If you happen to own a strata unit or a freehold property near a train station in Sydney there is every chance that at some point you may be approached by a neighbour, agent or developer to sell your home in a group / collective sale.

Developers swoop ahead of rezoning on Sydney’s north shore (smh.com.au)

Having assisted Owners Corporations, groups of individual owners and developers on over 50 group sales over the last ten years these are my top 5 tips.

Number One: Take a breath, keep calm and get advice!

Probably the one thing that we can have certainty on is that any group sale will take time.

There are a range of potential outcomes for owners of property that get acquired for development: 

• For some owners, the experience is ‘akin to winning the lottery’. The opportunity to sell a property at a significant increase to its market value can afford financial security for the seller and their family which is life changing;
• For others, they may be reluctant to sell, the sale may be time-consuming, stressful, full of broken promises and potentially with no end result.

I always begin by advising owners of one of the cornerstone principles of conveyancing – there is no binding agreement until a contract is exchanged.

What this means in a group sale is that you can freely and without significant stress explore a sale opportunity knowing that you are not liable to sell until there is not only an offer in writing – but a contract with clear sale terms (price, deposit, length of settlement) that you can get legal advice on before signing.

Knowing that you have time to make a decision and time to get advice should help to alleviate some of the stress of what for most people is a unique and once-only experience.

Number Two: Get the band together and be nice to each other.

Owners will usually know that there is an opportunity for a group/collective sale because they are approached by developers directly. Developers look for sites where greater density can be developed under existing or anticipated planning controls.

Regardless of the development opportunity, there can be no group sale without neighbours coming together and agreeing to act in a collective. This means (for want of a better word) being neighbourly – having patience, understanding and goodwill.

It is virtually certain that the best sale opportunity for owners is if they can reach 100% agreement to participate. For strata schemes, group sales are possible in NSW if more than 75% of owners wish to sell, but a sale will virtually always be on better terms and easier to achieve if there is 100% agreement. A sale of freehold properties (i.e. a block of adjoining houses) requires 100% agreement.

There are many different ways for groups of owners to reach an agreement to participate in a sale. Some owners may negotiate a detailed agreement to bind the owners (covering all sorts of hypotheticals including an acceptable sale price, acceptable deposit, etc).

My preference is a simpler undertaking where owners agree to participate in a sale process, knowing that they are only bound to actually sell if there is a deal which is acceptable.

In my experience, most of the time there is either a great offer which is acceptable to everyone, or it simply was not the right time to sell.

Number Three: Don’t waste time unnecessarily! 

Speaking of the right time - there is a line between keeping calm, taking time and getting advice as per my first piece of advice and getting so bogged down in interpersonal disputes and group politics that the sale opportunity disappears because you have taken too long to get organised.

On a long enough time frame you can be fairly certain that most sites will eventually be developed – but property development is cyclical and the ‘best time to sell’ can quickly end.

How can you know when the ‘best time to sell’ is?

Well, you absolutely cannot. All you can do at any point in time is participate in a sale process which will give you an accurate piece of information – the best price possible to sell in that market. If that price is not what is hoped for, a decision can be made to wait and do it again in better conditions.

But I have seen many times where a group took so long to get organised that they missed the opportunity to contract in boom conditions (an example being that mid 2017 was a great time for collective sales, 2018 not so much).

Aside from market fluctuations, it is also a drain on people’s time and enthusiasm to spend months/years more than necessary to get a collective together. A bit of goodwill and compromise can often be the tonic.

Number Four: Do your research and negotiate the fundamentals.

Let’s jump ahead and assume we have a potential sale. Perhaps this is with the developer who has contacted the owners directly or perhaps the owners have engaged a professional selling agent and a full marketing campaign has been conducted.

All owners will easily be able to assess two key aspects of any offer – the price and the settlement time. Most sales to a developer will involve a 12 month + settlement term to allow the developer to obtain a development consent before they have to settle.

There are many, many other matters that are important when it comes to negotiating a contract with a developer acquiring your property. 

I will highlight just one - the deposit / security.

Normally, if you just sell your property in a standard sale with a 6 weeks settlement it is quite unusual for the purchaser to default and walk away from a 5% or 10% deposit. But where you are selling to a developer in a group sale and there is a 12 month+ time frame there is a higher chance of circumstances changing (generally economically or an issue with the specific purchaser).

The value of the deposit/security is really important in these transactions – both in terms of the likelihood of the purchaser proceeding and in terms of the compensation the owner receives if the transaction does not proceed.

For a longer term transaction a deposit payable in instalments can be handy (i.e. if it is a two year transaction but the purchaser has to pay an additional deposit after twelve months then you essentially get a reaffirmation of the purchaser’s intention to proceed at this time).

Number Five: Understand all the potential outcomes.

Finally, and related to the point above, I consider it really important to always be aware of the range of potential outcomes for you as a vendor once you have contracted to sell to a developer. These are:

• The transaction can proceed and settle on time without incident (this happens!);
• The developer can request extra time to settle (you do not have to agree, a variation is often an opportunity to re-negotiate);
• The developer may not be able to settle (they may go bust or the economic conditions underpinning the development opportunity may fundamentally change).

Another fundamental aspect of conveyancing is that you do not transfer title to your property until you have been paid the full price. So generally, the worst possible outcome in a collective sale once you have exchanged with a developer is that if the developer cannot settle you keep both your property and the deposit paid. 

If you appreciate these range of outcomes and are prepared to engage in an adventure with your neighbours, then you are ready to participate in a collective sale. Feel free to contact Chris Fabiansson should you wish to discuss.