Pictured home: 27-429 Old Mamalahoa Hwy., Papaikou, HI 96781.
Real estate issues can sometimes be very confusing. For instance, I have two side-by-side properties listed. They were developed together and the seller really wants to keep them together and yet I have them entered separately in our Multiple Listing Service. Similarly, owners at times own a home or an adjacent parcel of land. They want to sell both together because it’s a perfect package. Even though most buyers want all pieces, an experienced agent would advise that listing together might not be the best course of action. In fact, it may cause problems later. Here’s why. Pricing is always an issue.
Price it Right
It’s key to getting the property shown and sold. If it’s not shown, it can’t be sold. A buyer falling in love with one property may make an extra effort to purchase the adjacent property, but they must fall in love first. An inflated price may take the property off their list from the get-go. A more complicated issue relates to financing.
Financing
Take for example, the two side-by-side homes I have listed. While it may be safe to assume that one property will be owner-occupied, owners can only occupy one dwelling. The same applies to a house with a vacant parcel next door. The house buyer isn’t going to owner-occupy the vacant parcel of land. Under normal circumstances, lenders only allow one parcel on the mortgage (check first). It makes perfect sense. Should a lender need to foreclose, multiple properties would only multiply the legal complications and the number of legal actions. Most loans today are written to Fannie Mae or Freddie Mac guidelines. Fannie/Freddie do not allow multiple properties on a single mortgage.
A few short-term loan products might lump properties together under one mortgage, but the rate and terms differ drastically from conventional mortgages. These are very short-term products designed for a specific purpose such as accessing equity to purchase one property while waiting for another one to sell. They are not designed to address contiguous property purchases.
There have been times in the past that a seller might have been generous enough to “gift” an adjacent parcel if the purchase price of their home was enticing. This means that the appraised value on the home is high enough to support what could be an inflated value. For instance, this might be possible on stacked lots such as Ohia Estates where vacant land is affordable. When properties are more expensive and there’s no apparent reason for a gift, it will become a challenge. A loan underwriter would likely question such an arrangement.
There are a couple of viable strategies for sellers with a strong desire to convey an adjacent parcel with the home. Your agent should be able to assist you with those. As for the sellers I was helping with the sale of two adjacent homes; once the decision was made to sell them separately, they went into escrow right away.
Keep it Simple Silly
If this entire explanation sounds like Greek, imagine how complicated the reality of the purchase could become for a potential buyer! In today’s conservative lending climate, it’s always best to apply the K.I.S.S. principle to every real estate transaction!
Erin
October 15, 2021
Great article and information! It seems like the best approach is to list separately. If the seller wants to encourage both properties to be sold as a package, perhaps they can offer an incentive to a buyer that purchases both. Especially, since it may be challenging to find a buyer who can get a mortgage on each property or pay cash. Of course it doesn’t stop a buyer from splitting the properties up in the future and selling them separately. What would you suggest when the seller is intent on keeping the properties together but they are separate parcel #s? A far cry from KISS but I imagine it comes up. Agents may not always be able to help the seller let go of what happens to their property after they sell it.