Land Brokerage Offers Opportunities for Knowledgeable REALTORS®
The demand for homes in Orange County is strong, and homebuilders are eager to construct; but available land is scarce. Knowledgeable REALTORS® can supplement their income by locating parcels with potential and making builders or developers aware of them.
By John Kaye ARGUS COLLEGE
What is land brokerage? Land brokerage is a highly specialized niche in the real estate business which involves locating and marketing parcels of raw land so that it can be developed for residential or commercial use.
Can REALTORS® be land brokers? Absolutely! Fifteen to twenty years ago, the opportunities for REALTORS® to broker land were scarce; but today, because there is so little vacant land in California’s coastal counties, developers and builders welcome the opportunity to learn about available land from REALTORS®.
Why is the opportunity for REALTORS® greater today? During the late 1990s, multiple master-planned communities provided a plethora of vacant lots for homebuilders. Today, most of these master plans are completely built out and very few lots are available. Nonetheless, the demand for new homes in Orange County is strong, and homebuilders want to construct as many as four hundred homes a year. In the absence of large vacant parcels, these builders are turning to infill sites. During the late 1990s, they would have wanted a minimum of sixty to seventy-five lots for a viable project. Today, a major homebuilder will buy a two-acre parcel that provides as few as twenty lots.
Aren’t there experienced land brokers who can fill this role? In the Southern California residential development industry, six or seven boutique land brokerage firms dominate the transactions between land buyers and sellers; however, these firms tend to focus on the obvious larger parcels in Orange County or the Inland Empire. Finding smaller parcels in built-out submarkets is a bit more difficult because (1) they are small and (2) another use already exists on the parcel. Thus, local REALTORS® have an opportunity to broker these smaller parcels if they are able to recognize their potential.
How much does a land broker need to know about development? Just enough to recognize whether a parcel has development potential. Developers and homebuilders have land-acquisition experts who thoroughly analyze and vet potential land opportunities. Even with the most seasoned land brokers, I have found that these acquisition managers prefer to do their own analysis after receiving the basic information from a broker.
Keep in mind that these land-acquisition managers are very busy. They may be actively pursuing as many as ten parcels and have another forty opportunities on their watch list. They will consider the process successful if they close two or three of these transactions. Developers and builders will look at many, many land opportunities just to find one transaction that is economically viable.
When I say that a land broker should know “just enough,” I mean that he or she should be sufficiently familiar with the basic characteristics of the parcel to provide essential information quickly and not waste anyone’s time, particularly that of the land-acquisition manager. A land buyer will gladly look through ten to twenty prospective parcels if there is some semblance of potential.
Are land transactions similar to home sales? Yes, but only in the sense that you have a buyer, seller, and an escrow process. Beyond that, the land brokerage game tends to be played in a much different manner. Typically, land brokers do not cooperate with one another in any type of Multiple Listing Service (MLS) system. All seasoned land brokers know most of the potential land buyers in their market. And, while some land sellers will have a formal listing with a land broker, many land commissions are paid by the buyers without any land listing agreement.
How much are land brokerage commissions? Commissions are negotiable. As an example, for a $5 million land transaction, a 3 percent commission would be right in the ballpark. I have seen aggressive land buyers offer higher commissions to land brokers to ensure that they get first shot at an opportunity. I have also seen what I would consider more narrow-minded land buyers who try to gouge or stiff a land broker. Once a land broker understands the market and the value of a potential land parcel, commissions can to be protected with written agreements.
Land brokerage commissions can widely vary. I have seen commissions in the seven-figure range for huge land transactions, or as low as $10,000 for a small parcel. But for the most part, land commissions can be quite substantial. I would not count on closing a land transaction every month; however, closing one or two a year can be quite rewarding.
How would a REALTOR® get started in the land brokerage business? For the most part, all you need is a computer, telephone, and persistence; but some knowledge of development will help a land broker be more time efficient and get the attention of land buyers. Argus College has been providing some land brokerage courses at Orange County REALTORS®, including a free session titled Intro to Land Brokerage. We have a five-course online certification program for land brokerage, which provides much of the essential training and knowledge you need to get started in land brokerage. The idea is that you, as the land broker, know what you are looking for and that you also have a sense of what developers and builders want.
Land Brokerage Training
Live Classes: EXCLUSIVE OFFER: Intro to Land Brokerage - July 30, 10:00 A.M. - 12:00 P.M. in Laguna Hills office (FREE for Members)