A policy on accepting real estate gifts can go a long way in avoiding any misunderstandings down the road.
It is the dream of every nonprofit organization to be given a valuable piece of real estate that it can use or sell for a lot of money. However, just because the piece of property has value does not mean it is in the nonprofit’s best interest to accept the gift. Many organizations have learned the hard way that is not wise to quickly accept real estate gifts. As a real estate professional advising the nonprofit or serving on the board of directors, you are in a position to advise the organization on this potential gift of real estate.
Non-profit organizations need to do some work before they seek or are offered a gift of real estate. They need a policy for accepting gifts of real estate—one that establishes guidelines for determining whether potential gifts will indeed result in financial gain or be useful to the organization in another capacity.
Here’s a checklist to go through when considering such gifts:
- Do not accept gifts inconsistent with the goals and objectives of the organization. For example, Mothers Against Drunk Driving probably would not accept a gift of an operating bar serving alcohol.
- Have the property inspected for hazardous waste contamination before accepting. The organization may accept it with contamination, but it will at least understand the issues and potential costs associated with cleaning it up ahead of time.
- Evaluate the gift in light of debt, insurance, homeowners’ association fees and other carrying costs. Do not accept property with debt unless the debt is less than 50 percent of the appraised value. The organization may be required to assume the debt obligations, and it needs to be financially capable of carrying all the ownership costs.
- Determine that there are no restrictions, easements, liens or other title issues that would impair the value or marketability of the property.
- Require the donor to retain an independent appraiser to establish the fair market value of the property. Factors such as high taxes, sizeable debt or other carrying costs may dictate that the property be sold as quickly as possible for a lesser price.
- Require that all documents be subject to legal review by a real estate attorney prior to accepting the property. Also, insist on title insurance even if the organization must pay for it.
- List the property for sale with a licensed real estate broker who specializes in that type of real estate as soon as possible if it will not be used by the organization.
- Retain legal counsel specializing in estate planning to facilitate the gift process if the donor wishes the gift to be used to fund a charitable trust or as part of a planned-giving program.
- Consider avoiding gifts of lake lots, trailer park lots, lots in planned communities and time-shares. These may not be worth the effort to acquire and sell, if their value is less than $5,000. The expense of acquiring and selling them could be equal to or greater than the net proceeds.
- Be wary of gifts of property saddled with conditions or restrictions. For example, a property with a “reversionary interest” is given for a very specific use, like a camp or child care center. If it ceases to be used for that stated purpose, the property reverts to the donor or the donor’s heirs. Accepting the property with these conditions could mean spending more money to meet the conditions or losing the property later because of failure to follow the donor’s restrictions.
Overall, a gift of real estate needs to be handled like any other real estate transaction. Having a policy that the nonprofit can give the potential donor upfront will go a long way toward preventing any misunderstandings during the gift process and establish concrete reasons for rejecting some gifts.
Eliza Solender is president of Solender/Hall, Inc.
This article was originally posted in DMagazine Commercial Real Estate | CRE Opinion