“What’s the deal with this house? Why so cheap?”
I field some derivation of this inquiry on a fairly routine basis from buyer clients. Typically, they have stumbled across a property listing online, or possibly in the ARMLS portal I have set up for them (provides for user log in and review of all homes currently for sale that fit their specific criteria, rating of the available homes, notes, price adjustment tracking, etc), that appears to be just the anomaly for which they have been hunting. That one desperate seller who has become so fed up with the Real Estate market that he is willing to hand over the keys to his castle for little more than a kind word and enough pocket change to cover the U-Haul.
“Paul, we HAVE to go see this house! It’s 2500 square feet, right in the McCormick Ranch area where we’ve been looking, and get this, only $299,000!”
“Wow,” I respond, though not I’m not really thinking, “wow.”
Truth of the matter is that my cynical little REALTOR mind is already trying to unravel the scam. You see, that property simply does not exist. Not now, nor even in the foreclosure jungle that was the tail end of the prior decade for that matter. Unless it is a typo, an opening bid at an auction, a money pit of epic proportions that would make Tom Hanks blanch, or …
“The name of the subdivision wouldn’t happen to be Briarwood, would it?”
“Yeah! How did you know? Whatever, it doesn’t matter. Can we go see this right now before somebody else snaps it up? I can stop by the house to grab the checkbook.”
Next comes the part where I break the bargain hunter’s heart. Built in the shadows of Gainey Ranch, McCormick Ranch, Palo Viento and Paradise Valley Farms, Briarwood is a picturesque little enclave of tile roof homes. Designed and built by local favorite Malouf, the architecture, front elevations, green lawns and killer location make for an outward appearance of grand larceny at the indescribably low prices they command.
So what’s the deal? Poor construction quality? Lawsuits? Was the community built upon ancient burial ground?
None of the above. Briarwood is nothing shy of Pleasantville on the Scottsdale map. The only element lying beneath the surface of this otherwise pleasing neighborhood that some buyers will find sinister is the unanticipated leasehold ownership. Essentially, Briarwood (there are actually several phases scattered throughout Scottsdale) and the neighboring Santo Tomas subdivisions are single-family residences with legal ownership rights that more closely resemble condominiums. It is a rare bird in these parts. While relatively common in some states where land is limited and owners are reluctant to part with it (Hawaii, for example), land lease subdivisions are uncommon to the greater Phoenix area.
With many land lease subdivisions controlled by local Real Estate magnate, the Herberger family, or smaller trusts, homeowners own the private residence and pay monthly rent for the dirt upon which they stand. The lease terms vary slightly from phase to phase. In Briarwood VI (the phase nearest McCormick Ranch in the 85258 zip code), the monthly land lease fee is 1/10th of 1% of the sales price. So that 400k house comes with a $400/month fee. The dues can run higher in other phases. This in addition to the monthly HOA fees.
Homes For Sale in Briarwood of Scottsdale
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One thing that may be disconcerting to a potential home buyer is the uncertainty regarding someone else owning the land under his/her home. It can be a very large mental hurdle to overcome, as the premise runs somewhat contrary to what most find attractive in single-family fee-simple home ownership. Some trepidation is to be expected, even if not entirely rational, as to whether the lease will be extended at the time of expiration, or if terms will become untenable upon renegotiation. The fact that most have decades before such concerns come into play should not be discounted, but buyers don’t need much to fret about when making a decision so critical as the choice of housing.
When looking at properties that sit upon leased land, a buyer will have to weigh the potential cost savings of the home against the additional fees to see if it actually pencils as a bargain. Financial determinations aside, you have to ask yourself if you are truly okay with your lot having a landlord. This is a personal decision that supercedes the advice of your agent. If you are not comfortable with the setup, the financial consideration is moot. Lastly, financing options will be somewhat limited on leasehold properties. As challenging as the mortgage steeplechase has become, expect a few more tar pits and flaming hoops when shopping non-traditional ownership styles.
A property in a leased land subdivision might very well be a good fit for your particular needs, but I find most people only become hip to the presence of the land lease AFTER they have found the home of their dreams. The unwelcome news often pushes the property out of their price range, breaking hearts in the process.
So if you see something online that looks too good to be true, it very likely is. That doesn’t make a property with a land lease evil incarnate. It just means that more dollars are being extracted from your wallet than originally meets the eye.
Curious if the home you saw online is in a leased land subdivision? Drop me a line. I’d be happy to let you know, whether you are working with me or not.
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