Selling Residential Property as Commercial in North Carolina (Transitional Properties)

Accredited Land Consultant Eric Andrews explains how to sell residential property to commercial buyers in this video. When someone owns land or a residential home they think would be worth more as a commercial property, they often wonder if they should rezone the property as commercial, or “blanket commercial”. When selling land or a residential property, an experienced land sales agent will determine the highest and best use for the property, or what is optimal for this property. Generally what happens, at least in Pittsboro, Siler City, Chatham County and other areas in North Carolina, is we will put the land up for sale and a buyer will offer to purchase the property via a “pay to play contract”. This contract allows the buyer to make a partial payment to the buyer while they seek a conditional use permit. A conditional use permit or special use permit allows the buyer to do all of their research and purchase the property contingent of obtaining various permits from the town. For example, the town may not want a convenience store being built on a property, but they may be ok with an office building being constructed.

Speaker 1:           How does somebody sell a property that could potentially be a commercial property for the new buyer? Should they rezone it themselves or what?

Speaker 2:           So, these properties are called transitional properties and ALC specialize, they have a whole training course just on transitional land and it’s not what the property is, it’s what the property could be. And so you could have a residential property home in a downtown commercial area. So, obviously that’s probably not what we call… We’re always looking for what is known as the highest and best use. You probably heard that phrase before. So the highest and best use is, what is optimal for this property? What could make this property the most money? So, for instance, I deal with ALCs out in Montana and they have this beautiful hunting property, and then somebody finds some rare metal or something on it and so all of a sudden now the highest and best use is mining, or they find that it has fantastic soils. So, the highest and best use might be farming.

In an area like Pittsboro or the surrounding areas, we often have residential properties that the highest and best use would be commercial use. The municipalities are real strict about giving a blanket seat to, or blanket commercial zoning. They really don’t like to do that. So, they like to give what is known as either a conditional use permit or a special use permit. What that means is, the local government still has their thumb on what you can or can’t do. They don’t want to give you a blanket commercial because they’re like, “Maybe we don’t want a convenience store here right now, or maybe we don’t want a shopping center right here right now.”

But we do feel as though that residential isn’t the way to go, and so sometimes we transition into that. We go office and institutional. So it becomes an accountant’s office, a doctor’s office, a lawyer’s office, or sometimes they just go full blown commercial. But, because it’s so difficult to get that blanket commercial zoning, you’re pretty much going to have to, as a seller, work with the buyer to make sure that they get their approved usage. So if they’re like, “A, I want to be able to sell cars on this property.” They’re only going to buy that property if the local municipality says, “Okay, you got a conditional use permit for selling cars.” It can take several months. There’s a lot of money that the buyer has to spend. They have to do traffic studies, erosion control, site plan, working with an engineer for water and sewer, if applicable. A lot of survey work, there’s elevation… got to figure out how much dirt to move. There’s a lot that’s involved in the process.

The thing that I try to explain to sellers all the time is, they’re like, “My house is great for a commercial property. It’s right here and everything.” And I’m like, “Okay, but it’s not now.” And of course sometimes you can wait 10, 12, 14 months and everything. Of course, no seller wants to wait that long but if you really want to get that most reward, the highest and best use, then you have to understand that the buyer’s not going to pull the trigger on it until it is what they want it to be.

We could certainly sell the property for much cheaper and let the buyer do it, but it’s kind of a give and take. We use what is known as a pay to play contract. A pay to play contract means, if we’re in this, if we’re going along, then at some point, I’m going to give you money to show you and prove to you that the process is moving along well.

When I took my transitional land classes, one of the best examples they gave was Disney. Disney World. That was nothing but swamp, and they came in there and they made it the happiest place in the world. A lot of properties have a lot of potential. It takes someone with some experience and knowledge of the process to help the seller determine what is the highest and best use.