Sale by contest?!?

[mw]

I was reading in a local paper a story about an owner of a farm who put his farm up as a "prize" for a contest he started.  He was asking 350k for the farm.  For $100 you could submit an essay of 250 words or less how you would use the farm, and why you should win it.  Once 3500 people had submitted their forms, a decision would be made, and someone would be the winner of a farm for a measly $100.  It was all legal, btw, and the owner received the full 350k.

I was thinking...why couldn't this be done with a regular investment property...or personal residence?  I would like to sell my home for the appraised value...not market value, and this would be the way to go.  For instance, a home that appraised at 230k with a current market value of 190k would net an extra 40k in this manner.  A website could be started...you could advertise on myspace / sell the essay form on ebay, etc.  It could even be done as a raffle...one ticket for $100, 6 for $500, 11 for $1000, etc. until the amount was raised. 
Thoughts?

[marcus335]

It's a very interesting idea.  I wonder how long it would take to raise the money.  I think I'd do it as a raffle though.  That would be random.  I think with the essay people would be concerned you'd just pick a friend or family member.

[Rich_in_CT]

I would have to think that it wasn't entirely legal and would be illegal in most states.  I've looked thoroughly into the idea of raffles and whatnot to support a forum I once owned.  The only way we could see clear of the laws was to create a nonprofit organization to make it legal.  My co-owner was an attorney so he did do his due diligence on this idea.  Can you do what you described and get away with it?  Probably.  But what happens when one of those 3500 people gets a hair across their a** and sues you?  That case would be in court for damn near ever and you be lucky if you ever saw your money.  If there is a property that is otherwise impossible to sell under normal circumstances I don't see why you would ever even touch it, there are plenty of properties that can be bought at a discount and sold at a discount for a profit without trying to make something bizarre happen.  Real estate is simple business, buy something people want for less than they will pay and sell it to them for what they are willing to pay and keep the difference.  Also, in most cases how hard would it be to come up with 3500 people that are willing to gamble away $100.....people are stingy with $10 raffle tickets.

[Dave T]

For instance, a home that appraised at 230k with a current market value of 190k would net an extra 40k in this manner.

If the current market value is only $190K, then wouldn't that also be the current appraised value?

[mw]

Not necessarily.  Due to market conditions, I sold a home last year that appraised at 222k for 198, as that was the current "market value" of the home.  The bank still appraised it at 222k, though.

[mw]

I would have to think that it wasn't entirely legal and would be illegal in most states.

It was entirely legal.  Their attorney commented on the situation, too.
Why would it be illegal, anyway, to hold a contest?  Both non profit and for profit organizations do it all the time.  If an attorney draws up the papers correctly, a lawsuit would be moot, and thrown out in court.
I didn't post this trying to change the whole landscape of REI, but another option on a property that maybe is in a declining market, or on a property that sits a while.
As far as not wanting to spend $100 for a raffle, that's not entirely accurate.  The odds are 1 in 2500 on winning a quarter of a million dollar property.  The gentleman had no problem selling the tickets.  People throw a lot more away than that with their state lottery, with a LOT less odds of winning.  Five tickets would net your odds at 1 in 500.  You market this thoughout the USA or world, you would get the money fairly quickly, I'd imagine.  For someone outside the country, the chance to own the American Dream for $100 is quite tempting.

[Rich_in_CT]

I would have to think that it wasn't entirely legal and would be illegal in most states.

It was entirely legal.  Their attorney commented on the situation, too.
Why would it be illegal, anyway, to hold a contest?  Both non profit and for profit organizations do it all the time.  If an attorney draws up the papers correctly, a lawsuit would be moot, and thrown out in court.
I didn't post this trying to change the whole landscape of REI, but another option on a property that maybe is in a declining market, or on a property that sits a while.
As far as not wanting to spend $100 for a raffle, that's not entirely accurate.  The odds are 1 in 2500 on winning a quarter of a million dollar property.  The gentleman had no problem selling the tickets.  People throw a lot more away than that with their state lottery, with a LOT less odds of winning.  Five tickets would net your odds at 1 in 500.  You market this thoughout the USA or world, you would get the money fairly quickly, I'd imagine.  For someone outside the country, the chance to own the American Dream for $100 is quite tempting.

Anyway you slice it it's gambling......and gambling with 6 figure prizes is something that is hard to pull of legally.

[mw]

It's been "pulled off" and it's quite legal.

[LoriK]

It really depends on the state. You need to check state laws regarding how much you can charge per ticket - as you could run into state gaming law issues if the price is too high.
Plus the contingency of not selling enough tickets - would you refund everyone?

[Rich_in_CT]

It's been "pulled off" and it's quite legal.

In *most* states its quite ILLEGAL.

[christopher w]

I saw an ad in the real estate section of my DFW newspaper for a builder that is doing the raffle thing. House is 350K and they are selling $100 raffle tickets.

[Roger J]

Here's a quick link to RE raffles in NC:
http://www.ncrec.state.nc.us/NewSite/bulletin/vol12-3bulletin/real_estate_raffles.htm

For those that don't wish to read it, the summary is that currently it's unclear whether a RE raffle is legal or not.  Various County DAs have viewed it differently.  What IS clear is that the raffle can ONLY be held by a non-profit organization and that any RE agent involved cannot received any commission from the sale.  Finally, there are tax consequences for winning the raffle (that would have to be included in the details of such raffle).  The winner would be accessed the full value of the property.  In your $350,000 example,  $349,900 of the value of the home would be counted as income for the following year for the winner.  Depending on the tax bracket, that's a $70-100K tax bill (or more).  Still a great deal, but hardly 'bought' for $100.

Not a very good idea in NC.  (but at least it's thinking outside the box)

Raj

[Rich_in_CT]

Unless someone had that $70-100k cash I don't see how it would be feasible.  You can't take title until you pay the taxes and you can refi to pay the taxes until you take title.  What came first, the chicken or the egg?

[Roger J]

Rich,

That money would not 'come due' until April 15th of the following year, as it's merely taxes owed against 'income.'  If you won this contest this year, for example, you'd have an 'earned income' of $350K, so you'd have to pay Uncle Sam his share of it come tax time.

As stated, still a great deal, but it would have to be FULLY disclosed to ALL contestant BEFORE they pluck their money down or you are opening yourself up to a major lawsuit.

mw,  I wouldn't argue the legalitity of it or not unless you've fully reviewed the laws of your state concerning it.  Just because someone has done it doesn't make it legal, nor does it mean that you can do it.  As in the article, depending on the county and the mood of the DA (and convening judge) really determines the 'legal' status of it in NC.

Hey, speeding is 'legal' until you get caught.

Raj

[d_sbrown]

I would have to think that it wasn't entirely legal and would be illegal in most states.

It was entirely legal.  Their attorney commented on the situation, too.

This made me laugh and remember something that someone once told me.

"Just remember that one half of all doctors and lawyers graduated in the bottom half of their class." 

There are dumb lawyers out there just like any other profession, so be careful.  Even good ones can make mistakes, and guess what, its still your butt on the line.

DB