How Do You Sell an Acreage or Estate Property in the Treasure Valley?

Lightly edited for clarity — filler words, false starts, and brief asides removed, and caption errors corrected; the substance of the conversation is unchanged.

Jerod Lee: Thanks for joining us today, everyone. We're continuing our luxury listing series — episode six of a six-part series. We may end up introducing another luxury series on some of the oncoming product types in our luxury space; we've talked mostly about the more traditional luxury we've seen here in the Treasure Valley. But we'll finish up this series and gauge the interest in talking about some of the more specific luxury properties coming into the valley. Today we're going to chat about how we price — and why they sell differently — specifically the acreage and estate properties. We'll get into water rights, the differences in water delivery, septic systems versus sewer, valuation, what's usable and non-usable land. Chase is going to share some of the specifics on financing these types of properties, and then the team we recommend you assemble to bring these properties to market. With that, I'll introduce our co-host, Chase Hodgson. How are you doing today, Chase?

Chase Hodgson: I'm good, Jerod. How are you?

Jerod: I'm good. We're at the very tail end of this series, and it's been an interesting one — it's about more art than science, which makes it interesting.

Chase: For sure. That doesn't change for guys who like numbers and like to put data together — talking with sellers about this is a little tougher, because there are nuances that just don't quite map to a number or a statistic.

Jerod: That does make it more difficult — and it's why we're having these conversations in the first place. Much of what people move into around the area is sometimes referred to as cookie-cutter: it's pretty straightforward how pricing works, how values are determined, and what to expect out of those properties. As our luxury market grows — the amount of luxury property, and the types of luxury property — this becomes more and more of a conversation. And this episode is even more niche than the others. For folks in those niche situations — and buyers will appreciate this too — we're covering things to consider, but mainly how to best position a unique luxury home on the market for the best sales price and terms.

Jerod: Let me back up a little. We've talked in other episodes — specifically episode one — that the fewer the comps, the harder it is to determine numbers, make adjustments, and come up with a value. And there's a value that's substantiated and validated by the appraisers of the world, who may or may not get involved in a transaction — and then there's what the market is willing to bear. That delta, in the luxury space, gets hazy. Somebody buying a luxury home might not care much about the actual data value, because to them personally it's very valuable.

Chase: Both ends of that spectrum can become more difficult. What the appraiser does is determine what the market says the value is — and if there isn't a lot of market data, it's harder to determine. And no matter what it is — homes, cars — as money becomes less of a problem for people, price becomes less of a problem. They may not care, because they want it. Those are the two big factors you're dealing with in this space.

Jerod: And the inverse is true. For somebody who bought the property, built it out, got it very specialized to them — it's almost priceless. And then when they go to the market, it's not.

Chase: The more personalized you make it, the more difficult it could be to market and sell.

Jerod: So here we're talking about acreage properties. Acreage value isn't linear. We're going to get into what's usable, what's not usable, how you inspect it, how you conduct due diligence. It gets more sophisticated, more detailed, and harder to comp.

Chase: It can — especially in all these areas that are growing like ours, where the acreages are just flat out disappearing.

Jerod: So scarcity really gets introduced.

Chase: It works like what we've talked about before: it can make it more difficult to find comps, but it can also drive the value up because of the scarcity. It works on both ends of that spectrum.

Jerod: And if you have scarcity, is there also good demand? We've talked about this — you can be super scarce, but people aren't looking to purchase that right now. They're moving into the area and buying a different type of luxury product, or they're not buying at all because they've put things on pause. Supply and demand — economics 101 — comes into play, but scarcity is easy to determine; it's more work to determine if a property is in demand. And, by the way, where that demand is, where it's coming from, and how to market to it. Just because it's scarce doesn't mean it's desirable. "That's the only one in the valley — nobody wants it." Sorry, that was kind of harsh — but you just don't know. Or you might think everybody wants it, and they don't. It might seem like a super unique property — and you're not wrong — but it's unique because nobody's building it.

Chase: Honestly, that's one of the biggest things I love about economics, and why I studied it in college — it's a living, breathing thing. There are so many factors, and that's one small example: something could be super scarce, which you'd think would drive up value, but maybe nobody wants it. Or nobody wants it this month, but next month they do. It's always evolving, always moving, and you really have to do the work to keep up with what the market wants.

Jerod: And that's our job for our clients — to determine all of that. Where the economics of your property sit, how we're going to market, to whom, where, how we're going to show it in its best light, and how we're going to create a sense of urgency and, hopefully, a competitive scenario. So — acreage. Let's talk about what acreage brings to the table, because there are a couple of nuances you begin to see. One of them is water rights, which is a whole other animal. And it could ultimately be as high as your number-one priority on an acreage property.

Chase: Depending on what the acreage is and what you're planning on doing with it — or what it's being used for. And water — you want to talk about something that's scarce? They don't make any more land. They don't make any more water rights to go with the land. That can definitely become an issue.

Jerod: So: how are you going to use it? How can you divert it? Where do you need it — and want it — on the property? Those are considerations. Are the rights coming with the property? You're going to want to make sure that's all in place, and we'll talk later about the team you'll need to assemble to make sure it's all correct — because you really don't want to make any assumptions. That's typically a big mistake.

Chase: Definitely don't want to make assumptions.

Jerod: And by the way — say you've paid top dollar as a buyer for a property with water rights, and something happened, either in the transfer or while you've owned it, and now that property's value is a fraction of what it was when you bought it. That can happen very quickly.

Chase: Absolutely — especially when you're talking about ground and water rights. Without them, it's typically much less valuable.

Jerod: And time and history matter — [first in time, first in right] type considerations. There are things to consider, and sometimes it's not only what's documented; it's what's happened, and what's not happened. That's drilling down further into the assumptions: when you're buying the property, you've got to know what's coming with you, what's not, what's yours, what could potentially not be yours in the future — and how you could lose the rights you have.

Chase: You can lose the rights. Personally, my property is extremely unique — our lane is actually an easement through land owned by the [Bureau of Reclamation]. We've done all the research to make sure we're protected through that easement — it's decades old — but there are restrictions that come with it. So understanding what your ownership rights are, and whether there are easements or encroachments — all of those things. And the bigger the property gets, the more likelihood there's something there.

Jerod: And in the next overlay I talk a little about easements — what's usable and what's non-usable is a perfect example of what you want to consider. We'll drill into those in more detail, but before we do, let's chat about wells and septic. You've got acreage, and now suddenly you don't have city services — what does that look like? You're going to handle that purchase, that sale, much differently than you otherwise would. You're going to want to pump the septic, inspect the septic, make sure the permits are in. You're going to want to make sure the maintenance has been documented as a seller. Your well — same deal. What's happened with the well? What's the capacity of the well? What's the quality of the water in the well?

Chase: It gets way more in-depth. And these items aren't necessarily required for the loan — depending on the type of loan, the condition, and what the appraiser says. But as a buyer, it's super important. As a person who lives on acreage — I've replaced my well, I've replaced my septic. Those things are crazy expensive: big chunks of money you don't want to lay out after purchasing a property. And things change over time. Even if the well's good — nearby growth can lower the water table, and wells that have been there for decades and worked great are now not pumping enough water. Time changes all that stuff. So it's super important to know, to have all those inspections done, and to make sure everything's up to par.

Jerod: And quality — you can't feel confident that somebody else is checking the quality of the water. You want to be on top of that. And with the water table dropping in places: are you pumping what you need — or what you're going to need later? If you're changing the use of your property over the next few years, your water requirements are going to change, I'd assume.

Chase: Absolutely.

Jerod: So — let's get into usable versus unusable. For whatever reason, as I was putting this together, my mind went to some of your appraisal work out in the Sun Valley area. You get up into the wilderness, the terrain really changes, and you can have an acreage property with sub-acre usable space.

Chase: And we've actually seen that a lot here in the valley, too. The ground that's not usable — if it's on a slope, for whatever reason — we get that quite a bit in the foothills: a flat little strip of backyard, and then it climbs up a hill. You own it, but there's not much you can do with it, and from an appraisal standpoint, the value of that particular piece is less. Even more granular than that: it works like other economic laws. When an appraiser looks at it, you can look at excess land or surplus land — as you get further away from the home, the less valuable the land becomes. That first couple of acres you can landscape, you can use. People think, "oh, if I've got 30 acres, it's worth more than 20." Not necessarily. Typically, from what we see, that first two to five acres is your most valuable. From there, the value of the property doesn't increase at the same ratio it does for those initial few acres.

Jerod: And the further you get out — how usable is it? How much water can be used on that property? Animals on it versus growing on it is a different application.

Chase: It has what an appraiser would call a diminishing contributory value. There are marginal values of land where, as you go further out, it's just worth less, because you're not going to use it as much. And part of that is the market: if we had a market that demanded 20- and 30-acre properties all day long, they'd probably be worth more. But that's not what you see — buyers generally want the smaller portions. And then the most basic thing an appraiser has to look at is highest and best use. On larger tracts of land, the appraiser really starts looking at that: what's the land being used for? We still have a lot of farm ground here. If the highest and best use is a farm and it's producing income, that's not even a residential loan at that point — it's an ag loan. There's a lot that goes into determining not just the values, but understanding the basic use of the land — and that can really change how you have to purchase it.

Jerod: And for folks who don't know — I didn't give much backstory today — Chase is obviously with CrossCountry Mortgage on the lending side, but you also have almost a decade's worth of experience on the appraisal side. So you can speak to how value is determined, adjustments, how you look at highest and best use. There's a lot to think about.

Chase: And the more ground there is, typically the more outbuildings, the more everything — there's a lot to think about there.

Jerod: Especially if you need a loan — how are we going to approach that transaction? Which is a good segue into financing acreage. I heard a lot of appraisal background there — now what are some of the financing considerations, specifically for luxury acreage?

Chase: You're typically going to be looking into the jumbo world. On the conventional side, different lenders — and the people backing the loans — have what they like to do, but [Fannie Mae] and [Freddie Mac] don't technically have restrictions on land size. Where the restrictions come in is what we just talked about: the use of the property. If there's a hundred acres and it's under hay, now you're talking about an income-producing property — we have to look at what it can produce as income, and it's a completely different type of loan. Otherwise, the jumbo products have their typical restrictions, and once you start getting over 20 acres, they look at things a lot harder. You hear the ten-acre thing thrown around a lot, but it really comes down to use. A hobby farm — which is technically what mine would be — where you're not producing enough to sell, isn't an income-producing property, and that type of property is pretty straightforward to loan on. Get much larger than that, and you have to start answering other questions: if there's ground under hay but it's not making money, is it? If you're making money, how? Could that change? The basics of it: Fannie and Freddie don't really have a land-size restriction — we just have to look at the use of the property.

Jerod: And what your intended use will be. Very good. Well, let's land the plane on the specialists we need for these properties. We're talking about well inspections, looking at the quality of the water, the productivity — obviously those folks need to come in. We always recommend that you know as much about the property as possible prior to listing it and getting under contract — sooner rather than later. And that applies here. The last thing you want is to pull your home off the market, get into inspection, find that there's an issue, potentially lose the buyer — and then, by the way, now you're potentially explaining the loss of that buyer to other prospective buyers. That's never fun, and in some cases it can be catastrophic to a sale. So we want to know where we're at. And now we're not just talking about a structure and the high-ticket items — the roof, the mechanicals. We're talking about a lot of very expensive systems that a luxury buyer, especially, is going to want to know are in good condition — worth the money they're putting into the property. They may well have the wherewithal to fix things, but nobody wants to plan on that after spending millions. It doesn't mean an issue kills the deal — but you definitely want to minimize the likelihood of the deal being killed.

Chase: Typically, the bigger the property, the more complicated it gets, and the more due diligence you need to do. And the sooner you get that done, the better off everybody's going to be.

Jerod: The main one I'd say, especially with water rights, is water-rights attorneys. If you're selling a property with water rights, there's usually a large prioritization of those rights on the property — obviously dependent on application — and nobody wants to find out later that what they thought they were buying is far inferior to what they're actually getting. Get all that detailed out; get it rock solid. Especially in this luxury space, where folks have the wherewithal and resources to engage attorneys, being bulletproof becomes more and more important — and depending on the application, the due-diligence period can get pretty aggressive. Which brings up a question — this one might be a little unfair. How do you make adjustments for the confidence level of factors like that? Can you say this property, compared to that property, gets an adjustment of X for water rights? Is that something you've run across?

Chase: I have, in the past. Water rights are a big deal — there's a lot of value there. But everything has to be derived from the market through match-pair analysis: one way or another, you try to determine the value of the property with water rights by determining what comparables are worth without them. And it's difficult — really difficult — because it's not something that happens all the time. It takes a lot of expertise and a lot of research. The other part is that appraisers only have the information available to them.

Jerod: And we've talked in prior episodes: one, we're a non-disclosure state, and two, some of these deals are done privately. If you're not in the space of knowing what's going on, you could be missing very valuable information.

Chase: And if it's a private deal — is it an arm's-length transaction? Can you even use that information as part of your determination of value? Everything's supposed to be open to the market and at arm's length. Private sales can be — but was it? There's a lot that goes into using that information for comparables.

Jerod: The example that popped into my head: a buyer thinks the home should be worth less because they see what they perceive as a comp at a lesser value. When you dig into it, our job as an agent, working with our team, is to determine — was that an arm's-length transaction? Was it distressed? What made that sales price drop so significantly? And then you can exclude it as a comp. Helping a seller, you'd want to figure out why that one is an outlier that shouldn't be applied to this comparison.

Chase: And I think that's probably the biggest thing lacking with a lot of agents these days — that understanding, and how to make that determination, identify it, and go do the research. It can be done. We've been through this era where sales were super easy for all of us, and the expertise of knowing how and when to exclude, and being able to do that macro and micro analysis of your listings for your clients — that's what makes sure you've got them in the right spot.

Jerod: Absolutely. Well, we're coming up on the half-hour mark, which we try to hold to — and it looks like we'll pull it off today. I hope you've taken a lot out of this series; we've tried to cover a lot of ground. There are new luxury products coming on very aggressively into our market, a lot more conversations around that, and a lot more things to consider. So we'll evaluate, based on interest and questions, whether to build out another series. Feel free to chime in and let us know if this has been helpful — like, share, subscribe — but also let us know: "I'd like to hear more about some of this," these new luxury resort communities, for example. That's coming on very strong. Luxury resort living in the Boise, Idaho area — what does that look like? As always, Chase, we really appreciate you coming on and giving your perspective on the lending side, the appraisal side, and just yourself in general.

Chase: Absolutely. It was good chatting with you again, my friend. Looking forward to the next series.

Jerod: Otherwise, we'll wish everybody a blessed one. Take care.