Dallas-Fort Worth Real Estate Investor Club

Mineral rights

  • 18 Apr 2013 1:27 AM
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    Message # 1271690
    Mary Beth Vono
    Hi all--I'm new to the forum so perhaps this has been covered before, but I didn't see it.

    I will be selling a home I own in north Arlington soon.  It's a large house in a relatively nice neighborhood in a good location, and the subdivision is about 20 years old.  I currently own the mineral rights to the property, but the subdivision has not signed a contract with any oil company (yet).  I have heard various pros and cons about keeping the mineral rights to properties in this area now (I recently bought another home in a different part of Arlington where the seller wanted to keep the mineral rights and I didn't have any objections).  There is an interested party who approached me to purchase the house "as is" before I listed it, but he is only offering rock bottom price (80% of TAD appraisal value)--he is unwilling or unable to afford more.  And he is insisting on obtaining the mineral rights for that price.  While I would like to get rid of the house to save time and ongoing expenses, I can "afford" to keep it and fix it up at some cost and effort (it needs some major cosmetic updates) to put it on the market at a substantially higher price point and possible tidy profit, depending on how long it takes to sell.  Are most sellers retaining mineral rights these days?  If so, are they facing a "fight" with the buyer, and is it worth it?  What are mineral rights worth when negotiating a sales price?  I am trying to decide if this is a dealbreaker for the transaction. 

    Any information or advice is appreciated.  Thanks in advance for your consideration.

    Mary Beth
    Last modified: 18 Apr 2013 1:51 AM | Mary Beth Vono
  • 21 Apr 2013 9:20 AM
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    Reply # 1273890 on 1271690
    Robin Carriger (Administrator)

    To me, mineral rights are simply potential future cash flow.  It's just another point of negotiation that should be considered.  In negotiations I've done, I usually end up with the mineral rights.  However, if the other party insists on owning the mineral rights, I simply make up for it in another area of our negotiations.  If the other person demands to have their price for the house, their terms, the mineral rights, and every other thing they want, then it's very unlikely I'm going to do the deal with them.  I'll do business with some other buyer or seller instead.

    BTW, if you're waiting for other people in your subdivision, you may be waiting forever.  I'm getting paid on multiple oil & gas leases right now where the rest of the home owners in the subdivision are not, because their negotiations didn't result in a deal.  You need to do what's best for you when you need to do it.

    One more thing... North Arlington is in my area, so, if you'll give me a call at 817-300-1132, I'll evaluate your deal and give you my opinion on whether you should accept the offer you've been given.

    I hope this helps,

    Robin

    Last modified: 21 Apr 2013 9:33 AM | Robin Carriger (Administrator)
  • 21 Apr 2013 10:23 PM
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    Reply # 1274245 on 1271690
    Mary Beth Vono
    Robin,

    Thank you for the helpful information and generous offer to consult you.  I will call you tomorrow.

    Mary Beth
  • 22 Apr 2013 2:31 PM
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    Reply # 1275083 on 1271690
    Deleted user
    If your discussion with Robin doesn't result in what you need, please call me. I am also interested in Arlington. I rehab homes for resale at a profit & know others that invest in Arlington.
    I have what is maybe a different approach to mineral rights & am also a realtor.
    Jean Sullivan 817 798-7 four four four - yes that is 3 4's!!!!
    Good luck.
  • 25 Apr 2013 5:33 AM
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    Reply # 1278243 on 1271690
    Deleted user
    Mary Beth,

    If you do not have a compelling reason to sacrifice your property (and give up your profit), I strongly suggest you look into updating it and selling it to someone who is going to live in it, rather than an investor. 

    The Real Estate market in North Texas has fewer homes for sale than anytime in the last decade or so. This is fantastic news for sellers. It means homes are selling faster, and for more money. Any competent Real Estate broker / Realtor can help you determine the fair market value of your home in its present condition, as well as what it should bring in a fixed up condition (generally substantially more $).

    As for your question concerning mineral rights, I strongly suggest you strip those out of the property and sell them (while you currently own the property) to a family member you trust, or and entity (usually an LLC) you own. Then, when you sell the house, you don't have to deal with the mineral rights issue b/c there are no mineral rights to convey.

    If you need help determining your property's fair market value (both in its present condition, as well as in a rehabbed condition) find a Realtor who specializes in your area. She will help you determine those values for free. When you talk to her, tell her what you want her to do. She'll know what you are talking about (this process is usually called "determining a CMA" or Competitive Market Analysis. Some Realtors call the process "determining a BPO - Broker's Price Opinion. Regardless what you call it, it's all the same thing.

    You can easily find a Realtor who knows your area by a) driving the neighborhood where you property is located and looking for Realtor signs in yards of homes that are listed For Sale. You can also look online (e.g. http://www.realtor.com) by entering the neighborhood / Zip code where your property is located and call those Realtors.

    Probably the best fast method I know to find a Realtor knowledgeable about your target neighborhood is to look in the yellow pages / online and find a BROKERAGE (Century 21, RE/MAX, etc.) that has an office as close as possible to your property.

    If you have trouble or questions with any of this, please don't hesitate to contact me. I'll be happy to help you determine a CMA and walk your property with you to discuss what a rehab might look like and the returns you might expect to get from doing one. Projects like yours have been a big part of my business for the past 10+ years.

    Talk to you soon!

    -Greg

    Greg Wilson
    The REI Mentor
  • 25 Apr 2013 2:07 PM
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    Reply # 1278577 on 1271690
    Mary Beth Vono
    Hi, thank you all for the very helpful and timely feedback.

    I was starting to fix up my house to be sold on the conventional market (I had gotten estimates on all necessary improvements and started to get that underway) when my neighbor from across the street approached me to buy it "as is" to live in with his family after he gets married in June.  He wasn't an investor--just a guy looking for more space for an expanding family, and he wanted to stay in the area.  The house needs some significant repairs and updates and I thought I could save some time and expense if he was interested and able to purchase the house.  Negotiations dragged out for a couple of months--he had many requests and concerns--the mineral rights issue was just the last in a series but not necessarily a dealbreaker.  It just happened to be the "straw" that pushed me over the edge with frustration. 

    In retrospect, it was probably a good thing as I've taken the time to consult various resources and do some research on that and other issues with selling the house.  As it turns out, his financial qualifications were shaky anyway, and I learned that lenders are very unlikely to underwrite a conventional loan on a house being sold "as is" that needs significant repairs, especially if they are functional elements (the A/C units need to be replaced; as he was unwilling and/or unable to go higher on his offer, I didn't want to spend that money without recouping it).  So I voided the contract and will proceed with the renovations and list the house in the near future. 

    To that end, I have already talked to a couple of realtors who are familiar with the area and had someone do a walk-through with me to make suggestions on how to maximize my return and get the house sold quickly.  I have also gotten a preliminary CMA on houses in that neighborhood that have been listed and sold recently.  I am realistic about the challenges ahead but somewhat encouraged by recent reports of a small upturn in sales of existing homes, as well as by information provided by you and others about the market in this area.

    The suggestion about selling the mineral rights to a family member is excellent; I had not thought of that angle.  Even though the boom days are over, I know that many sellers keep their mineral rights these days just for the investment potential they represent, or use them for a point of negotiation during the sale.  I also know that developers of newer subdivisions are often retaining the rights so that the homebuyers never even own them, so that non-ownership of mineral rights will probably be the norm for sellers in the future. 

    The only "compelling" reason to sell the house is that I don't need the expense of two homes (I own and live in another house in Arlington) but I am not under significant financial pressure to dump the house at a loss.  I looked into the rental aspect but decided I don't want to be bothered with the hassles of being a landlord.

    Thanks again for all of your help!
    Mary Beth
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