Price versus value

By Vern McClelland

April 13, 2017 12:00 AM

One prominent western Canadian businessman was well known for buying property that sat next to his holdings whenever the opportunity presented itself.
He often paid more than current market values would indicate the land was worth, so one day his senior management team challenged his thinking.
“I have two reasons” he said, “the first is owning the land on our borders allows us to control what it will be used for so we can chart our future, expanding or diversifying its use for our own profit.
“The second is, even if we pay a premium, it actually drives up the value of the properties we already own!”
Wise judgment, and one often used by other successful businesspersons, including farmers, when considering whether to purchase a property or not.
A buyer’s goal is to always pay a price that’s reasonable; perceived value is what he gets.
In reality, commercial real estate transactions have little to do with comparable sales.
The buyer isn’t purchasing a property, he or she is pursuing a business strategy.
Highest and best use of a specific parcel is shaped by the competitive forces within the marketplace where the property is located.
For example, a site seen by thousands of potential customers each day will naturally attract more business activity than one that’s out of the way or hard to access.
So, when an experienced business owner comes to town, a Realtor must first seek to understand what the client believes the ideal location to be.
And not just what’s currently available for sale, but what may be sourced with some digging.
This is where local market knowledge is invaluable, plus the ability to get landowners to discuss their future plans with you.
A few years ago, a developer asked me to approach an aging couple to discuss a potential sale of their farmland perched on the edge of a growing community.
They graciously invited me in to their home and over the course of several visits we discussed options assisted by generous servings of hot coffee and freshly baked cookies.
I helped them obtain independent advice on current market value by recommending a trusted appraiser,  and I met with both their accountant and their lawyer to discuss capital gains.
We even convened a meeting one Saturday with the two adult children and their husbands to review the proposed plan with them.
The owners knew there wasn’t going to be a succession of the farm to the next generation, but wanted everyone to understand the process and approve the goals.
One quarter, several miles away from the home place, was sold to a neighbouring ranch family at less than appraised value.
The young couple had always helped the owner when he needed an extra hand, spring and fall.
Three-quarters of the four that made up the home section were purchased by my client at appraised value, but were rented back to the farmer for three years at a reasonable rate to allow time to plan the exit.
When that expired and after an equipment auction, the home place was placed on MLS and sold.
The couple retired to the community their children and grandchildren lived in.
Last I heard, they had not only made that transition successfully but also were spending some of the winter months in the southern states.
I still get a Christmas card, but I miss the coffee, cookies, and conversation!

Vern McClelland is an associate broker with RE/MAX of Lloydminster. He can be reached at (780) 808-2700, through www.vernmcclelland.com or by following the Midwest Group Lloydminster on Facebook.

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