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Free registration at the forum removes this block.yetcurrent market value the developer is offering 2x current market value.
if they sell they have to move to new area because the current area is very expensive.
I agree - there is almost a 0% chance that the developer's first offer was top dollar.Since the price offered is not reason enough to immediately say "YES!", counter-offer with whatever amount would have prompted such a response in the first place.
I agree with this option; I feel that my parents would get a better deal. Its just a first initial offer counter officering at 2x the initial offer would be good idea.Since the price offered is not reason enough to immediately say "YES!", counter-offer with whatever amount would have prompted such a response in the first place.
Exactly! That's what I was saying - like, none of this adds up if OP has the correct numbers.Yeah this makes no sense at all. I don’t believe any of these numbers.
Let’s say the house is worth $500,000. You were telling me that developer is offering $2.25 million? OK, let’s decrease it by a lot of money and say The house is worth $200,000, and your parents paid $100,000 for it. Are you saying the developer is offering $900,000?
If this is truly the case, why can’t your parents take the money and buy a house one block away? They should be able to buy 4 houses on the next block LOL.
I am contacting the family lowered and see if he has any advice on this matter!I’d seek an advice from a lawyer who knows about that kind of deals - he will know what can be negotiated and to what end. Maybe @Antifragile can point you in the right direction.
2. As a developer, I often pay 1.5 to 2x from what most people see as "market value" because after meeting with a municipality, I know their plans and may be able to re-zone. You can check OCP (Official Community Plan) to see if your particular street is in the path of densification. What does this mean, it means that if your house sits on a the land that has higher density, it's worth more. A block away may be a whole different zone and Market Value 1/2. Hope this makes sense.
5. What is the closing process? I often buy subject to re-zoning, meaning I only put a deposit down and then a year later, after we get zoning, I pay the rest. Money today is worth more... as you know.
current market value is about 5x from the price my parent initially bought the property for; if we looking at based on current market value the developer is offering 2x current market value.We have no idea if 9x what they paid is a good price. It really doesn’t matter what they paid for it. What’s the market value now?
My parents called; a large developer have given them an offer-to-purchase-letter that developer willing to pay significantly large amount of money (about 9X the money my parents paid in 2005) to buy their house. Developer is buying total of 10 houses on the street and we are the 5th house right in the middle. (Location: Toronto, Ontario, Canada)
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current market value is about 5x from the price my parent initially bought the property for; if we looking at based on current market value the developer is offering 2x current market value.
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My parents are retired and have no reason for selling it now; they love the area and if they sell they have to move to new area because the current area is very expensive. What should we do?
Busy day here... but I'll chip in. Thanks for tagging me. I am a developer who does this, so speaking as "INSIDERS", consider the following:
1. Market value for a house is not the same for someone buying it to live there and a developer. I buy on a per square foot buildable. You buy on comps for similar houses.
2. As a developer, I often pay 1.5 to 2x from what most people see as "market value" because after meeting with a municipality, I know their plans and may be able to re-zone. You can check OCP (Official Community Plan) to see if your particular street is in the path of densification. What does this mean, it means that if your house sits on a the land that has higher density, it's worth more. A block away may be a whole different zone and Market Value 1/2. Hope this makes sense.
3. Is the developer buying a row of houses? I assume this is the case. Then meet with neighbours and work together.
4. If your house is orphaned and development is possible without your house, then your value will drop after the rest is assembled.
5. What is the closing process? I often buy subject to re-zoning, meaning I only put a deposit down and then a year later, after we get zoning, I pay the rest. Money today is worth more... as you know.
I'd need more info to have better advice.
One thing is for sure, lawyer is NOT the right person to guide you here. Only after you decide what to do, you can use lawyers to get paperwork sorted out.
When you do subject to, is your deposit non-refundable? Basically an option to buy that expires?
We definitely don't know if enough about the OP's developer offer to make a decision. But it doesn't sound like it would be a clean deal with a quick close. The OP's parent's house could get tied up for many years with them not being able to move because they can't sell their house or nobody else would buy it.
To me, if the developer isn't willing to close quickly (<6 months) even a 1.5x may not be a good deal if the market catches up to the price in 1-2 years.
I’m clearly biased. And I think there is a great reason to sell to developers.
My deposits are conditional and refundable in case we cannot achieve rezoning. To get through the process, I’ll have spent significant amount of our own cash. For larger projects it can be 7 figures - not including deposits. Why so big? Because consultants are expensive - I’ll be spending soft costs all the way through the process to redone. Failure to achieve rezone is likely bad news for both seller and developer!
To your point @biophase - assuming the market goes up, owners may indeed at some point get market value or less. Meaning - not a good deal for the owner/seller. But if the market doesn’t, then they had a deal that paid them more money. They should be able to turn around and buy a nicer home. Hence the 1.5x - 2x from current “market value”. Often, it really is a good deal to sell to developers. And those who ask for too much sometimes regret it later…
Why?
The worst outcome for people on the assembly block is to be orphaned. These things happen to greedy people, they ask developer for too much. Developer only pays what can make sense from a pro-forma perspective. Numbers don’t lie. And often what happens is that I have 5 lots in a row and want 8. The owners of lot 6 don’t sell. 5 is more than enough for a good project. On the other side, another developer buys lots from 7 to 12 (leaving lot 6 to either of the two developers, but neither one MUST have that lot).
Developer builds a multifamily project right next door to you and now your property is sterilized and worth less. Why? Because people who pay premium for single family lots want to be next to quiet great other single family lot neighbours. By the way, this example works on 3 lots too, for smaller developer.
The 2nd worst thing for owners on the assembly block is to think in isolation. If you don’t communicate with your neighbours, you may get a smaller offer than others. Humans are greedy. It happens all the time, your neighbours will ask for more money and promise the developer “I won’t tell them, just pay me more”. Some developers will play that game. I don’t. I do palms up program where each contract is tied to the rest of the assembly. Meaning that if I make you an offer, I’ll make the same offer to every lot on the assembly line and tell you about each in my offer. You’ll know everything. But like I said, not all developers choose to act this way and we generally get a bad rep because of them. So be sure to talk to your neighbours.
I agree with @biophase that there just isn’t enough information to actually give advice or help in this case.
With that in mind, consider that each municipality is there to serve their people. This means that you can go to your municipal hall and just ask for help with this offer. A planner might be open for a visit and will tell you all about the ”big and small picture” for your neighbourhood.
Good luck.
Edit: caught up to a few edits from the OP and the rest of the thread. So…
1. Large Developer.
2. Toronto (super hot market)
3. 2x FMV (based on what?)
4. Guessing as to what the developer wants to do, maybe a high rise.
5. 10 lot assembly. Your parent’s house is #5.
Questions:
1. Reputation of the said developer? Can they be trusted? What have they done recently nearby? Who can you check with for their way of doing business?
2. What’s the closing date? Is the offer conditional? What are the conditions?
3. How are you deriving the FMV?
4. Ask the developer directly to explain their plans to you. Why wouldn’t they? I do this.
5. Is your houses needed for their project or could they do it with the rest and leave yours orphaned? This will be important for price negotiation. See my post above.
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