Developer wants to buy house, what premium is appropriate?
Discussion
A developer has approach my brother to buy his BTL house in London. It is a mid-terrace house in a terrace of 6 houses and is adjacent to the developer plot of land. The developer want to knock it all down and build a shopping complex.
The house is worth about £280k with about £240k of mortgage. The developer has offered £350k straight off the bat (25% premium). I would normally jump at such an offer but I am wondering if my brother could do better.
Has anyone been through this and can anyone advise on how best to negotiate this deal?
The house is worth about £280k with about £240k of mortgage. The developer has offered £350k straight off the bat (25% premium). I would normally jump at such an offer but I am wondering if my brother could do better.
Has anyone been through this and can anyone advise on how best to negotiate this deal?
The cleverest thing to do is tell them you don't want to sell.
At the moment I guess they do not have planning permission for the shopping centre, as logically they would budget full costs beforehand.
If they haven't got that then any offer is worthless as they probably won't go through with it until they do.
However, not getting a 'figure' for one house at one time won't stop a multi-million pound development and them fighting for planning permission. If they don't get it, then the offer was worthless anyway.
However, if they *do* get it, then there will be one little house stopping them putting a spade in the ground. *Then* you can sit back and wait for the silly offers.
At the moment I guess they do not have planning permission for the shopping centre, as logically they would budget full costs beforehand.
If they haven't got that then any offer is worthless as they probably won't go through with it until they do.
However, not getting a 'figure' for one house at one time won't stop a multi-million pound development and them fighting for planning permission. If they don't get it, then the offer was worthless anyway.
However, if they *do* get it, then there will be one little house stopping them putting a spade in the ground. *Then* you can sit back and wait for the silly offers.
You have to be careful, if you try and be too clever they will find another way into the site.
If there are no other ways in then you have them ransomed. If this is the case then potentially you can look for up to 50% of the developed value - See Stokes vs Cambridge (famous ransom court decision), but note, payments at this level are very rare. In 20 years of developing I have never paid anything like that amount for a ransom.
In reality, its about how much nerve you have vs how much they have. If its a terrace I suspect that no one person has the ransom, so you may need to tread carefully. As a developer I have walked away from people who thought they had me ransomed and asked for too much, and paid the money to someone else for a different access.
Having said that, they won't expect the first offer to be accepted, so you can haggle, but being greedy is very high risk, you may end up with nothing. The chances are that the developer wil not progress the planning until he has the access under option, so waiting until its consented and holding out for a shed load of cash won't work. It is so expensive to get planning these days that the developer will not speculate the planning costs in the hope that he can tie up the access afterwards.
If you PM me the location I can have a quick look at it tomorrow on promap and google etc and give you a developers view.
Nick
If there are no other ways in then you have them ransomed. If this is the case then potentially you can look for up to 50% of the developed value - See Stokes vs Cambridge (famous ransom court decision), but note, payments at this level are very rare. In 20 years of developing I have never paid anything like that amount for a ransom.
In reality, its about how much nerve you have vs how much they have. If its a terrace I suspect that no one person has the ransom, so you may need to tread carefully. As a developer I have walked away from people who thought they had me ransomed and asked for too much, and paid the money to someone else for a different access.
Having said that, they won't expect the first offer to be accepted, so you can haggle, but being greedy is very high risk, you may end up with nothing. The chances are that the developer wil not progress the planning until he has the access under option, so waiting until its consented and holding out for a shed load of cash won't work. It is so expensive to get planning these days that the developer will not speculate the planning costs in the hope that he can tie up the access afterwards.
If you PM me the location I can have a quick look at it tomorrow on promap and google etc and give you a developers view.
Nick
blueg33 said:
You have to be careful, if you try and be too clever they will find another way into the site.
What Nick says...You'll never know what the access stands them in their financial viability for the site, but you need to try to work out and understand why they need your property.
It can range from 'it will avoid us having to go through the paperwork of an off-site sewer requisition, so let's bung them a few grand to keep them sweet' (or, in your case, perhaps, 'it would give us a few extra parking spaces, so allowing us to increas the amount of retail floor area a bit'), through to complete project-killer.
Unless it's the latter, they'll have a 'cost' that acquisition of your house stands them in their budget, and they won't go beyond it.
If they've already made an offer of well above market value, there's no harm in trying to negotiate them upward, but if you take Justin's advice and simply decline to sell, don't be surprised if they simple say 'OK, no problem', and proceed anyway with an alternative solution... leaving you with with a terrace that nobody wants to buy in the future because it's next to a bloody great shopping centre with traffic in and out all day.
A salutory anecdote for you: the owner of a big detached house, surrounded on all three sides by a green fields we wanted to develop tried to hold us to ransom a few years ago, because he thought the development couldn't go ahead without our being able to widen the road that runs in front of his property. Instead of walking away with a very generous offer for his house, he now has residential development on three sides (much of it 'affordable' Housing Association stuff full of chavs, 'cos the designer is a bit of a b
d that way) and traffic lights outside his front windows flashing changes 24/7, to control the flow of traffic through the 1-way width restriction...Sam_68 said:
A salutory anecdote for you: the owner of a big detached house, surrounded on all three sides by a green fields we wanted to develop tried to hold us to ransom a few years ago, because he thought the development couldn't go ahead without our being able to widen the road that runs in front of his property. Instead of walking away with a very generous offer for his house, he now has residential development on three sides (much of it 'affordable' Housing Association stuff full of chavs, 'cos the designer is a bit of a bd that way) and traffic lights outside his front windows flashing changes 24/7, to control the flow of traffic through the 1-way width restriction...
Got a google map view of that one? d that way) and traffic lights outside his front windows flashing changes 24/7, to control the flow of traffic through the 1-way width restriction...Depends how badly they want or need the property.
One of my friends was approached by a large supermarket chain who wanted to demolish his business premises (and adjoining buildings) so that they could build a new shopping complex. His premises were worth around £90-£100k. Initial offers were around double that. However, he held out as he knew full well that they needed his premises. In the end, they found and purchased a new 7000 square foot unit for him to relocate to, value circa £450k.
One of my friends was approached by a large supermarket chain who wanted to demolish his business premises (and adjoining buildings) so that they could build a new shopping complex. His premises were worth around £90-£100k. Initial offers were around double that. However, he held out as he knew full well that they needed his premises. In the end, they found and purchased a new 7000 square foot unit for him to relocate to, value circa £450k.
Sam_68 said:
he now has residential development on three sides (much of it 'affordable' Housing Association stuff full of chavs, 'cos the designer is a bit of a bd that way) and traffic lights outside his front windows flashing changes 24/7, to control the flow of traffic through the 1-way width restriction...
Sam, i didnt have you down as that much of a bd that way) and traffic lights outside his front windows flashing changes 24/7, to control the flow of traffic through the 1-way width restriction...d.Hows things? Houses selling? Lotus still going well? I sold the Ginetta
Sam_68 said:
If they've already made an offer of well above market value, there's no harm in trying to negotiate them upward, but if you take Justin's advice and simply decline to sell, don't be surprised if they simple say 'OK, no problem', and proceed anyway with an alternative solution...
Perhaps I should have made myself clearer, I am not suggesting that the OP's bro should refuse to sell point blank, but not to offer a counter offer at this stage.The reasoning is game theory. At the moment, neither party knows the other players 'cards'. The 'decent' offer is put out there in the hope that they will be shown.
The offer is at £325k to incite a response which will show the true nature of the homeowner and respond accordingly.
For example, a counter offer of:
£350k means a result for them, and they'll negotiate down from that and probably meet halfway.
£500k means the homeowner is clearly a hopeful and ill advised opportunist. At which point they might respond with a 'take it or leave it' offer similar to what was originally offered to smoke them out.
What I am suggesting is that the OP should *not* make a counter offer, siting that the property was bought as in investment, time and money has been put in, and over the next 20 years he will be realising a lot of rent. However, should the developer put in another offer this would be considered on it's merits.
Then the ball is kept in the developer's court so that he must show his cards as to how desperate he is to buy. For example, a second offer of £350k may show that while he is willing to pay a decent whack, that sets the ballpark at a higher point for a respectable counter offer.
JustinP1 said:
Sam_68 said:
If they've already made an offer of well above market value, there's no harm in trying to negotiate them upward, but if you take Justin's advice and simply decline to sell, don't be surprised if they simple say 'OK, no problem', and proceed anyway with an alternative solution...
Perhaps I should have made myself clearer, I am not suggesting that the OP's bro should refuse to sell point blank, but not to offer a counter offer at this stage.The reasoning is game theory. At the moment, neither party knows the other players 'cards'. The 'decent' offer is put out there in the hope that they will be shown.
The offer is at £325k to incite a response which will show the true nature of the homeowner and respond accordingly.
For example, a counter offer of:
£350k means a result for them, and they'll negotiate down from that and probably meet halfway.
£500k means the homeowner is clearly a hopeful and ill advised opportunist. At which point they might respond with a 'take it or leave it' offer similar to what was originally offered to smoke them out.
What I am suggesting is that the OP should *not* make a counter offer, siting that the property was bought as in investment, time and money has been put in, and over the next 20 years he will be realising a lot of rent. However, should the developer put in another offer this would be considered on it's merits.
Then the ball is kept in the developer's court so that he must show his cards as to how desperate he is to buy. For example, a second offer of £350k may show that while he is willing to pay a decent whack, that sets the ballpark at a higher point for a respectable counter offer.
Your best bet is to just tell them that the price is not attarective enough bearing in mind their plans and ask them to sharpen their pencil. Plus in the deal make sure they are paying your legal fees.
Sam_68 said:
A salutory anecdote for you: the owner of a big detached house, surrounded on all three sides by a green fields we wanted to develop tried to hold us to ransom a few years ago, because he thought the development couldn't go ahead without our being able to widen the road that runs in front of his property. Instead of walking away with a very generous offer for his house, he now has residential development on three sides (much of it 'affordable' Housing Association stuff full of chavs, 'cos the designer is a bit of a bd that way) and traffic lights outside his front windows flashing changes 24/7, to control the flow of traffic through the 1-way width restriction...
Just curious - but if someone lives in a nice house that they've worked all their lives to be able to afford, and they don't want to move because it's their dream home and they've spent thousands getting it just the way they want it, why should they be forced out by developers? And why surround them with pondlife and traffic lights? Seems a bit "you've been most unhelpful, so we're going to make your life a misery"...?d that way) and traffic lights outside his front windows flashing changes 24/7, to control the flow of traffic through the 1-way width restriction...Bugeyeandy said:
Got a google map view of that one?
linkUnfortunately the aerial photograph isn't up-to-date enough to show the finished development, yet, but you can see some of the roads on the street map. You can see the developer's site compound being set up, and the property referred to is immediately to the North West of the compound, on Mill Lane. The 'width restriction' traffic lights went in for the extent of the property's frontage onto Mill Lane.
blueg33 said:
Sam, i didnt have you down as that much of a bd.
Only where NIMBY's are concerned! d.blueg33 said:
Hows things? Houses selling?
Slowly but surely - we need more outlets, so we're desperately trying to get stuff through Planning as fast as possible so we can get some new sites opened. My side of things is pretty bloody manic, as a result.blueg33 said:
Lotus still going well? I sold the Ginetta
Lotus has been sold as well (...I must get round to updating my profile). So busy with work that I was never getting the chance to use it, so the electrics were getting a bit flakey. I replaced the Elan with an MX5 as an interim bimbling-about-on-Sunday-afternoon car, while I'm deciding whether to sell the rest of the collection and buy something a bit more middle-aged (355 Spider is current favourite, or another Elise, or maybe a Tuscan like yourself), or whether to just stick with what I've got. I noticed the Ginetta up for sale. How are you getting on with the Tuscan?
Edited by Sam_68 on Wednesday 17th November 13:38
SGirl said:
Just curious - but if someone lives in a nice house that they've worked all their lives to be able to afford, and they don't want to move because it's their dream home and they've spent thousands getting it just the way they want it, why should they be forced out by developers? And why surround them with pondlife and traffic lights?
Honest answer?They left us with no technical alternative with the traffic lights, and affordable housing has to go somewhere on a site. We'd rather not provide it at all (we are forced to build it at effectively no profit and it lowers the sales value of our properties) but we are obliged to do so by the Planning system.
Since we have to put it somewhere, it makes commercial sense to minimise the exposure of your own plots to it, by placing it so that existing properties form part of the 'buffer' around it.
But even I am not a big enough b
d to do that to people who haven't gone out of their way to obstruct our development.Edited by Sam_68 on Wednesday 17th November 19:07
Seems more up to date on street view Sam, I'm guessing the house is the one at 90 degrees to the main road by the start of the width restriction?
Nice area to live in , can't imagine those lights would bother the owner too much but I bet he was kicking himself for holding out for a better offer.
http://maps.google.co.uk/maps?f=q&source=s_q&a...
My brother lives up by Hucclecote and every time I visit them I see another massive development of houses like these, must be making a fortune out there.
Nice area to live in , can't imagine those lights would bother the owner too much but I bet he was kicking himself for holding out for a better offer.
http://maps.google.co.uk/maps?f=q&source=s_q&a...
My brother lives up by Hucclecote and every time I visit them I see another massive development of houses like these, must be making a fortune out there.
Edited by Bugeyeandy on Wednesday 17th November 13:37
Sam_68 said:
I noticed the Ginetta up for sale. How are you getting on with the Tuscan?
The Tuscan is great, very different from the G33 and much faster after 100mph (on a track of course). The G33 was a great investment, I sold it for 3 x what I paid after 5 years of fun. The Tuscan is better all round, I can use it for work even if its cold.Edited by Sam_68 on Wednesday 17th November 13:38
Ok, I have been digging around and have found the development outline planning application from last year. Below is the site map with my brother's house labelled.
At the moment, the terrace houses are not part of the planning application but I can see that it would be handy for them to buy it and make it part of their development.
As has been said earlier, to work out the true value of the house, we need to find out how much it is worth to the developers. With the admittedly limited information above, what do you think?
At the moment, the terrace houses are not part of the planning application but I can see that it would be handy for them to buy it and make it part of their development.
As has been said earlier, to work out the true value of the house, we need to find out how much it is worth to the developers. With the admittedly limited information above, what do you think?
996c2 said:
Ok, I have been digging around and have found the development outline planning application from last year. Below is the site map with my brother's house labelled.
What's to the North of your brother's terrace of housing (ie to the West of the existing shopping centre, where the bellmouth of a road is shown on the plan?It does seem to be shouting 'comprehensive redevelopment' at me, if you could get control of the whole terrace.
Slagathore said:
What happens if they all want to sell and he doesn't? Surely they will all want to hold out for as much money as possible, so won't want to act before any of the others?
The developer will buy each house individually as and when the owner is willing to sell. They won't delay any individual transaction either for planning permission to come through nor for all house owners to agree first.Gassing Station | Homes, Gardens and DIY | Top of Page | What's New | My Stuff