Gated communities try new strategy to eliminate $1 lots

At least two gated golf communities are attempting a work-around to their $1 lot problem, purchasing lots within their gates and building spec homes on them.

Belfair and Berkeley Hall, two Bluffton communities, are using the new strategy in hopes of ending the cycle of lots being sold for $1. If the lot does not sell, and the owner doesn’t pay taxes on it, the property is auctioned off at Beaufort County’s delinquent tax sale for the minimum tax amount.

That property is then up for sale to buyers who are often unaware of the exclusive neighborhoods’ fees and dues. Annual dues are typically between $14,000 and $20,000, depending on the neighborhood. And one-time initiation fees push the price tag up as much as $19,500.

The new owners sometimes default on payments, sending the property back to the tax sale the following year.

Beaufort County treasurer Maria Walls has witnessed many uninformed investors make impulse buys on the lots — located in some of Beaufort County’s premiere neighborhoods — at past tax sales.

Last year, she and some of the gated communities’ leaders led a “buyer-beware” campaign to educate potential buyers about the fees. Belfair and Berkeley Hall ran three-quarter-page advertisements in four issues of The Island Packet leading up to the October tax sale.

Adrian Morris, general manager of Berkeley Hall, said the campaign was effective in reducing the number of people bidding on the lots.

But that doesn’t necessarily mean there are fewer $1 lots on the market.

According to a local real estate database, 32 such lots are on the market in five gated communities: Belfair, Berkeley Hall, Callawassie Island, Colleton River Plantation and Haig Point. Another 31 lots in the neighborhoods are for sale for less than $10,000.

That’s about the same as one year ago when there were at least 26 $1 lots in golf developments and another 43 listed for less than $10,000.

The unabated trend continues to be “a big bruise on the local market,” said John Robinson, a Dunes Real Estate real estate agent and former board president of the Hilton Head Area Association of Realtors. But this new approach could turn things around.

“Having reputable builders build spec homes is the best idea out there,” he said.

The spec home strategy

Belfair will own approximately 40 lots by the beginning of 2017, according to a notice sent to Belfair property owners in April.

Construction on two of the lots will begin by the end of this year as a pilot project. If successful, the notice identified 24 “excellent” lots that could be developed later.

“The ability to generate a dues-paying member on a property owned by the (Property Owner’s Association) is greatly enhanced when a home is constructed on that property,” the notice read.

The POA board also recommended merging six lots with neighboring lots owned by the POA to make resulting plots of land more attractive and transforming “unbuildable” lots into open green space for communal use.

Berkeley Hall is pursuing a similar strategy, purchasing six lots in last year’s tax sale with plans to start building three or four spec homes by the end of the year. Construction hasn’t started, but Berkeley Hall’s general manager Adrian Morris said the community is close to finalizing the deals with several builders.

Morris added that plans for spec homes began in early 2015 with the hope to sell each for $750,000 to $800,000.

Increase asking price

Another gated community is using a different strategy, encouraging real estate agents and their clients not to list lots for $1.

Charl Cilliers, a representative for the Haig Point community on Daufuskie Island, said he phones agents and homeowners when they post $1 lot listings and asks them to bump up the asking price. They usually comply, which may explain why the gated community has just one $1 lot within its gates currently.

It helps that Haig Point offers two types of memberships, one for golfers and one for non-golfers, Cilliers said, increasing the number of interested buyers.

Hiring professional photographers to take photos of the property, conducting a comparative market analysis and tweaking marketing materials to make it search engine friendly are time-consuming tactics but effective in the end, said Cilliers, who employs the strategies.

“Instead of plopping it on the market for a dollar and relying on greed for it to sell, coming up with a smart marketing strategy is much more effective,” he said.

Pricing the lot where it should be — and maybe sweetening the deal by paying the first year of dues or covering the initiation fee — is far more likely to appeal to consumers, he said.

Forced delinquency?

Michael Sechrist thought he was making a good deal when he bought a lot in Belfair in 2004.

Sechrist intended the lot to be his retirement home, but if plans changed, he thought he could easily turn a profit with the exodus of Baby Boomers from the Midwest to the South. He saw similarly sized Belfair lots selling for $140,000.

“Seemed like you couldn’t go wrong,” he said.

Then, the Great Recession hit, and he put off his retirement plans. Sechrist’s lot sunk in value. Meanwhile, he continued to fork over thousands of dollars in dues.

In January 2015, he put the lot up for sale for $1, but no buyer bit. He’s also offered to give the lot to the neighborhood in an effort to get out of paying the dues.

But Belfair only buys lots at the tax sale or in active foreclosure, so buying before “is just not in our strategy,” said Belfair general manager David Dew.

Sechrist sees it differently.

“What they do is they force you to become delinquent,” he said.

After more than a decade of paying dues, as well as the cost of listing his property for a year, he took it off the market at the beginning of 2016.

The investment adviser hasn’t paid his 2015 taxes, and the property will be included in this October’s tax sale.

“I’ve never not paid taxes before,” he said. “But it’s the only exit strategy I see.”

Required membership lawsuit

Some members of Callawassie Island saw another strategy for getting out from under fees — legal action.

About 45 Callawassie Island members filed a federal lawsuit in 2014, suing the island’s private golf club for requiring them to become fee-paying members and then refusing to let them resign their membership.

The plaintiffs had grounds for the lawsuit because — unlike the county’s other gated communities — the Callawassie club is separate from the homeowner’s association. And because the club is a nonprofit organization, state law allows members to leave at any time and forgo their dues, the plaintiffs argued.

But the club disagreed, arguing that state law states that, even when members resign from a nonprofit, it does not relieve the members from their obligations, according to the filings.

Ian Ford, a Charleston attorney whose firm represents clients in matters related to golf-course memberships, argued to the court of appeals in April.

“My clients would love to be expelled from this club,” Ford said. “How can you not resign from a social club?”

The court’s decision will come in the next few months, he said.

Until then, members continue to sell property at deeply discounted prices. Eight lots are available for less than $10,000.

Callawassie Island has no overarching approach to eliminating its $1 lots and looks at each property individually, said club manager Jeff Spencer.

The only other neighborhood with $1 lots for sale, Colleton River Plantation, did not respond to six phone calls made over the past week.

This story was originally published July 30, 2016 at 6:00 AM with the headline "Gated communities try new strategy to eliminate $1 lots."