Time-Location-Motivation
The Three Elements that Influence Land Prices
In the late 1970s I knew a real estate investor/broker who owned several tracts of land in St. Charles County. The land was heavily financed and he no longer had the money to make the loan payments. His home was in foreclosure. It was a bleak time for him and his family. He had no choice but to file for bankruptcy. He decided to contact his attorney.
The next morning he started to call his lawyer when his phone rang. He answered reluctantly, assuming the caller was one of his lenders demanding money. Instead, the voice was a buyer who wanted to purchase one of his properties. Then, two days later another buyer called. St. Charles County was on the move and his land was in the pathway of growth. Within a few months, he sold all of his land holdings for a large profit and paid off the loan on his home. He became known as one of the most successful land investor/developers in St. Charles County. Location and time came together for this man, but unfortunately not all stories at that time had a happy ending.
John, a land investor had assembled several hundred acres in St. Charles County in the late 1960s. For many years, he worked to sell the property. He tried to convince developers and real estate brokers that his land was in the path of the next boom area in eastern Missouri, but with no success. Then late one evening, in despair he drove his car into the garage and left the engine running. Several months after he committed suicide, his property sold for more than double the price he had been seeking. His heirs became very wealthy. Unfortunately, for him, he did not know that all his property needed to fulfil his dream was more Time.
In 1972, our nation was confronted with a gasoline shortage. One of the solutions was a nationwide speed limit reduction from 70 mph to 55 mph. This action resulted in land that once was a 60 minute drive from St. Louis was now a 75 minute drive from St. Louis. And land that was once a 90 minute drive was now a two hour drive from St. Louis. Land prices in those affected areas declined. One might conclude that time changed the location.
In 2002 I listed a large tract on I-70 west of St. Louis. The list price was $10,000 per acre. The seller and I both knew the price was strong, but he was not motivated to sell until he got his price. Then three years later a buyer called. He wanted to buy the property to complete a tax deferred exchange. He was motivated to save capital gains taxes. His motivation to save tax dollars was high and my client’s motivation to get $10,000 an acre was also high. The sale closed. A few years later the new owner needed cash and was highly motivated to sell. The sale price was $7,500 per acre or $2,500 per acre less than he had paid. Motivation and time were the major factors that changed the value of the property in both sales.
This all reminds me of the call I got from a prospective buyer. He asked if I had any Callaway County land for $500.00.” “Sure! I said “I had it 35 years ago.”
