Tuesday, December 29, 2009

Does it Pay to Give Away Land?

May 30th, 2007
Does it Pay to Give Away Land?

A developer asked me to appraise a 6 acre wetland that is adjacent to ane
existing bike path. The City "suggested" he donate the land to them, along
with his cash park dedication fee. So he needed the appraisal for the IRS,
who now requests appraisals for donated property exceeding $500.

So I looked at the land, which was situated behind several lots and realized
he had 3 options for this property:

1) Split it up and incorporate it into the adjacent lots.

While this option may have made the lots larger, it would not increase their
usable land.

2) Take the City's suggestion and give the land to them. This was his best
move, because he know as "premium lots that back parkland". I noted the lots
backing the donated wetland were his highest priced lots. Plus he got the
tax deduction to offset the higher prices of the premium lots.

3) Keep to his original plan and incorporate the wetland into a homeowners
association. I don't believe this was the right move.

When I asked the developer if he had any properties that he was interested
in having me help with a property tax appeals he looked to his other
"remnant pieces". Land he was paying taxes on until the development sold out
and a homeowners association could take it over.

Which begs the question: are you better setting up a homeowners association
or turning over the land and/or amenities to the city?

A front page article in Tuesdays' Star Tribune was about private homeowners
associations for development amenities. What the article did not address is
the question: do they sell?

My observation is, sometimes. For example, I brokered some land for a 100+
all townhome development is Plymouth that has a community pool. They project
sold out quickly. I see that for an all townhome community or a large (over
300 units) master planned community that includes townhome this can make
sense, as townhome owners don't have the land to build their own pool or

Yet I'm familiar with an all single family development that built a pool
with a homeowners association. The improvements were in Fall of 2004 with
the models completed spring 2005. Other developments in this community were
doing well during this time period. The development with the community pool
has sold only 3 homes in 3 years. People familiar with the area tell me that
potential buyers were turned off by the association fees. And the lots were
more expenseive. Not everyone swims. For those serious swimmers community
pools are too small and crowded and there is a YMCA a mile away for those
that want that amenity.

Looking at the private development amenities from a developer's pocketbook
they have to upfront the cost and give up at least one lot to build it.
Then, until all of the homes are sold the developer carries the association
costs for the unsold lots.

Is the cost of the private amenities more than made up for in increased lot
prices? Not a quick question to answer-needs some serious study and

Does it pay to give away land? Sometimes it does.

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