Page images

(The statement follows:)


SALES PRACTICES In my opinion the most disturbing aspect of the sale of millions of acres of Florida land on the installment plan to people around the globe is this:

Our last remaining amenities in Florida are being converted to merchandise and peddled by big speculators to little speculators.

The primary impetus is the fast buck, not the desire to move on the land.

Vast tracts of wilderness are being drained, scraped, gouged and patted into "developed" land for which there will be no real demand for generations.

If installment land sales continue at their rapid pace, all our privately owned open space will be platted into acre and a quarter tracts and held by people around the world. This leaves little prospect for planned development when and if there arises a real need to use the land.

(The newspaper articles by Miss Green appear on p. 466.) Mr. Oriol. Mr. Frear, while Mr. Fogarty is doing that, we would like to have a set of your articles (text on p. 332) and we would particularly like to ask you about plane-ride techniques on which to show land to different people. You said also that there are several hundred smaller subdivisions in the State. We would like any additional information you have on that, and whether they seem to be proliferating, and I was very taken with your comments that Oregon seems to be now the playground of California, which seems to indicate that the population pressures are going to cause more and more—we in the East think of California as a playground, but Californians go to Oregon, so it does seem as if there is going to be great pressure, greater need for this type of selling. So we will do that by the mail. (Mr. Fogarty later supplied the following information :)

JUNE 30, 1966. Mr. FRED FOGARTY, Real Estate Editor, The Miami Herald, Miami, Fla.


[merged small][merged small][merged small][ocr errors][merged small]

We would appreciate additional commentary on a few more points of interest to the Subcommittee.

1. You mention in your testimony that one firm—which paid $400 an acre and is now getting $1,000—has a ready market in Puerto Rico. Is this land being sold to residents of Puerto Rico or to tourists there? Can you give us more details on the kind of land being sold, and how much has been sold thus far?

2. You predict that land sales—I presume you mean mail order and other interstate land sales—“will continue to soar”. Do you, as Real Estate Editor of a major Florida newspaper, believe that the interstate land sales industry could be of considerably more benefit both to your state and to purchasers of the land if more protection were given to those purchasers?

3. Your article on Golden Palms says that there are many privately owned sections of land located in the South Florida Flood Control District's 914-square mile conservation area No. 3.

Can you tell us how much of these holdings are up for sale, and on what basis?

4. It was mentioned at the hearing that we would ask you for your impressions of the “leverage” concept described in some promotional literature and used by some salesmen. Would you give us some description of this concept and your professional reaction to it?

5. Your article on November 21, 1965, said that Florida Business Research, Inc., predicted that 1965 would be one of the top years for the sale of undeveloped land. Has that prediction been fulfilled ? Sincerely,



Miami, Fla., July 8, 1966. Senator HARRISON A. WILLIAME, New Senate Office Building, Washington, D.C.

Dear SENATOR WILLIAMS: Here are the answers to the questions contained in your letter of June 30, 1966. In case you should need additional information on land sales feel free to request them. Sincerely,


Real Estate Editor. The sale of land to resident-investors in Puerto Rico, and Central South America, is only a minor segment of the South Florida market. However, in the past several years I have noticed an increasing demand for South Florida land in these countries.

During my testimony before the subcommittee I may have created the mistaken impression that the land being sold was in Puerto Rico. This is not the case. The land is located here in Dade County and the market has been in Puerto Rico.

According to my records most of the sales have been in five-acre parcels for $5,000. The development company is paying about $400 an acre for the property and it's presently zoned agriculture.

The zoning is by no means indicative of the potential of the property, but is a general zoning classification for land that has no particular use at the present time.

A full inspection of the property would be needed in order to give an accurate report on its potential. However, it is my understanding that it is less than five feet below sea level which would mean that it would have to be filled at least two feet in order to make it suitable for either residential or industrial use.

Interstate land sales controls could perform a beneficial service in several respects. Not only would strong regulations be of help to the state's legitimate developers but it would improve Florida's nationwide image even in the tourist industry.

The subcommittee probably knows that our No. 1 industry is tourism. And throughout the year both state and private organizations spend millions of dollars in promotional advertising in order to lure visitors to Florida.

However, a few “fast-buck” swampland sales can offset thousands of dollars in promotion. In the past few years several nationwide stories on our land sales operations did a great deal of harm to the state's image. In fact one of these stories, I'm told, was instrumental in the organization of the Florida Installment Land Sales Board.

I believe new land sales laws also would be of particular benefit to the elderly. Although statistics aren't available I would imagine a major part of the Florida land sales volume is generated by buyers in their late 50's who are planning to retire in the next several years in this state.

Most of these people are financially secure and able to make pretty large monthly payments. But they are also poorly advised and particularly vulnerable to fast-talking salesmen. A good disclosure law, clearly written and not too technical, would be extremely beneficial to people in this age category.

I have no actual statistics as to the amount of privately owned land in the Central and South Florida Flood Control District. However, I would say that most of the privately owned lands are now on sale.

I gather that most of these private owners probably purchased their parcels on the basis of oil exploration. In most cases the land was purchased at ridiculously low prices, so low that buyers probably figured a future profit could be obtained despite the FCD's flooding easement.

And it's quite possible that some of the owners may have felt that the state, or flood control agency, might purchase the land at a future date. In fact an official of the Central and South Florida Flood Control District told me that the state has considered purchasing the land. The cost of such a purchase, several years ago, was figured at about $4 million dollars.

However, recent sales in the conservation area has made state purchase almost out of the question. Since parcels in Golden Palm Acres have sold for about $240

an acre this may have established a value on the property. And on that basis the state, through condemnation, might be required to pay as much as $100 million for the privately owned parcels.

Any leverage concept, either in promotional material or used by a salesman in the sale of a small residential parcel, is almost a complete fraud.

Since I've been observing the real estate and land industry here in South Florida I have yet to meet a person who has been able to yield a profit from one of these small homesites which are being peddled by major companies around the nation.

The profit potential is just about nil on this type of land. And it's simply based on the law of supply and demand ... so if sales double or triple in the next few years it still won't even put a dent in present supply of homesites which are being held by major land firms in Florida.

Many buyers have been swayed into buying two and three lots in these vast subdivisions by brochures and salesmen on the basis of a future profit.

I noted recently in a "cover letter" issued by Gulf American Land Corp. to all prospective buyers that it referred to the property it was selling as a "prime acreage tract” and that it was located in “thriving Polk County which is in the center of a potential industrial boom.”

A check of the company's property report indicates that the land is not suitable for housing, needs drainage and fill; and that it is adjacent to the Avon Park Practice Bombing Range with some lots within three miles of the target area.

The price of this land is $2,500 for an acre and a quarter. The company probably purchased the land for $50 an acre and it's doubtful that the area will have any significant development for the next 25 to 50 years.

At this time I'm not able to provide any figures on total land sales volume in 1965. I know that it increased over the past five years in both volume and value.

Senator WILLIAMS. Thank you very much, gentlemen. I am proud to ask Mr. Alton Van Horn to come to the table at this time.

Mr. Van Horn is president of the New Jersey Real Estate Commission and has been helpful over the years, as we have developed the proposed legislation before us.



Mr. Van HORN. Mr. Chairman, Senator Mondale, it is a privilege to be here and I am delighted you have invited me.

In 1964 I was privileged to testify before the U.S. Senate Subcommittee on Frauds Affecting the Elderly.

At that time I said, “Our experience with the interstate promotional sale of subdivided lands is the basis of considerable, continuing concern.” Close observation of the situation from that time to the present has in no wise diminished that concern. The need for Federal legislation, in our opinion, continues to be very real-in fact, pressing.

Dealing with S. 2672, we find full philosophical agreement with this bill's stated purpose. In coping with this problem—to the extent that an “investor” State can deal with it—our regulatory philosophy has been that a New Jersey resident should be able to buy anything, regardless of its nature or value, provided he isn't being substantially misinformed or left materially uninformed.

Experience has convinced us that compulsory full and fair disclosure-in advance of contractual obligation by the buyer is the only way to cut down the widespread abuses in the interstate sale of promotional type lands.

In the absence of such regulation, the buyer has only the promotional material (perhaps more aptly described as high-powered “pitch” material) and the blandishments of the smooth voice on the other end of the long distance phone (using WATS—wide area telephone service) to rely upon as a means of knowing what he is buying, what the project has to offer—and probably most important—what it lacks.

Historically, these emphatically have not proven to be reliable sources.

The interstate land sales operations generally involve land in a distant area—very different from that in which the “investor” resides, hence he usually buys sight unseen and with no firsthand knowledge of the facts.

In the typical real estate transaction, the buyer would no more think of buying a parcel without seeing it than he would of buying, sight unseen, a used car of a make and model totally unknown to him. In the case of the interstate land sale, the distance, time, and cost make prepurchase inspection impractical—if not impossible.

The dependence is thus solely upon that which the developer and salesman present to him—visually or orally.

The difference between the impression created in the mind of a typical and reasonable reader-by the promotional material and the true fact is often shocking. I say this from repeated personal experiences reviewing these promotions under New Jersey's procedure, which now involves at-site and on-site investigation and the preparation of a public report covering each development released for physical sale within New Jersey.

This public report "depuffs" (if necessary-and it usually is necessary), particularizes, limits, flushes out omissions, advises about nonsite photographs, et cetera to a point where, we believe, it clarifies and informs to the degree necessary for the protection of any but the truly imprudent buyer.

It also suggests something which seems nothing short of poisonous to some developers—that legal advice be obtained before signing any contract.

It also touches upon the likelihood, or lack of likelihood, of an increase in value in this fashion and I quote:

No attempt has been made to evaluate the offered lands; however, the prospective purchaser is advised that these are speculative lands and that value will depend on growth in the area. It is not reasonable to expert to sell undeveloped lands at a profit or without loss until and unless the area develops.

Our regulations provide that the public report be furnished to each buyer before he signs a contract and that he acknowledge receipt of it.

Unfortunately, this public report approach applies only to sales physically made within New Jersey and not to those interstate transactions made or induced, as the case may be, by mail or telephone.

Reviewing the matter of reasonable impression as opposed to the facts at or in the vicinity of the promoted lands, some comment on typical criticisms of the promotional material seems in order:

Artists' conceptions (not labeled as such) and allegedly or suggestedly nearby-but actually quite distant-scenes are routinely used, instead of on-site or accurately labeled photos.

What pass to the uninformed as maps are too frequently prepared with monumental disregard to scale and proportion. Recreational areas, water bodies and places where shopping, schools, usual community facilities, et cetera, might be available are pictured much closer than they are.

Distances tend to be indicated as "minutes away" instead of hours (at legal speeds) or in miles over travelable roads. Which brings to mind an instance a development advertised as being an easy 45 minutes from Las Vegas which was actually 68 miles away. That calls for some rather rapid driving.

The fact that flash floods, windstorms, temperature extremes and other weather phenomena affects some areas is not usually revealed; nor are such things as water depth (and cost to reach it), absence of vital services, et cetera.

Elevations are not stated unless they would appear to be appealing.

The “money back” and the "transfer privilege” (known in trade as the switch privilege) deserve special comment because they generally are far more useful to the promoter than to the “investor" or the retiree. They lull one into thinking it must be safe but, on close scrutiny, the money is returnable only in inspection and often only at the property, rather than at the point of sale. The exercise of the switch privilege in order to reduce by many miles the distance between your lot and the nearest human abode, å water source, or powerline—may add to or multiply your cost. Investigation often reveals that the "pool" of close-in lots for switching purposes is totally inadequate or, as a practical matter, nonexistent.

Usually one on the mail list gets not one piece of material, but the saturation approach—a shower of pamphlets, brochures, “expert opinions,” statements on “leverage,” growth potential, “reliable statistics" (so they say), news clips (often from the developer's own "newspaper" and similar matter.)

The developer often leaves half-hidden "outs” for himself from some of his claims and implications. One interesting escape device (or way of juggling price at will) is to indicate lot prices by color coding and then say, “Not responsible for errors in color printing. We reserve the right to correctly price such categories as may be improperly color printed.”

Sales terms and contracts frequently used are another interesting subject. The small downpayment makes it easy to take. The long term postpones the day of discovery (of just what one has purchased). This is like a long-delayed fuse on a potentially explosive situation. Quite general is the nonacceleration clause which prevents taking of title and delivery of deed before it meshes with the developer's convenience or his ability to release his mortgage or get subdivision approval. Some would take the money and give a "certificate of ownership" because they can't deliver a recordable deed. The matter of a firm declaration of exactly what improvements will be installedand when—is omitted more often than not and seems a very painful area even for discussion. The "fine print" is sometimes very fine indeed and occasionally in very pale ink to boot, and perhaps on a part of the document quite remote from the signature line.

Existing restrictions and reservations (for example, reserving mineral or drainage rights to others and granting to those others the right to enter where, when, and in a manner suiting the others to extract minerals or effectuate drainage by creation of canals, etc.) are

« PreviousContinue »