A story about seeing the dark side of real estate. When buying land, make sure you always understand the meaning of conditional construction.
This is the story of when my family of three went to a real estate agent to look for a new detached house because we were going to have another child.
Next to us, a loud landlord and a young sales clerk were in a meeting. Since they spoke loudly, their voices naturally reached us as well. The landlord was getting unusually heated, and to summarize the landlord’s opinions...
- I want to sell the land I own, and I don’t want to knock a single penny off the price.
- Please sell it for as high a price as possible!
I had looked for investment properties before, so I often encountered such bullish landlords, haha. While I was wondering why the neighbor seemed so concerned about the strong landlord, the young sales clerk said this.
Sales clerk: “Leave it to us! If you sell with a “land with building conditions” price, you can fetch a higher price!”
Totty: “Eh…! If there are building conditions, it can still sell high?? Is this guy lying?”
1. What is a land with building conditions?
A land with building conditions is land that the seller sells to the buyer with a condition that“the buyer will build a house with a specified construction company within a certain period”asa “condition.”The specified period is typically about three months in most contracts.
It is a contract where a piece of land that has not yet had a building on it (vacant land) is sold by the seller under the condition that the seller will build a house on it.After selling the land, the builder designated by the seller builds the house.
In other words, the seller takes the lead in saying“If we build the house, we can sell the land to you.”This is a contract where the seller holds the upper hand.
Whereas for land without any conditions (vacant land), buyers can freely decide what kind of building to put up, land with building conditions carries a constraint that the seller will build the house, sothe price is usually cheaper than ordinary vacant land.
Relationship between vacant land price and land with building conditions price
- Vacant land price > price of land with building conditions
2. Real estate agents profit by building on land with building conditions
That real estate firm wasn’t just an intermediary; they also handled building construction. What this implies is that real estate agents can profit not only from land transactions but also by building the house themselves.
If they can profit from the total land and building, they don’t mind selling the land cheaply. For buyers, land with building conditions is attractive because they can buy the land cheaper, and it also has the benefit of faster offers.
If you weigh ① the profit for the seller when selling land without conditions (vacant land) against ② the profit for the seller when selling land with conditions and building the house themselves, ② is easier for the agent to profit from, so they recommended selling under building conditions to the landowner.
With building conditions, the land price goes down, so the agent’s commission (which is based on the land price) is lower when selling just the land, but the idea is that if the building yields profit in the end, that’s fine.
Summary of this case
- Real estate agent: profits come from building the house themselves even if they sell the land cheaply.
- Buyer: has some restrictions but can buy land cheaper than the market price, which is attractive.
- (This time) The landlord: wanted to sell the land at a high price but couldn’t sell high.
3. Information gap in the real estate industry
This isn’t an unusual story. The real estate industry (licensed real estate agents) is a world where people often lose out due to information gaps. Real estate newcomers are unfortunately easily taken in by these agents.
In Japan,REINS (Real Estate Information Network System: Real Estate Distribution Standard Information System) exists, but the information can only be viewed by registered real estate agents and is not accessible to the general public.
Information is closed off and not widely shared. In Japan’s legal system,there is an existing gap in the information provided, so there’s little one can do about it.I hope for future industry development with transparency enabled by technologies like blockchain.
Even in this case, if the landlord had understood the meaning of land with building conditions, they might have thought, “Huh? That’s odd.” But people not in the real estate industry live normal lives and don’t know the meaning of building conditions… It would be nice if there were a real estate appraiser nearby.
Hmm, you really have to be careful with real estate… We’re in a transitional period of a real estate investment boom, and it’s really dangerous for amateurs to casually buy properties hoping to ride the wave.
For now, all you can do is gain as much knowledge as possible to protect yourself. I’ve written an article about yield concepts, so please take a look as well.
4. Summary
There are many lands sold with building conditions in the market. When buying or selling land, please remember these points!
- Prices of land with building conditions tend to be cheaper
- Not every statement from a real estate agent is true
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