseen (this is very rare), a more typical outcome is a 6-18 month sale cycle. Also, if you don’t already have a real estate lawyer, do your own research or ask your agent for recommendations.
- Selling remote income-producing properties with real and personal property, especially if you’re selling company shares and/or assets, is not that simple.
Seller’s considerations when mulling a divesting event are the same as Buyers.
- Objective – A Seller needs to determine their objective before deciding on representation, a “go-to-market value,” and timing. If the Seller has no concern for how long it will take to close and is focused on price alone, then consider a brokerage who can be patient with you and is good at articulating the history and opportunity. If the Seller has a timeline for selling and closing, consider seller financing, seller holdbacks, earn-outs, stepped equity drawdown, deed releases, and other approaches to de-risk the buyer’s investment. As a seller, you are likely familiar with and comfortable navigating the peril and isolation – do not assume all buyers will have the same level of comfort, day-one confidence, or the acumen to enjoy a seamless transition. Make a buyer comfortable and confident they can be successful; without exception, it will be difficult getting to a meeting of the minds regarding value if the Buyer is not comfortable with the offering, the Seller or the perceived risk.
- Logistics – The typical remote property owner has flown in small planes and helicopters and landed on dirt strips. Those experiences become somewhat routine for any South American landowner with valuable property. However, this may not be the case for your Buyer. Sellers may want to consider their logistics and create a contact and budget for viewing, so a buyer can evaluate.
- Sustainability – Buyers do not want to invest in real estate stripped of its resources. These resources include trees, minerals, wildlife, fish stocks, and water. Recent events, like massive forest fires, all add to the perception of risk for a buyer. While these man-made or natural disasters are viewed by many as the natural cycle of things, investors paying top dollar will want to consider these events. Be objective and transparent regarding what you are selling and what a buyer should expect.
- Why are you selling – At some point or another, during a buyer discussion, they will ask, “why is the seller selling?” Whether selling because they are ready to pass on land to the next generation or retire, or you’re at the end of your investment time frame, every seller’s motivation to divest is unique, and in many ways, none of the Buyer’s business. Sellers should consider transparency as a means to help de-risk the investment unless the motive for selling puts the Seller at a negotiating disadvantage. Buyers who brand themselves as “value” buyers are usually more interested to know if there is blood in the water than anything else.
- Structures – Buyers’ expectations vary as with any real property anywhere in the world; however, as it relates to the property being offered for sale. Buyers expect structures to be well-kept, clean and absent what would clearly be considered deferred maintenance. Buyers generally accept that these buildings are usually occupied for 4 months of the year, and the window to perform repairs and maintenance is very narrow. That said, we have observed that buyers are willing to invest mid to high 7 figures with an expectation of a flushing toilet, warm shower, and reasonably well cared for structures. Pictures and video can tell a lot of the story, but the critical moment is the buyer’s impression when they walk through the door for the first time.
- Access – Most Sellers of these remote properties enjoy an inherent degree of security, mainly due to the remote locations and difficulty accessing a property anonymously. Buyers can not always come to inspect a property when it is most convenient for you, the seller.
Hopefully, these prompts will help you prepare for selling your prized asset, but if you have more questions, contact us here.
Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.
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Post available in: English