Seller-Financed Real Estate

When it comes to financing residential real estate, most transactions follow a familiar process. The seller
finds a willing buyer with the required income, employment history, and credit score to qualify for
a mortgage, and a lending institution puts up the money to finance the deal.

But what if traditional financing is unavailable, and the buyer and seller still want to proceed privately
with the sale? They enter what's known as seller financing. As the term implies, the person who's selling
the house finances the purchase.

Buyers attracted to seller financing are often those finding it difficult to get a conventional loan, perhaps
due to poor credit. Unlike a bank mortgage, seller financing typically involves few or no closing costs or
and may not require an appraisal. Sellers are often more flexible than a bank in the amount of down
payment. Also, the seller-financing process is much faster, often settling within a week.

For sellers, financing the buyer’s mortgage can make it much easier to sell a house. During a down real
estate market, and when credit is tight, buyers may prefer seller financing. Moreover, sellers can expect
to get a premium for offering to finance, meaning they are more likely to get their asking price in
a buyer’s market.

Seller financing rises and falls in popularity along with the overall tightness of the credit market. During
times when banks are risk-averse and reluctant to lend money to any but the most creditworthy
borrowers, seller financing can make it possible for many more people to buy homes. Seller financing
may also make it easier to sell a home. Conversely, when the credit markets are loose, and banks are
enthusiastically lending money, seller financing has less appeal.

The Advantages of Seller Financing

This alternative to traditional financing can be useful in certain situations or in places where mortgages
are hard to get. In such tight conditions, seller financing provides buyers with access to an alternative
form of credit.

Sellers, in turn, can usually sell faster and without having to make costly repairs that lenders typically
require. Also, because the seller is financing the sale, the property may command a higher sale price.

● Benefits for buyers

From a buyer’s perspective, the main reason to pursue a seller financing arrangement is that
these agreements can help them qualify for a home that might otherwise be out of reach. This
makes seller financing particularly appealing to buyers with lower credit scores or a sudden loss
of income. And if their credit score is good, buyers still might be able to qualify with better terms
and a lower interest rate.

● Benefits for sellers

 Ultimately, sellers decide whether or not they want to create any sort of seller financing
arrangement. One of the most common reasons sellers use these arrangements is to help avoid
some of the costs that come with closing on a home. By minimizing closing costs, they can make
more money from their final sale.

Additionally, the seller financing process is often faster than the traditional alternative, which
can be beneficial if the seller needs to sell their home quickly. They might also use these
arrangements such as a leasing arrangement to generate passive income.

Disadvantages of Seller Financing

Of course, there are also some disadvantages to seller financing. If you are considering a seller financing
arrangement, be sure to keep these disadvantages in mind:

● Disadvantages for buyers

The structure of seller financing arrangements, particularly balloon payments can put buyers at
risk of living in a home they won’t be able to afford. Just because a buyer can qualify for one of
these loans doesn’t mean it will be in their best interest to accept it. Buyers need to be careful
when considering their options.

● Disadvantages for sellers

Sellers who finance the loan directly also assume the risk of lending money. This means that if
the buyer were to default, the seller would be responsible for paying back any part of the
mortgage owed to another party. And because sellers frequently use these arrangements with
buyers that have poor credit, the risk of a potential default should not be overlooked.

Seller Financing for Buyers

For all the potential pluses to seller financing, transactions that use it come with risks and realities for
both parties. Here's what buyers should consider before they finalize a seller-financed deal.

● Don't expect better terms than with a mortgage.

As the terms of a seller-financed deal are hammered out, flexibility frequently meets reality. The
seller digests their financial needs and risks, including the possibility the buyer will default on
the loan, with the prospect of a potentially expensive and messy eviction process.

The upshot can be sobering for the buyer. It's possible, for example, that you’ll secure a more
favorable interest rate than banks are offering, but it's more likely you’ll pay more, perhaps
several additional percentage points above the prevailing rate.

● You may need to sell yourself to the seller

 It's smart to be transparent and straightforward about the reasons you didn’t qualify for a
traditional mortgage. Some of that information may emerge anyway when the seller checks
your credit history and other background data, including your employment, assets, financial
claims, and references. But make sure, too, that you point out any restrictions on your ability to
borrow that may not surface during the seller's due diligence. A potential buyer who has solid
credit and a sizable down payment on hand may have recently started a new business, and so
be unable to qualify for a loan for up to two years.

● Be prepared to propose seller financing.

Homeowners who offer seller financing often openly announce that fact in the hope of
attracting buyers who don’t qualify for mortgages. If you don’t see a mention of seller financing,
though, it doesn’t hurt to inquire. However, instead of asking if owner financing is an option,
you might want to present a specific proposal. You could say, for example, "My offer is full price
with 20% down, seller financing for $350,000 at 6%, amortized over 30 years with a five-
year balloon loan. If I don't refinance in two to three years, I will increase the rate to 7% in years
four and five."

● Confirm the seller is free to finance the sale.

Seller financing is simplest when the seller owns the property outright; a mortgage held on the
property introduces extra complications. Paying for a title search on the property will confirm
that it’s accurately described in the deed and is free from a mortgage or tax liens.

According to Jason Burkholder, a Realtor with Weichert, Realtors in Lancaster, Pennsylvania,

"Most mortgages have a 'due on sale' clause that prohibits the seller from selling the home
without paying off the mortgage. So if a seller does owner financing and the mortgage
company finds out, it will consider the home 'sold' and demand immediate payment of the debt
in full, which allows the lender to foreclose."

Seller Financing for Sellers

Keep these tips and realities in mind if you're considering financing the sale of a home.

● You needn't necessarily finance the sale for a long time.

As the seller, you can, at any point, sell the promissory note to an investor or lender, to whom
the buyer then sends the payments. This can happen the same day as the closing, so the seller
could get cash immediately.

In other words, sellers don’t need to have the cash, nor do they have to become lenders. Be
aware, however, that you will likely have to accept less than the full value of the note in order to
sell it, thus reducing your return on the property. Promissory notes on properties typically sell
for 65% to 90% of their face value, according to Amerinote Xchange, a company that specializes
in secondary-market funding.
 ● Make seller financing part of your pitch to sell the property.
Because seller financing is relatively rare, promote the fact that you’re offering it, starting with
the property listing. Adding the words "seller financing available" to the text will alert potential
buyers and their agents that the option is on the table.

When potential buyers view your home, provide more detail about the financing arrangements.
Prepare an information sheet that describes the terms of the financing.

● Seek out tax advice and consider loan-servicing help

Because seller-financed deals can pose tax complications, engage a financial planner or tax
expert as part of your team for the sale. Also, unless you’re experienced and comfortable as a
lender, consider hiring a loan-servicing company to collect monthly payments, issue statements,
and carry out the other chores involved with managing a loan.

How to Structure a Seller Financing Deal

Both parties in a seller-financed deal should hire a real estate attorney or real estate agent to write and
review the sales contract and promissory note, along with related tasks. Try to find professionals who
are experienced with seller-financed home transactions—and who have experience where you live, if
possible, because some relevant regulations (such as those that govern balloon payments) do vary by
jurisdiction.

Professionals can also help the buyer and seller decide on the particular agreement that best suits them
and the circumstances of the sale. If it isn't a seller-financed deal, real estate investor and Realtor Don
Tepper points out that "there are actually dozens of other ways to buy" other than a traditional
mortgage arrangement. These arrangements, Tepper notes, include lease-option, lease-purchase, land-
contract, contract-for-deed, equity-sharing, and wrap mortgages. "Most buyers and most real estate
agents don't know how any of these work," he says.

What Are The Types Of Seller Financing Available For A Real Estate Business?
Land contract

A land contract is a type of financing available for a buyer and involves making a contract with a seller.
Sellers will transfer the title of a property when buyers make the final payment as per the agreement.
However, both a seller and a buyer should negotiate a repayment plan in this financing.

Lease purchase

Lease purchase or rent-to-own contract is another option available for a business plan who are new to
real estate. A buyer signs an agreement with a seller and pays monthly rent amount regularly. At the
end of an agreement, a buyer can pay the balance amount while purchasing a property. On the other
hand, a buyer has to make a down payment initially in this option.

Second lien

A second lien or junior mortgage is a finance option meant for lending money from a bank for
purchasing a home. A buyer will borrow a second mortgage under this plan if a seller feels risk when
making a contract. The seller financing will pay the remaining amount after getting funds from a bank.
However, a buyer has to make two payments to reduce the risk.

Holding mortgage

Holding mortgage is a lending money option offered by a seller to a buyer. A seller will provide a loan to
a buyer under this option to finance a purchase under this agreement. The loan is ideal for buyers who
want to get short-term funds. Apart from this, a buyer has to make monthly payments until the loan is
fully paid. At the same time, the option won’t work for everyone when buying a property.

Assumable mortgage

An assumable mortgage is a type of business sale financing available to a buyer. A seller provides
opportunities to take over the current mortgage loans when the interest rates are very low. It addresses
the needs of a buyer when purchasing a property.

All-inclusive mortgage

An all-inclusive mortgage is the best option for buyers if they have a business plan in their minds. It is
also known as the All Inclusive Trust Deed (AITD) which facilitates the purchase of a home. This financing
option uses a promissory note between a seller and a buyer. A buyer has to make one large down
payment under this agreement. The procedure involves dividing money between a lender and a seller
who finances a loan. Moreover, a buyer has to pay loans on an installment basis just like a traditional
mortgage loan. Loans with high-interest rates let a buyer build equity as soon as possible.

Land loan

A land loan is a type of business plan financing available for a buyer. It is ideal for those who want to buy
a plot of land instead of a property. A buyer can use the land for business purposes later. Land loans are
different from construction loans and buyers have to know them in detail before investing money.
Different types of land loans are available for buyers in markets.

Lease To Own Option

One of the biggest issues for real estate owners is a stagnating property – a property that is not selling at
the asking price of the owner. This could be the result of different factors, such as a high asking price,
low demand, or an unstable economy. For real estate owners and potential buyers, there comes an
investing solution that could benefit both: lease options. It gives the owner a chance to make profit of
the investment while renting to a potential buyer. For a tenant, it gives them a lease, but the chance to
own their own property after a number of years.
The basic definition of a lease to own option is when an owner gives the tenant the option to buy the
property at the end of the lease. Usually the tenant is given a time frame and price at which the tenant
has to buy the property. Most of the time, the lease payments can then be applied toward the purchase
price. This is a beneficial strategy for buyers because they have the option to continue renting or
buying, but the seller cannot sell the property to anyone else should the tenant decide to buy it.

To understand lease options more, it is important to understand the advantages and disadvantages of
the agreement to both buyer and seller.

Lease to Own – Buyer

● Advantages
o A lease to own is an exciting prospect for a tenant that is short on cash and unable to
qualify for a mortgage. This gives the buyer time to prepare a down payment or improve
their credit ratings for a mortgage before the purchase date.

o A purchase price for the property is usually agreed upon at the signing of the
agreement. This is a huge advantage for the buyer who will avoid additional costs
of appreciation of the property after a number of years of renting have passed.

o Lease to own can act as a trial period for the buyer. If the buyer is new in town or
relocating, then a lease to own allows them to test this particular neighborhood as an
investment opportunity.

o If the buyer is relocating and waiting to sell a property of his or her own to fund the
purchase of a new one, then lease to own is the perfect option. It allows them the
opportunity to get settled in at their future home until they are able to purchase it
completely.

● Disadvantages
o Lease to own does not make the buyer an owner of that property. It will still belong to
the seller, which provides him or her with full control over the property. It might be a
minor issue but for the buyer, it will feel like being a tenant and not a homeowner.

o The plan might not work out because as buyer you might not be able to improve credit
rating or save up for a down payment. This will result in losing out on the property you
planned to purchase.

o Sellers ask for a one-time fee to be paid in return for the buyers’ optional decision on
purchasing or not. The fee varies depending on the seller, but if the buyer refuses to buy
then they lose that fee to the seller.

Lease to Own – Seller

 ● Advantages
o A lease option agreement with a potential buyer is an excellent investment strategy
when you are being faced with too much competition in the market. A lease option is
better for buyers than a mortgage payment, which makes it favorable to them.

o If the seller is unable to sell the house in that moment, then a lease to own agreement
will provide a financial opportunity. Instead of having a vacant house, then a monthly
fee in the form of rent will be ideal with an option to purchase.

o Unlike normal rentals, a lease to own tenant is more likely to maintain the conditions of
your property because of their option on purchasing it eventually. This allows the seller
to save some money in repairs and maintenance costs over the years.

● Disadvantages
o If the seller is in need of bigger amounts of cash then lease to own won’t help with that.
A lease to own functions on rental price ranges for a number of years and that deprives
the sellers from their goals.

o The risk of a depreciating property. If the buyer decides to exercise his or her option to
not buy then the seller will be faced with selling the same property for a lower price
than its original value before the lease to own agreement. The opposite works in the
favor of the buyer, appreciation of the property means the seller must sell for less than
market value due to lease option agreement.

o The most haunting disadvantage for the seller in lease to own agreements is the
uncertainty that comes along with it. Lease options are usually long-term contracts that
last for years. If the buyer decides not to purchase then the seller must go through the
same cycle of selling the property, which consumes time, energy and money.

A lease to own agreement is clearly an investment strategy that gives more power and freedom to the
buyer. Sellers are usually forced into lease options because of their inability to sell their properties at the
time. It is not hard to understand the differing viewpoints of lease options after looking at the pros and
cons for both parties. If any potential buyer can get their hands on a lease to own agreement, it would
definitely be advantageous.

Lease To Purchase
A lease purchase is a contract in which the buyer is obligated to purchase the home through monthly
payments for a set number of years. For example, the buyer agrees to buy the house at $150,000 for 20
years at a 6.75% interest rate.
Pros – The lease purchase option is suitable for buyers who already know they want to purchase the
home but cannot get a mortgage loan. They will be able to pay the seller the same way they would a
traditional lender.

Cons – If the buyer cannot afford the home at a later time or have a change of mind, they will be held
liable for the entirety of the loan. Because the home is still owned by the seller and not a bank, the
buyer will not have the option of foreclosure or bankruptcy to cover the cost of the loan.

Benefits for the Seller

Both the Lease-to-Own and Lease Purchase benefit sellers looking to sell fast without having to work
with a realtor. In addition, if the home is free and clear of any liens, either option provides residual
income.

Unless the seller is looking for a lump sum at one time, both options could work well depending on the
seller’s needs. However, the seller will essentially be financing the buyer. If the buyer fails to follow
through with the contract, the seller will be held liable for paying any pre-existing mortgages on the
home.

Benefits for the Buyer

For a buyer without sufficient funds or credit to obtain a loan, opting for a lease-to-own or lease
purchase of a home could be the perfect solution if a seller can be found.

Lease-to-own is an excellent choice for buyers who have a less secure future and are still determining if
they will actually purchase the home after the term is up. Lease purchase is better for buyers who are
already bent on buying property and are prepared to follow through with a 15-30 year term.

The biggest benefit, however, is that a lease-to-own or lease purchase prohibits the owner from selling
to any other party while the agreement is in force. In essence, the buyer has exclusive rights to the
property, barring any undesirable scenarios such as breach of contract or the buyer’s inability to secure
a mortgage at the end of the term.

Abandoned Property
Abandoned property is a piece of property, a dormant account, or an unused asset that has been turned
over to the state after several years of negligence or inactivity. States have abandoned property
divisions that focus on the management and recovery of unclaimed property, known as escheatment. In
general, assets will take this route after a dormancy period of two to five years.

Once a property is registered as unclaimed, a certain amount of time must pass, known as the dormancy
period, before it can be deemed abandoned and turned over to the state. In the U.S., state laws
determine when an asset is legally considered abandoned. Deadlines vary from state to state, though at
least two years must typically pass before property acquires this status.

States have abandoned property units that focus on the collection, management, and dissemination of
abandoned property. These divisions allow abandoned property to be channeled to a state organization
rather than the company where it is held or was issued.
Some states hold property and allow the original owners and heirs to claim it indefinitely. In other
territories, if the property goes unclaimed for too long it may become the state's property through a
process known as escheatment. In many cases, the assets that are abandoned will be auctioned or
converted to cash for more convenient safekeeping. Assets maintained by each state can be used to
support its activities. These assets generally include only a small percentage of the state's revenue at
less than 1%.

Types of Abandoned Property

Abandoned property takes on a variety of forms and can be both tangible or intangible. Unclaimed
assets may include real estate, land, and safe deposit boxes as well as life insurance policies, unpaid
wages, and securities held in financial accounts such as stocks, bonds, and mutual funds.

Benefits of Abandoned Property

The idea that the state you live in can take possession of your bank account if you don't access it for a
certain period of time might not sound very fair. However, in reality, abandoned property laws were
actually put in place to protect consumers.

In many cases, turning unclaimed funds over to the state makes it easier for people to claim back what is
rightfully theirs. Previously, the property would remain with the financial institution (FI) or other entity
in possession of it. That meant there was no centralized channel to recover unclaimed assets and that
these resources remained in the hands of parties with perhaps little incentive to locate their missing
owners.

It has also generally been accepted that any assets that remain unclaimed for a lengthy period of time
should be used for the public good. In other words, if it comes down to escheatment, it is better if the
returns from abandoned property go into public coffers rather than enrich individuals in the private
sector.

Retrieving Abandoned Property

The National Association of Unclaimed Property Administrators (NAUPA) was formed to help support
consumers in retrieving unclaimed property assets.

In partnership with state organizations, NAUPA has built a database that allows consumers to check
government records for unclaimed property in any U.S. state where they have lived. Individuals
can search for unclaimed property through state-sponsored websites as well.

Owners of unclaimed property can easily reclaim their assets by filing a claim with the appropriate state.
States have processes in place for actively locating owners of unclaimed property. They may search
government records to identify and locate individuals, often contacting them through various means.

Typically, only half of a state's unclaimed property is reclaimed each year, providing some
additional revenue for U.S. states through the assets of unclaimed property. Some states
maintain online registries of unclaimed assets and dormant accounts. This enables rightful owners
to reclaim assets even after escheat rights have been granted to the state.
However, these efforts are ultimately subject to state law, and states can institute a statute of
limitations that restricts claims after a specified period of time. Statutes of limitation usually help to
protect states that sell assets or spend funds for their own use, making these assets less recoverable
over time.

How To Buy Abandoned Property

Before buying abandoned property, learning everything you can about it is important. This includes
contacting the property owners, conducting a home inspection and weighing the property’s pros and
cons. Then, if you’re ready to purchase it, making an offer and obtaining financing is the final step
in buying a house.

It might feel overwhelming or even scary to find abandoned real estate to buy, but the process isn’t
much different than looking for any other property.

1. Find Available Abandoned Real Estate

To find available abandoned real estate, you’ll use many of the same methods to buy regular
property. For example, you could work with a real estate agent or do the research yourself.
You’ll need to scour the area you want to buy a house and look for abandoned homes or other
vacant properties. You may recognize them from their rundown appearance, or you may be
lucky enough to find foreclosure or auction listings in the local paper.
2. Contact The Property Owner
Sometimes, abandoned properties are still owned by the original property owner, but they
haven’t done anything with the property. So the key to buying abandoned property is to get in
touch with the property owners to determine your next steps.

This will take some legwork on your part, so prepare yourself. You can start by asking the county
clerk for the tax records. This will provide you with the property owners’ names. You can then
try to locate their contact information online.

If the property owners aren’t listed, you can visit the property and leave a note or business card
in the mailbox or on the door. You might not be the only buyer interested, so always follow up if
you can. Also, since the property is abandoned, the owners may not come around often, so it
could be a while before you hear anything.

Finally, you can ask the county clerk if the home will go to tax auction soon. If there are unpaid
back taxes, chances are it will, making it much easier for you to buy an abandoned property. Just
make sure you know the required terms, including the cost and how much money you need
upfront to win the auction.

3. Conduct A Home Inspection

 If the property isn’t part of a real estate auction, you may be able to pay for a professional home
inspection before purchasing it. This step is important because the home’s condition can alter
your plans if it needs more work than you can afford.

If you’re buying the home at auction and the bank or county isn’t allowing inspections, consider
bringing a professional inspector with you to the auction so they can give you a feel for what
they think of the property, even from the outside.

If you can inspect the property, figure out what home maintenance and repairs are necessary to
make the home livable. Depending on the type of financing you get, you may have to do the
work before you close on the property, and it can affect your finances, so pay close attention to
the report.

4. Weigh The Pros And Cons

Even though abandoned properties may cost less, they may not be worth it in the end.
Therefore, it’s important to weigh the property’s pros and cons, considering the home’s
condition, the work it needs and the cost.

If you have to put too much work into the home to make it livable or to increase its value, it
might not be worth it. So first, look at the property values of other homes around it to
determine if you’d be investing more than the home might be worth when you’re done.

5. Purchase The Abandoned Property

You’ll likely need financing when you decide to purchase an abandoned property. Before you
commit to buying the property, determine your timeline. For example, if you’re buying an
abandoned home from an auction, you may need the financing upfront to close quickly. But, if
you’re buying it from the owners directly, you may have more time to work out financing
details.

Since the home is already abandoned, the current homeowners likely aren’t in a big hurry to
close the sale.

It’s best to get preapproved for a mortgage before looking at abandoned homes so you know
how much you can spend and what the lender requires. After you’re preapproved and find a
home, the lender will order the appraisal and title work on the property to ensure it’s worth
enough money (or will be after your renovations) and there aren’t any liens, such as back taxes
on it.

Where To Find Abandoned Properties

There are several ways to find abandoned properties. The right method depends on how much work you
want to put in and how much time you have.

● Consult with a REALTOR®: A REALTOR® or real estate agent can help potential buyers find
abandoned properties. They often know about abandoned homes before anyone else, which
may give you a leg up on the competition if you want to buy it first. Many abandoned homes are
from foreclosure, and real estate agents have access to this information first, helping you find
homes faster.
● Browse online listings: It may take a little work, but you might find abandoned properties in
online listings. Like when you look for other real estate properties, you can filter your search to
find what you want. In the listings, search specifically for foreclosures or vacant properties to get
the desired results.
● Find and attend a property auction: Property auctions occur when a bank, government agency
or any other entity takes possession of a home but doesn’t want to keep it. Instead, they want
to liquidate the property to get their money back. You can learn about property auctions from
local real estate agents, county clerks or newspapers.
● Check with your local bank: Check with local banks to see if they have a list of recently
foreclosure properties. These homes may be abandoned, or you may even come across
abandoned buildings, such as an apartment complex or condo development, that the owners
couldn’t keep up with the bills.
● Visit your local county clerk’s office: The county clerk’s office can provide you with a list of
homes in the area under foreclosure. They may also have the necessary information to contact
the owners to discuss buying the abandoned property.

Blighted Property
The legal word for land that is dilapidated, hazardous, or unattractive is “blighted property.” Each state
has its own set of blighted property laws for determining whether a property is blighted. Typical criteria
include:

1. The house is uninhabitable

2. The property is dangerous
3. The property has been abandoned for a set period of time (usually at least 1 year)
4. The property poses an immediate threat to other individuals or property

What Are “Blighting Influences?”

Conditions in such structures that are unsafe or damaging to the health, safety, or morals of the
occupants of such buildings or other residents of the municipality or that have a bad impact on
properties in the neighborhood are referred to as blighting influences.
Among these conditions are, but are not limited to, the following:

● Defects that increase the risks of a fire, accident, or another calamity;

● Air pollution;

● Light or sanitary facilities;

● Dilapidation;

● Disrepair;

● Structural defects;

● Uncleanliness;

● Dead and dying trees, limbs, or other unsightly natural growth or unsightly appearances that
constitute a blight to adjoining property, the neighborhood, or the city;
● Walls, sidings, or exteriors of a quality and appearance that is not commensurate with the
character.

What Can Be Done If I Live Next to Blighted Property?

Almost every state, county, and urban jurisdiction has a blighted property statute.

If you notice a blighted building in your neighborhood, report it to the appropriate local government
agency.

Depending on where you live, this could be the city or town hall, the mayor’s office, or the Department
of Housing. Some larger cities even have task groups dedicated to the problem of derelict property. A
city or town hall representative should be able to tell you who to notify.

Typically, local authorities will inspect the property to see if it fits the legal criteria for being labeled
blighted. The property’s owner will be located, notified, and given the opportunity to undertake
voluntary repairs to rectify the concerns.

If the owner does not voluntarily comply, local authorities may remedy the situation themselves and bill
the property owner for the costs involved.

Vacancy vs. Blight vs. Abandonment

Although the terms “blight,” “vacancy,” and “abandonment” are frequently used interchangeably, they
refer to distinct circumstances.

Blight is a hazy phrase with a complicated racial history. It was first applied to slum housing to indicate
the harmful public health implications of inadequate housing. It was later used as a legal rationale for
urban regeneration in predominantly African American districts.

Today, blight refers to a broad group of properties in deterioration, vacancy, abandonment, foreclosure,
or environmental contamination.
Vacancy and abandonment are more specific phrases.
Vacant properties are those that are not occupied but may still be owned. Some properties are vacant
due to typical market turnover (i.e., the house may be for sale or rent).

When a property lacks active ownership or stewardship and becomes a public nuisance (e.g., the
property deteriorates or gets neglected and in a condition of chronic deterioration, or the neighborhood
or block contains many unoccupied properties), vacancy becomes an issue.

In contrast, abandoned properties have no active owner and have generally become uninhabitable,
structurally hazardous, or beyond repair.

Brownfield Property
Brownfield sites are properties with environmental issues that offer limited present use, but can
represent a smart investment if costs, locations, and other factors are favorable. Brownfield sites are
created when commercial or industrial properties contaminated with toxins, chemicals, and other
pollutants are abandoned. Because brownfield sites are typically ugly, they’ll deter prospective buyers
and developers from taking a closer look.

Fortunately, the Environmental Protection Agency (EPA) has created a program to encounter the reuse,
expansion, and redevelopment of brownfields by providing incentives to reinvest in these properties.

The number of brownfield sites is estimated at 450,000 across the country. They’re often created by
companies and property owners abandoning property contaminated with hazardous waste and then
trying to avoid any cleanup responsibility.

Fortunately, in the early 1980s, the federal government passed laws to prohibit this in the future.
Brownfield sites usually occur in areas where the demand for land is high.

They’re often “dirty,” abandoned, and obsolete manufacturing plants located on large parcels of land in
the middle of urban centers. While such properties may have an A-plus location, the land itself will be
underutilized. After it’s become “dirty,” investors and developers will be afraid to buy or redevelop it
due to the regulatory, legal, and financial risks. There’s also the assumption of contamination, which
comes with its own risks at the local, state, and federal levels.

Buying Brownfields: Opportunity or Risk?

Brownfield sites can present opportunities to purchase properties at lower prices and in areas where
fewer traditional sites are available - if you can work around liability concerns and cleanup costs.

For many real estate executives and firms looking to acquire and build new facilities, brownfield sites
can cause serious concern that masks the potential buried beneath the contamination. Looking at the
brownfield market, proven experience is the key factor in determining whether a brownfield investment
will yield a high return along with the high risks involved.

In many industrialized states such as California, New York, Ohio, Michigan, New Jersey, and
Massachusetts, the only properties still available for new projects are brownfield sites that have been
contaminated and remain unutilized. The ability to decipher the risks and the benefits and the expertise
to use existing tools that help in the remediation process are key factors in unlocking opportunities
within the brownfield market.

By definition, a brownfield is a property that is underutilized due to environmental contamination or an

assumption of contamination, that has not been redeveloped due to environmental concerns and the
perceived cost of remediation. These properties are often characterized by their size and location.
Though brownfield redevelopment involves a fair amount of risk, there are also strong opportunities to
acquire real estate at good land basis if the purchaser has a solid foundation of knowledge regarding
what to look for and what to expect when acquiring a brownfield property for redevelopment.

Property Classifications
It is very important for companies looking to acquire brownfield properties to know what classification a
particular site falls under and how much contamination is associated with that classification. There are
four major types of brownfield properties.

● Superfund: The largest challenge for a potential purchaser is presented by a Superfund site. A
Superfund site represents the most contaminated type of brownfield, which translates to a very
high cost for remediation and redevelopment and typically a long duration of time before
redevelopment is possible. An example of a Superfund site is the Avtex fiber plant in Front
Royal, Virginia - for nearly 30 years, there have been more than 100 people working full-time to
remediate the site.

● Petroleum: Petroleum sites are the most common type of brownfield and in most cases are the
easiest to remediate. These sites are properties that contained leaking underground storage
tanks (USTs) full of petroleum that have contaminated the soil and groundwater. Petroleum is a
common contaminate with existing technology that has been field tested and proven to
successfully remediate these types of properties. Petroleum is also a regulated substance that
makes it easier for a company to negotiate cleanup with a governmental or state agency. These
factors make these types of sites cheaper to remediate than their Superfund counterparts.
Petroleum sites are typically able to be remediated for redevelopment in less time than other
types of brownfields, having the process completed in months instead of years.

● FUDS: Another type of brownfield property is a formerly used defense site (FUDS). These sites
represent land that was once used by the military or military contractors for a variety of
operations. The extent of the contamination is dependent upon the type of military operations
that were carried out at the site. These types of brownfields are often deeply contaminated with
a wide array of exotic chemicals, toxins, and explosive residue for which there is no
demonstrated technology or proven formal process for remediation and cleanup of these
chemicals. Additionally, there is an established, formal process for the acquisition and
remediation of FUDS that cannot be shortened or amended in any way. This means that
 companies attempting to remediate and redevelop FUDS are looking at anywhere from two and
a half to eight years to complete the remediation process.

● Industrial: The final category of brownfield is a typical industrial site containing chlorinated
solvents and other contaminants. These industrial brownfields historically establish a middle
ground between the extremely expensive and highly contaminated Superfund sites and the
more elementary petroleum brownfields in terms of cost and timeframe associated with
remediation.

Financing and Administration

Knowledge of the type of brownfield you are dealing with is a key factor in order to be adequately
prepared for the financial burden, associated risks, and a realistic estimate of how long a given property
will take to remediate. There are also other key steps that a firm should take when acquiring a
brownfield property for remediation.

Financing is a major consideration when redeveloping brownfield properties. Particularly in today's

difficult economic climate, obtaining financing for real estate transactions is very difficult, but obtaining
financing for an environmentally contaminated project is an extreme challenge. Being prepared and
educated on the estimated cost of remediating various types of brownfields can help a firm seek out
brownfield projects that have the greatest chance to obtain financing.

Potential brownfield buyers also need to be armed with the necessary administrative paperwork,
making sure that it is negotiated in advance with the regulatory agency overseeing the contaminated
property, so buyers know what to expect as they begin the process of remediation and redevelopment.
An important component of this administrative paperwork is utilizing the existing and continuously
improving legislative tools available to brownfield purchasers to protect the buyer from the threat of
liability associated with the original contamination of the property and facilitate the process.

Obtaining a Prospective Purchaser Agreement (PPA), available in virtually every state, can expedite the
process. PPAs serve as a voluntary cleanup program that the buyer enters into with an environmental
regulatory agency to remediate a contaminated site for the purpose of redevelopment. This important
piece of paperwork protects the purchaser from environmental liability for the cleanup of a property in
exchange for the public benefit provided by returning an underutilized brownfield to productive use.
Other provisions such as the California Land Reuse Revitalization Act of 2004 (CLRRA) also help expedite
the remediation process and protect purchasers from certain risks. CLRRA was written on the state level
to establish a process for brownfield redevelopment that greatly reduces the timeframe needed to
remediate and redevelop many sites.

Though the legislation varies from state to state, most do have provisions that allow brownfield buyers
to negotiate important agreements, indemnities, and cleanup agreements that can help navigate the
landscape, shorten the timeframe for remediation, and, perhaps most importantly, protect purchasers
from liability and lawsuits associated with existing damages caused by contaminated sites.

Steps Involved in Brownfield Site Development Process

There are numerous steps involved in both finding and readying a brownfield. Here are the basic stages
to keep in mind as you go through this process.

● Step 1: Enlist an agent or broker who specializes in commercial real estate. This agent or broker
will be able to help you locate a brownfield site that will be perfect for development or reuse.

● Step 2: Carefully evaluate and appraise the property. You’ll need to understand the damage that
has been done to the property and what it’s worth. At this stage, you may want to consider
hiring an environmental consultant as well as an attorney who specializes in brownfield sites.
Their knowledge and expertise will be of great use to you as you go through this process.

● Step 3: Research how to properly remediate, develop, and insure the site. Do you have the
resources and support to properly remediate this brownfield site? Spend time shopping around
for contractors and vendors. One step in this process is obtaining Phase I, II, and III
Environmental Site Assessments before committing to purchasing a property. You don’t want to
accidentally bite off more than you can chew!

● Step 4: Contact your local and state governments. You’ll want to contact your local government
as well as the EPA to learn more about what’s involved and how/when you can apply for grants
and other financial or technical assistance.

● Step 5: Negotiate a fair price for the land. It’s time to purchase the land. Because it comes with
some unfavorable elements, don’t be afraid to negotiate the price down. Your attorney and
appraiser are good resources to have on your side at this stage of the game.

● Step 6: Remediate the site. In this step, it’s time to get down to business.

I’ve purchased a property that is contaminated. What’s my next step?

If you currently own or are interested in purchasing a property that has been contaminated from a
previous issue, then the first step is a Phase 1 Environmental Site Assessment (ESA). An ESA informs you
about the property’s history and current conditions. This information gives you background and context
to make informed choices moving forward.

9 Commercial Real Estate Government Incentives to Capitalize On

Many states and cities offer economic incentives to attract and retain profitable businesses contributing
to their local economies. These incentives are in place not only to help businesses grow, but to attract
other businesses and improve the local corporate community as a whole. No matter the sector, business
owners should capitalize on these incentives to offset the costs of their commercial real estate
portfolio.
1. Job Credits

These credits are based on the amount and type of jobs that will be created by your project. The
higher the count of high-paying and skilled jobs created, the more attractive (or lucrative) the
incentives become. These types of incentives include, but aren’t limited to:

● Payroll tax credits

● Local and state level credits

2. Real Estate Tax Abatement

These programs abate real estate taxes for the increased value of the property due to the
project for a specified term. In short, tax abatement is a reduction of taxes granted by a
government to encourage economic activity and growth. This lasts for a set period of time and
can vary from jurisdiction to jurisdiction. Some common forms of real estate tax abatement
include:

● Property tax abatement

● Municipal tax abatement

3. Tax Increment Financing

This is a property-tax-based program that offsets a portion of the costs for developers making an
investment that requires substantial improvements. Local tax authorities establish a fixed
valuation for respective property values specific to a special improvement district.

4. Capital Improvement Projects (CIP)

Capital improvement projects are public funds used for economic incentives towards
developments that contribute to the greater good of the community. For example, a local
government may identify a need for public road and utility improvements, and provide
incentives to businesses that can help reach their goals.

5. Discretionary Incentives

Discretionary incentives usually apply only to expansion projects that promise to create new
jobs and/or incur capital investment. These are commonly seen as cash grants or above-the-line
savings, which may include personal income rebates or abatement, sales, or property taxes.

6. Energy Efficiency Incentives

A variety of tax deductions are available to businesses that make energy-saving upgrades to
building features like lighting, heating, and cooling. The most widely known incentive is PACE,
which is designed for energy-efficient improvements to commercial properties.

7. Brownfield Incentives

Brownfield incentives are a collection of funding sources that can be used to help plan, assess,
and remediate brownfields, which are underutilized property that usually possess the potential
 presence of environmental contaminants. Brownfield redevelopment is becoming more
common in cities, as they look to revitalize specific areas with growing populations and
businesses.

8. Historic Preservation Tax Credit Program

This incentive provides a tax credit to businesses that leverage the private redevelopment of
historic buildings. These types of incentives are becoming increasingly common as cities and
towns of varying sizes seek to revitalize existing properties.

9. COVID-19 & Health Incentives

COVID-19 and other health incentives are time-sensitive, temporary, and in flux. However, with
the pandemic far from over, local and state governments are offering pandemic-prompted
incentives. These also range wildly, yet many include updating HVAC systems with UV
components to ensure safer air circulation and filtration. These are relatively small steps
business across industries can take—and take advantage of.

3 Tips to Maximize Your Incentive Benefits

1. Research and identify all relevant commercial real estate incentive opportunities. Consider
benefits at the federal, state, and local levels as you look to expand your commercial real estate
portfolio.
2. Draft a formal request for incentive (RFI). Submitting a formal RFI could open the discussion to
possible opportunities you didn’t know existed. A request for incentive is typically sent
concurrently with your request for proposal (RFP), to multiple communities. Similar to an RFP
process, the goal of submitting multiple RFIs is to incite competition and receive the best
incentives.
3. Weigh the impact of each incentive. Before wasting time and resources to apply for incentives,
be sure that you (1) qualify for the benefits and that they (2) make sense for your overall
business objectives.

State and local governments are full of incentive opportunities for those with commercial real estate
portfolios. Take the time to research and apply for the government incentives that make the most sense
for your organization.

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https://gokcecapital.com/brownfield-site/

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https://www.tycoonstory.com/different-types-of-seller-financing-arrangements-for-business/

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“, https://www.investopedia.com/articles/mortgages-real-estate/10/should-you-use-seller-
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