When embarking on a real estate development project, the process can often seem intricate and laden with potential pitfalls. Here’s a glimpse into how we at Mackenzie Bowell & Co. navigate this complex landscape with our clients, ensuring transparency and fairness at every step.
Step 1: Signing the Service Agreement
The journey begins with the signing of a service agreement. This crucial document outlines the scope of work, delineates responsibilities, and sets the foundation for the entire project. It’s a comprehensive roadmap that ensures both parties are aligned on expectations and deliverables from the outset. Servicing includes seeking potential buyers for the Owner’s assets in the U.S. and offering essential local expertise, including project management, approvals, marketing, and more.
Step 2: Secure Handling of Funds
One of the primary concerns in real estate transactions is the handling of funds. To address this, the client places their equity funds into a lawyer’s trust account. This ensures that the funds are secure and managed with the highest level of integrity. The lawyer is then responsible for releasing these funds as needed:
- To the escrow agent: For transferring the land title.
- For various project costs: Such as entitlement, surveys, and permits.
By structuring the flow of funds in this manner, we ensure that the funds are used strictly for their intended purposes, and I never directly handle the money.
Step 3: Negotiating Profit Shares
The percentage of profits is a critical aspect of any development project and is determined through negotiation. Several factors influence this percentage, including:
- The cost of land purchase: For instance, if the land purchase is $10 million, entitlement costs might be around $2 million.
- Entitlement value: Purchasing 100 acres at $50,000 per acre and getting it entitled to 400 paper lots can significantly increase the value. Each paper lot might sell for around $50,000.
Step 4: Understanding Lot Costs
Breaking down the costs associated with developing and selling lots helps provide a clearer picture:
- Serviced lot cost: This provides for all infrastructural works, including those related to roads, walls, drainage, landscaping, and all utility services, such as water and sewer. Typically comprising about 25% of the total value of the home. For example, for an $800,000 home, the builder might pay $200,000 for the lot—$75,000 for the land and $125,000 for servicing.
Step 5: Avoiding Syndicate Markups
In many real estate transactions, syndicates often inflate various costs:
- Land prices: Syndicates typically increase the original land price. In contrast, we negotiate on behalf of our clients to ensure they pay the actual purchase price.
- Entitlement costs: Syndicates often add surcharges, but we ensure our clients only pay the actual cost.
- Selling fees: Syndicates usually have in-house realtors to gain listing fees. We, however, work with the broker who originally brought the deal, making us more attractive to listing brokers.
By adhering to these structured steps and maintaining a focus on transparency and fairness, we at Mackenzie Bowell & Co. help our clients navigate the complexities of real estate development. Our approach ensures that funds are managed responsibly, costs are kept in check, and profits are maximized for our clients. This meticulous process builds trust and fosters successful outcomes in every project we undertake.
Need further assistance? Send an email to Mac Bowell at macbowell@gmail.com or talk to him directly at 604-505-3297 today!