Property options and development.

Have a property that might be right for development?

If you’re selling a property that is potentially viable for development, you may well find yourself being approached by various people enquiring about purchasing the site you own. They will likely buy it subject to planning and the price agreed will often be higher than the market rate for the physical house as is.

In this instance, the only value for the developer is in the planning. So what are the risks in selling a property in this way and what can you do to make it work as best it can?

When a developer wishes to buy a property in this manner, they will agree an ‘option’ on your house. This means you will both sign a contract that has specifics defined within it that relate to them purchasing your house by a set date for an agreed amount. The developer is free to walk away from the deal, but you as the owner are not (subject to terms being fulfilled). This gives the developer the ability to speculate their funds in trying to obtain planning permission without risk of you walking away with their planning should they succeed.

So what will the developer ideally have with an option?

Time-scales with option as long as possible, the agreed purchase price as low as possible and for there to be no upfront costs handed to the owner.

What will an owner ideally have when selling their property?

Completion swiftly at the highest price with no option whatsoever.

So how do these things normally pan out?

It’s all a question of risk. For both parties. The more risk either side takes, the more money the other side pays. So in this instance, if a developer is going to buy the property prior to planning consent being granted, they will not pay the market value for it, if they are given a long option by the seller they will usually pay money upfront and agree a higher than market value purchase price.

What’s the risk to you as a seller?

The main risk for a seller is that you get ripped off.  Property can be a murky world and this is very true with development sites. A lot of money is at stake and greed will often get the better of people.

Knowledge is power!  Saves you being ripped off and/or being led up a garden path by someone trying to make a quick buck.

I’ve come across people that have agreed to give someone posing as a developer a two year option on their property for planning that should have taken at most 6 months.  The chap was simply trying to sell his option at a higher price than what he had got it for.  The people involved thought he was the guy going to build it and got strung along for two years.  They got £100 upfront for the option and no further money.  He told them it would be done and dusted within 3 months for planning and they’d be out.  He obviously wasn’t telling the truth.

So…. my advice when giving someone an option on your property is to spend a LOT of time doing research first.  Or give me a call and I’m happy to advise.

Happy selling.

Simon Ward