Selling or buying properties in remote locations

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Sellers often face many of the same challenges as buyers do. Still, given current market conditions in many of the South American markets where we operate, we find the market is slow for remote properties. They are often owned as second or third investments outside their home location and are only visited once or twice a year.

Each Seller’s motivation clearly varies. However, there is a broad spectrum of Sellers, from those content with fair market value to others who really don’t care what fair market value is. They are only willing to sell if the price matches a winning lottery ticket. We call them speculators, and they are quickly identified because they always price their properties above recent sales and have had them available for years.

Traditional methodologies for valuation on land or income properties can include comparable property options, cost of replacement, capitalisation rates, EBITDA formulas, or, in some cases, discount rates. Pricing South American property can be challenging because Such properties are demonstrably unique, and at this point, brokers’ intuition and experience become essential factors in a realistic valuation. One must consider country risk, future saleability, access, the rule of law, and several intangibles that may not be apparent to a vendor inexperienced in current market conditions.

South American sellers who have placed a premium value based on what a Buyer may experience after visiting the property can anticipate a longer sale cycle and likely significant valuation differences in any offers.

“The best tourism location”, “a trophy property”, etc., in South America are very subjective selling points. It occasionally may support the justification for an irrational value, but this is atypical. Most sellers in this situation will likely become frustrated and even disappointed when the market does not view the property the same way they do.

Buyers for these properties, with the economic resources to fund purchases of USD 3 – 30 million in remote locations, are generally price-savvy and understand the real value of the unique real estate.

Virtually all these buyers will ask at some point in the sale cycle, “How did you arrive at the list price?” Sellers will want to have this discussion with their agent prior.

Having a salesperson on the Seller’s team who can objectively and logically explain the offering and its value to the buyer’s interests is a critical ingredient for success. Those Sellers whose objective is to place irrational value in hopes of finding an irrational buyer can be successful from time to time, but the Seller may be in for a longer-than-normal sale cycle. Usually years rather than months. Even in covered locations, it is rare for an offering to rise to the level of a name-your-price “trophy” property; conversely, a dictatorial marketing approach might work.

Property values have always been established by Buyers, not Sellers. The Seller’s ability to capture over-the-top irrational value not supported by competition properties or income generated is directly proportionate to the Seller and/or Seller’s agent’s ability to convey the story and de-risk the investment.

The world’s most effective marketing campaign may attract qualified buyers in large numbers, but nothing will happen if the value is not to their expectations. Even the most exclusive properties quickly become stale in the market, losing value if they are not priced correctly.

Sellers often try to place a value on what they believe the “potential” offers a buyer. For example, if a Seller is looking for a value three times that of the market value because the Seller believes a Buyer “may” build a lodge in the future or may mine some gold and make money, that Seller will need to de-risk the deal for the buyer to realise that type of premium.

Smart Buyers and Buyers Agents know not to fall into that trap unless the site is genuinely a one-of-a-kind iconic offering and the Seller understands de-risking the investment. Valuing remote properties is as much about intuition and experience as it is about analysis, and competition drives sales.

Divesting this asset is no longer simply an ad and a handful of pictures. Sellers should prepare for a marketing and sale process anywhere from 6 to 24 months. Not all real estate brokers are the same. Sellers may want to interview several firms and agents before deciding which is the best fit for them. Lastly, Sellers, you get what you pay for! With a probability curve at or near 50%, the right brokerage can bring buyers who know how to add value. 

Here are a few things you will want to consider as a seller for a remote property

1. Collect as many high-resolution images and drone videos as possible beforehand. A broker cannot be expected to produce a library of images that capture grandeur and distinctive beauty from season to season in a 24-hour visit.
2. Buyers always appreciate transparency; no one knows your land better than you. Discuss with your lawyers the possible downside of providing a seller’s disclosure to qualified buyers. The vendor can be protected by using an NDA (non-disclosure agreement.
3. Succession is top of mind for virtually every Buyer who will look at the property. Be prepared to answer the questions about who will succeed you and how it will take you as the Seller to convey all the institutional and functional knowledge about the property you have acquired over the last 10–20 years.
4. Consider an owner’s manual or property guidebook that includes all helpful information a Buyer would receive at settlement, along with contact info for specific types of support, supplies, and repairs, as well as manuals and safety equipment. The most successful sellers understand the importance of de-risking the investment for the Buyer.
5. Picking the right broker can be key to your success. Not all brokers and brokerages are the same. Selecting a broker, in some respects, is more challenging than selecting a suitable lawyer. The right broker should be able to create value and opportunity, reduce risk and confidently advise a seller.
6. Buyers new to a region expect, when communicating with brokers, that they have some real-world experience and knowledge of the region they are selling.
7. Real Estate firms vary, and much like individual agents, there are some very high-quality firms in South America. As a seller, one of the keys to your success is getting your offering in front of the right demographic with the right message.
8. Things a Seller may consider when selecting a brokerage include the number of unique visitors per year their website generates for their region and, as a subcategory, how many potential buyers look at their listings, the number of webpage visitors it takes to get a listing sold, and how much experience the firm has evaluating and selling remote properties.
9. Ask the firm questions such as how they market, what their most effective marketing tool is, and how many of these properties they sell per year.
10. Be prepared to invest time in your agent and to tell your story to multiple buyers. While the first buyer who comes across your offering may buy it sight unseen (which is very rare), a more typical outcome is a 6-18-month sales cycle. Also, if you don’t already have a real estate lawyer, do your own research or ask your agent for recommendations.
11. Selling remote income-producing properties with real and personal property, especially if you’re selling company shares and/or assets, is not that simple.

The seller’s considerations when mulling over a divestment event are the same as those of buyers.

1. Objective – A Seller needs to determine their objective before deciding on representation, a “go-to-market value,” and timing. If the Seller has no concern for how long it will take to close and is focused on price alone, then consider a brokerage that can be patient with you and is good at articulating the history and opportunity. If the Seller has a timeline for selling and closing, consider seller financing, seller holdbacks, earn-outs, stepped equity drawdown, deed releases, and other approaches to de-risk the buyer’s investment. As a seller, you are likely familiar with and comfortable navigating the peril and isolation – do not assume all buyers will have the same level of comfort, day-one confidence, or the acumen to enjoy a seamless transition. Make a buyer comfortable and confident they can be successful; without exception, it will be difficult to reach a meeting of the minds regarding value if the Buyer is not comfortable with the offering, the Seller, or the perceived risk. 
2. Logistics – The typical remote property owner has flown in small planes and helicopters, landing on dirt strips. Those experiences become somewhat routine for any South American landowner with valuable property. However, this may not be the case for your Buyer. Sellers may want to consider their logistics and create a contact and budget for viewing, so a buyer can evaluate.
3. Sustainability – Buyers do not want to invest in real estate stripped of its resources. These resources include trees, minerals, wildlife, fish stocks, and water. Recent events, such as massive forest fires, all contribute to a buyer’s perception of risk. While many view these man-made or natural disasters as part of the natural order of things, investors paying top dollar will want to consider them. Be objective and transparent regarding what you are selling and what a buyer should expect.
4. Why are you selling – At some point or another, during a buyer discussion, they will ask, “why is the seller selling?” Whether selling because they are ready to pass on land to the next generation or retire, or you’re at the end of your investment time frame, every seller’s motivation to divest is unique, and in many ways, none of the Buyer’s business. Sellers should consider transparency as a means to help de-risk the investment unless the motive for selling puts the Seller at a negotiating disadvantage. Buyers who brand themselves as “value” buyers are usually more interested in knowing if there is blood in the water than anything else.
5. Structures – Buyers’ expectations vary, as with any real property anywhere in the world; however, they relate to the property being offered for sale. Buyers expect structures to be well-kept, clean and free of what would clearly be considered deferred maintenance. Buyers generally accept that these buildings are occupied for only 4 months of the year, and the window for repairs and maintenance is very narrow. That said, we have observed that buyers are willing to invest mid- to high-7-figure sums with the expectation of a flushing toilet, a warm shower, and reasonably well-cared-for structures. Pictures and video can tell much of the story, but the critical moment is the buyer’s impression as they walk through the door for the first time. 
6. Access – Most Sellers of these remote properties enjoy an inherent degree of security, mainly due to their remote locations and the difficulty of accessing a property anonymously. Buyers can not always come to inspect a property when it is most convenient for you, the seller.

Hopefully, these prompts will help you prepare to sell your prized asset. If you have more questions, contact us here.

Geoffrey McRae

The New Zealander has a distinguished career of over 30 years in 7 countries, specializing in South American real estate, agriculture, and commercial matters. As the founder of Gateway to South America, he is known for his discretion, expertise, and experience in representing active clients in the region. His extensive knowledge of the market has positioned him as a leading authority and trusted advisor.