Washington Land

Thursday, June 15, 2006

Dirt Cheap Land at an Auction?

Recently a large company had a land auction in Washington. The newspaper was advertising the fact that they were giving a way a free parcel of land every hour just for attending the auction. The only better thing than dirt cheap land is free land. However, there is a long history of criminals selling worthless land. It’s called fraud. So you must always be careful when buying land.

A number of people have heard of this auction and asked me about it. My standard line is that I would not buy a piece of land without doing my due diligence because I don’t like high stakes gambling. To do due diligence on land involves taking time and spending money. Now the auction doesn’t even give adequate time nor any protection for money spent. A legitimate seller will allow somebody to do a feasibility study to determine if the property is buildable. The major one is the soils analysis test; this involves bringing out a backhoe and a soils engineer. You would not want to spend money on land unless you were locked into buy it. Plus you would need permission from the seller to go dig your test holes.

The company itself warns buyers to check out the property themselves. However most properties don’t even have road access, so how can you get in there and do your tests? Furthermore you don’t have a locked in deal, you can spend money doing the tests and then get out bid.

Maybe I am too conservative, so I will go check out a few just to see what is available. I decided to go check out the three closest properties to me, just to see.

The first was a 7 acre property in Tumwater. It had no apparent road access to it. I did not want to trespass on the neighbor’s property, so I was unable to inspect the property personally. I did get some information from the county. A ditch runs through the property as well as a large associated wetland that fills most of the property. The remainder of the parcel is encumbered by wetland buffers.

The next property was inside a county park in the Boston Harbor area. There was no road access to it and I guess I could have walked through the park to get to it but I didn’t bother. There may have been a legal easement for access on this one. However, it was 100% wetland according to county records. I doubt that a septic system could be installed here but possibly there might have been a sewer around somewhere? Still there are other lots in this area of this size and none are built on, nor are any built on that are off the road. This one isn’t even up for auction, it is offered at the “deal” price of $9,100 at 13.9% interest for 6 years.

The third property was under 2 acres in the Eatonville area and had a seasonal creek running through the center of it. The entire property was low lying and grass consistent with what you’d find in a flood plain. There were homes in the neighborhood but not at this low of elevation. The only thing at this elevation was cow pasture and a vacant parcel used for a billboard.

All of these properties appeared that they probably would not support a septic system and it would be a huge risk to buy marginally buildable properties (if buildable at all) without doing the due diligence to discover if they are buildable. Properties with a lot of wetlands often do not qualify for septic systems. If the properties in the auction are this bad, I am sure I do not want to see the free ones.

All three properties were owned by a LLC. I checked with the state of Washington to see if it was a corporation in good standing and they had no record of it. Although the state of Washington requires foreign corporations to register with the state if they do business in the state--they probably don’t need to register as a business because they only sell a couple hundred parcels of land a couple of times a year.

Is this company selling worthless land? Maybe. Is this company selling potentially worthless land in a fast shuffle transaction so the buyer can’t do their due diligence? Defiantly. Is this company committing fraud? Possibly, but I am no lawyer. Also the company claims not to have seen any of their own land so it may just be a case of willful ignorance. What they are doing might be legal, but it sure doesn't seem ethical to me.