Should I run or negotiate the price?

How would you approach this? The park is listed as 18 unit (including 1 SFH) with well water and septic. The city website is showing images stating that it is in fact 18 pads but they’re saying the record was only 11 units. How should I negotiate the price due to this information? Or should we back out of the deal?

Letter

Don’t bother. No seller will agree to a ~40% haircut, let alone what would actually be required to still hit the same returns given a likely decline in NOI per site.

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Or you could take another step of DD and try to convince the City / dig deeper and prove that it’s really 18 and grandfathered. Get it in writing.

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From the point of view of an appraisal, it would not only appraise the property based upon the permitted number of units (deducting the “value” of the none-permitted units), it would also deduct the estimated cost to return the project to its approved use — cost of removal of excess units, etc.

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Check with the assessor and see if the owner is paying Personal Property Taxes on 11, 14, or 18 houses. If the treasurer is accepting taxes on all of the houses, I would say that is a county acceptance of all 18 houses. Can you get any idea of when it became a 18 space park? Talk to previous owners. Are the 18 houses worth keeping. I have found that an overzealous Planning Director can push to get rid/stop use of a non-conforming park, despite what the law says.
Richard

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You COULD use this a negotiation item. Either have the Seller get things “up to code” and conforming, or ask for (monetary) consideration if you are going to tackle it as the Buyer. I would be very conservative however, as you are dealing with a governmental entity and there are no guarantees you’ll get what you want with respect to zoning/permitting/whatever.

Therefore, be sure to price offers accordingly. All the Seller can say is “no”. No harm, no foul if they say no.

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That’s a good idea. We will ask this question with the seller on the next meeting. We will try to push to see how much will the allow beyond 11 units. The lot rent for this location is about $500 so at 10% cap, that’s $60K in value for each lot we can get.

Good point! Will the appraiser find out about the zoning issue even if we don’t tell him? The way we structure the deal is 58% bank, 30% seller (2nd position) and 12% down. The park is currently assessed at $525K, so I think it will appraise enough to cover the bank loan (fingers crossed).

Definitely! We will try to keep as much unit we can. The lot rent on the area is around $500, so that’s conservatively $60K of value for each lot we keep.

Thank you all for the responses! I know it depends by city/county, but based on you experience, if we will comply with the city by getting rid of the non-conforming homes, can we convert those lots into RV parking? The park is about a mile from a fishing marina adjoining a river, so I think it will be a nice RV parking, short-term or long-term. Not sure, just trying to be creative on how to make use of the existing lots in case we have to empty them.

I just thought about it. I think when we initially talked to the seller before he said, each unit has it’s separate septic. If that case is true, do you think the city may have allowed the 18 lots somehow?

Also, if each lot has separate electric meter, does that mean, permit was pulled and the city has approved them and allowed those units? I’m just thinking of arguments that we can use to convince them to allow all the other homes.

The appraiser should absolutely evaluate the property zoning, and any implications of non-compliance, permitted or not. S/he should also absolutely pull the permits.

Will the appraiser do that? It’s to your advantage to have your mortgage broker/officer point the issues out to the appraiser just to be sure. But you’d certainly want to have those issues addressed in the appraisal. If the appraised value is less than the offer price that would support your reduced bid.

And if you buy this thing I suggest you follow Brandon’s recommendation and see if you can get the lots permitted before you start ripping stuff out.