Inexperience Costs

Would you ask your Home Agent to help you sell a 40-unit apartment complex? NO…you would use a Commercial Specialist – Right? RURAL PROPERTIES and LAND, particular horse properties, and equestrian estates are considered another highly specialized asset class, requiring extensive expertise to avoid major pitfalls. These properties have a lack of standardized infrastructure, a myriad of local, regional, and State zoning complexities, as well as topography and usage variations. Furthermore, no two properties are alike; therefore, pricing requires extensive due diligence far beyond a typical Comparable Market Analysis.

Rural properties are in the County jurisdiction and are usually zoned, Ag, Rural, or Hillside and come without City services. They are all incredibly unique in valuations, disclosures, funding, and usability—with no room for mistakes. A rural property could be deemed less desirable or more valuable based on over 80 additional factors. Disclosing and confirming usage sustainability with exhaustive research requires specialized knowledge about these vast sets of variables so that proper disclosures are made and contingencies can be written into the offers. Don’t leave money on the table and don’t open yourself up to litigation, use an expert real estate agent to help.  There are a myriad of diligence items to document and questions to ask when selling or buying rural property. Is it in an Urban Service District? What are the County zoning and restrictions? Is the water potable? Is the septic percolating and performing? What is the soil type? Is there conservation of biotic issues? And 75+ more questions.

Zoning & Usability

Land Use regulations are complicated and different in every state and county. California as an example has some of the most complicated Land Use regulations. In addition to understanding current plans, you must look at the County & Local City Strategic Plans for potential annexation and changes to current land use. Understanding the current and future plans is critical in a valuation of price and usability. More complicated is California’s 25+ councils of government to oversee additional planning guidelines. Basically, extracting land-use value is based on understanding the City, County, Regional, State, and special Council plans and goals.

A comparable market analysis is a proven way to market a simple residential property; however, a rural analysis is similar in complexity to a commercial in that you must extract the highest and best use for top dollar. Therefore, evaluating a rural property for pricing requires a vast amount of data, investigation, and land use experience. Understanding limitations and the upside potential is the key to extracting full value. It is imperative that a complete understanding of City, County, Regional, State General, and Strategic plans are understood. Purchasing a property in a rural area can come with a financial upside and freedom from municipal codes with the ability to achieve the desired lifestyle. But there may be hidden issues based on your goals and intended use. You don’t want to purchase your perfect rural estate to find out your neighbors are subdividing for high density, or a slaughterhouse is being constructed, or they are creating a motocross track.

Due Diligence & Valuation

Rural properties have unique assets and maintenance issues therefore understanding the value of these items and the costs for needed improvements should be calculated into the pricing valuation. The obvious are mineral rights, septic, well Q&Q, roadways, easements, and fencing. But the value could be significantly different based on underlying value and or systemic issues. Rural experts know how to extract full value and price issues to accurately assess the property based on these factors and the costs associated with them. Are you sitting on a gold mine? There are hidden benefits on your Rural property and the D3 Group will help you extract and quantify them for top dollar. What is the path of expansion for your local municipality? Are there any zoning changes? Is there conservation potential? What is the surface vs. mineral rights? Do you have riparian or water production rights? These questions added to your pricing analysis have been proven to increase asset values by over 48%.

Bonus Item: Financing & Insuring

The size of property you purchase will have a large effect on the type of loan and percentage required for a down payment. Under 5 acres you can normally use a conventional lender with standard underwriting. However, appraisals through conventional lenders many times fall short on value and you will need to make up the difference. Above 5 acres you may need to use an agricultural lender with different rules and longer timelines and more extensive appraisals. Rural property and land financing are difficult to navigate and ensuring a buyer’s financial credibility are paramount for successful transactions.

Insurability is another issue and when looking at rural properties careful consideration needs to be given to the 3 main variables underwriters consider: slope, density, and proximity. So, if your intended use has additional insurance requirements, such as ranching or farming, liability for livestock, and operations; it can be costly. Unfortunately, getting stuck with a large insurance premium can make any property a financial burden and this should be in the due diligence prior to releasing contingencies.

Written by Danielle Davenport.

Danielle Davenport and the D3 Estates, Land, & Ranch Group with Keller Williams focus on rural assets and understand the pricing complexities.

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