Are you a Religious Congregation? Are you wanting to sell real estate you are not using?
Please find below a guide on how to calculate real estate value, plus tips on common selling pitfalls.
More and more frequently, Religious Congregations are needing to reshape their real-estate holdings. Reasons vary: the property is too big for their needs or has been in disuse for years. Thus a number of Congregations come to the decision -sometimes a rather tortured one- to sell assets that have become more of a liability, but where the market value might be entirely unknown. So, if you are wishing to sell a building, flat, or villa, the first question to ask is: “What’s its value?” and then: “Who’s going to help me get the best price, and avoid making costly errors?”
WHAT IS THE VALUE OF MY HOUSE?
Let’s take a look at the key parameters to take into consideration regarding that value:
- Location: the home might be located within a building (e.g. a condominium), or be a detached single-family home (e.g. a villa); it may be in the heart of downtown, in a small town, or in the country;
- Structure: one must calculate the number of distinct rooms, distinguishing between the main rooms and the accessory areas. The main rooms are the kitchen, living room, and bedrooms. Accessory areas are the bathroom, storage room, foyer, hallway, and the like. One must then take into account that accessory areas come in two types: decorative (terraces, balconies, courtyards, gardens, etc.) and service (basement, sunroom, storage area, etc.);
- Marketable surface area: the sum of the footprints of the various areas and, with different percentage rates, of the external and appurtenance space. Note that it is not sufficient just to add up all the footprints; “adjustments” need to be made in accordance with the manual published on the Internal Revenue Agency’s site, at https://www.agenziaentrate.gov.it/wps/file/Nsilib/Nsi/Schede/FabbricatiTerreni/omi/Manuali+e+guide/omiallegati/AGENZIA+DELLE+ENTRATE_Manuale+BDQ_OMI_2016_ALLEGATI.pdf (in Italian).
Then, all these parameters flow together into the per-square-foot market value for the neighbourhood or area. Other elements go into the mix: these which can create a premium or discount on the property value. Among the key variances we would cite:
- Interior characteristics: direction in which the building faces, sunniness, view, and storey level (penthouses and upper storeys are worth more);
- Quality: its condition and an efficient use of space, well-tended garden, high-end materials. Generally, the fact that a home has been remodelled does not add value to the base price. On the other hand, when the home is more of a “fixer-upper”, the base price may be marked down by as much as 30% (due to the anticipated remodelling costs);
- Area or neighbourhood amenities: the value increases for any green spaces, proximity to public transport, shopping centres, hospitals, schools, and so on.
A property’s base price, essentially, is made up of the marketable surface area (in square metres) multiplied by the “neighbourhood’s value per square metre”.
WHAT ARE THE DANGERS AND PITFALLS TO AVOID IN ANY SALE?
Pitfall # 1: Not choosing an estate agency carefully
The most common mistake happens right at the outset, that is, not taking one’s time in choosing the best estate agency for the type of buyer your situation requires. There is no end of estate agents, but they all have different characteristics. For example, if I need to sell a very large, expensive, high-end building, using a small local agency is ill-advised. I should shoot for, instead, an agency with an international network, in order to increase my chances of success. Conversely, if I’m needing to sell a small flat of limited or modest value, then perhaps a smaller agency -one focused on selling real estate specifically in that area of town- might be just the ticket.
Pitfall # 2: Thinking only of an estate agency
Another common error is thinking that once an estate agency has been engaged, the seller’s work is all done. Not true! It is important to note that entrusting the sale of property to an estate agency is only useful for purposes of casting a wider net for buyers, allowing the seller to choose amongst potential buyers, if possible. Yet choosing an estate agency is not, in and of itself, sufficient to shield you from problems that might arise during a sale.
Pitfall # 3: Signing a representation agreement with the estate agency without having analysed the legal consequences.
The document a seller signs to engage the estate agent is a bona-fide contract. As such, it should be scrutinised in each and every detail. Yet many Congregations, whether because of blind trust or inexperience, simply sign the contract without having fully understood the value and impact of the same. Problems that might arise come from a variety of sources. In fact, failing to devote sufficient attention to each provision of the contract (such as the term of representation, the notice required to withdraw, agent fees, exclusivity) can lead to a series of negative effects. For example: one might be bound to stay with a given agency through automatic contract renewals, where the withdrawal option was not exercised in time, or if the Congregation finds a buyer through a different channel, but the contract contemplates exclusivity, the religious entity might still be required to pay the original agency a fee. Therefore, it is quite important -to avoid a host of problems- to have the representation agreement reviewed by an attorney, making sure to explain to the attorney what you wish to get out of the deal.
Pitfall # 4: Failure to analyse the offer and the prospective buyer’s characteristics (such as trustworthiness and reputation)
Another very common error is failing to properly evaluate the offers a Congregation receives. It is of course possible that the Congregation receive multiple offers of various types. Beware: choosing the highest price is not always the best option. There are other technical and legal considerations to be made. For example (this being a very common case) the prospective buyer might condition their offer on securing a mortgage from a bank; they might wish to pay in installments -over many years, perhaps- in the case of an expensive property; or they might condition the purchase on the property meeting certain specifications, such as the securing of building permits, i.e. something outside the seller’s control.
From another, but no less important, perspective, is the attention paid to vetting the buyer (natural or legal person though they may be), including the trustworthiness or reputation of the same. For example, will the prospective buyer be able to meet their payment and other contractual obligations? Does the prospective buyer have ties to organised crime? For what purpose will your building be used? Will it be used for illicit activities, or for purposes that run counter to your beliefs? What tools might the Congregation have to protect itself in case of buyer breach, or to respond to these and other questions?
For all these reasons, we suggest reviewing all potential options with an attorney. Where necessary or convenient, then, one can move forward with enquiries on the prospective buyer. This way, safeguards will always be embedded into the contract based on the specific circumstances at hand, in order to proceed smoothly to closing.
Pitfall # 5: Failure to verify that the building is up to code and properly assessed and recorded
It is important to note that a Notary might not execute a Deed of Sale without confirming the building is up to code and properly recorded. Therefore, it is always advisable -before signing anything with a buyer- to contact an attorney and an architect to handle the legal and technical aspects of the building, in order to generate a purchase agreement one can sign without a hitch.
The Fiat Lux team is at your disposal to clear up any questions or concerns you might have. You can reach us via email at firstname.lastname@example.org and we will be more than pleased to provide you any information you might need to assist you with negotiations.
Avv. Federica Loreti