Possible Cure for Overpriced Properties

 Welfont Joe Johnson is an entrepreneur, investor, and startup expert. He is the founder and principal of GoodField Investments and the GoodField Foundation (www.GoodField.com).

With one amazing wife and six wonderful children, he is incredibly blessed. He and his family reside in paradise, aka Bradenton, Florida. When he is not enjoying time with his family, he is probably either researching, launching, or investing in startups.

Over the past 25 years, Joe has launched and funded over a dozen startups. Additionally, he has over a dozen years of experience investing in commercial real estate and has acquired over 10 million sq. ft. of commercial real estate spread out across dozens of states.

Welfont Joe Johnson has a PhD majoring in Entrepreneurial Leadership from Regent University and an MBA from Ashland University. He is also the Founder of Welfont – one of his startups that is now one of the fastest growing real estate organizations in the country (www.Welfont.com).

IRS Section 170 Bargain Sale & Overpriced Listings

“I need ‘X’ dollars”, “A similar property sold for ‘X’”, “I want to test the market”, “I can wait”. The common theme is an overpriced listing, whether residential or commercial. 

Often, while realtors and brokers know more about the surrounding market and economy, they are not able to convince the sellers to consider a more realistic price point. The sellers just continue to stand firm. Therefore, being emotionally attached and not be realistic creates difficulty in attracting potential buyers. It can also result in stale listings or stigmas with the brokerage community that the seller will not negotiate. Either way, these listings then tend to attract low ball offers because the market knows the seller won’t move.

When Overpricing May Work

In a hot market with low cost of capital, sometimes a seller may get the stars to align and find a buyer who is willing to overpay. A buyer may even have some information that is not known by the market which aligns with the seller’s needs, like having a tenant in hand for a low occupancy property. But more often it results in a long marketing period to find the perfect buyer, or frequent price changes showing some desperation by the seller.

“Shooting the Moon” may allow you some breathing room in negotiation to get to a mutually beneficial price, but how high can you go until you scare away real buyers and attract only low ballers. 

Eliminating the Pitfalls

The use of the IRS Section 170 Bargain Sale potentially eliminates the pitfalls. A Bargain Sale allows the owner to sell the property at a reduced cash value to a federally-recognized nonprofit; HOWEVER, the seller can take the difference from a qualified appraisal value as a tax deduction. The deduction may be applied to existing and future taxes.

The appraisal may provide the greatest potential benefit for the seller by determining a valuation which may be closer to or even over the original asking price. A qualified appraiser considers a property’s valuation by comparing it with similar fully performing assets in the local and neighboring markets. If the property is vacant, this process allows valuation based on an occupied, performing asset.

Under the Bargain Sale appraisal, sellers can possibly realize a higher fair market valuation than their original aggressive listing. The overall deal can be much sweeter when receiving cash at closing, and deductions. The difference in tax deduction may cover most of existing and future taxes. And, best of all, with very little remaining taxes left, the seller can use existing funds for life’s other pleasures.

Welfont Can Help

Welfont can help provide explanations for clients to show why the Bargain Sale is an effective approach for real estate dispositions. We are experts with every facet of the Bargain Sale. We work with a stable of stakeholders from every stage of the process: sellers, brokers, CPAs, nonprofits and new buyers or investors. While helping clients achieve the highest ROI, Welfont manages investments from the research phase through the acquisition and disposition.