Should You Buy This Land?
Our writer becomes a salesperson, then a buyer, as she tries to unearth the answer. Hint: The Brooklyn Bridge isn't such a bad buy.
MR. AND MRS. JONES ARE sitting around their dinner table listening to a land development company salesman.
The salesman has told them about the fine company he represents, and about the wonderful development his company has in the sunny Southwest. He wants to sell them a lot out there, a lot that will be worth—well, who knows just how high land values are going to go? His hand swoops up to emphasize that point.
The Joneses are not certain they are interested.
So the salesman draws them a map. In one corner he indicates a major city. And near it, some miles away, he draws his company’s development.
“Now,” he says, “how can you go wrong if the population of this city is going to grow by 600,000 people?” He draws in a dollar sign on the company’s development.
“Or if the city’s growth is restricted because of the mountains here, and the reservations here, and the river here?” He draws in another dollar sign.
“Or if there’s a beautiful apartment complex here,” Another dollar sign.
“And a country club.” Another dollar sign.
“And a swimming pool.” Another dollar sign.
“And hundreds of houses.”
The dollar signs keep going in until the map is about to fill up.
“How many dollar signs am I going to have to draw here before I can convince you this is a worthwhile investment?” he asks.
Sounds persuasive, eh? Well, this is only a sample of what Texans all over the state are hearing these days. Before you sign on the dotted line, though, we suggest you read what happened to our writer when she took a look at one of the biggest land development companies around, both as a salesperson and as a customer.
“We appeal to the greed in people,” a land salesman told me confidentially one day. “That’s how we sell land.”
We were sitting in his rather plush office in one of the mirror-glassed office towers that seem to have sprung up all over Dallas. He was about to appeal to the greed in me, too.
“How would you like to make $20,000 a year?” he asked me. It was his version of a job offer. “$20,000 is a lot of money, isn’t it?” But, he implied, $20,000 was just a beginning. He, of course, made a lot more than that. “Why, $20,000 wouldn’t keep me in gasoline for a year” he said.
I don’t know how much of that guy’s speech was a con job, but good land salesmen do make a lot of money. Each year, land salesmen persuade Americans to agree to part with about $5 billion. The land they buy is going to be some fantastic new recreational facility or a great place to retire or maybe it’s just going to remain raw acreage for awhile. But chances are, no matter what the plans for that land, the buyer has been told that someday the land is going to make him a lot of money.
That’s the greed angle, the desire to strike it rich, to make the quick buck, to get something for nothing. And so each week, all over Texas, people are practically inundated with appeals to their greed.
Sometimes the desire to make money gets so strong it causes land companies to be less than honest in their dealings. So many of them apparently succumb to such temptation that the Council of Better Business Bureaus, Inc., ranks land sales abuses near the top of its list of the most prevalent deceptive commercial practices.
One land development company expert divides land companies into three categories. One category has both integrity and money to do what it claims it will. The second type has integrity but is not as well financed: if sales go well, the development will be okay; but then again, it could go bankrupt. The third group is the plain old fly-by-nighters.
The problem with much of land sales these days is that a lot of land is good investment. Also, many people buying land buy it more for recreation than for profit. Some recreational land developers are spending several thousand dollars per acre adding water and sewage systems, streets, yacht and country clubs, marinas, riding stables, swimming pools and tennis courts. One developer near Austin claims to have spent $12 million on improvements to 2000 acres before they sold their first lot. Such land is often pitched to the customer as a place to have fun, which it may indeed be.
The problem is that it’s hard to tell the good guys from the bad. Both of them tend to use the same kinds of sales techniques and both share a persistent problem: misrepresentation by salesmen fired up to sell land.
The American Land Developers Association, a trade group, estimates there are more than 10,000 firms belonging to what is known as the interstate, or installment, land industry. From time to time, I’ve run into a handful of those 10,000: an occasional dinner, a sales presentation in my living room, an ad on TV. However, off and on for almost a year now, I’ve had extensive contact with one of the larger in the field, the Horizon Corporation.
The advertisement appeared in a Sunday issue of The Dallas Morning News in the spring of 1972. The ad, which took up three-quarters of a page, was mostly type and white space. The headline read: “The land you buy is only as good as the company you buy it from.”
“Ten years ago a typical Horizon buyer paid a total cash price of just $395 for a lot. Today this same buyer would pay $1,100 for a comparable piece of Horizon land…”
Horizon’s ad looked very sedate, very conservative, very institutional, and very expensive. There were no offers of steak dinners at some nearby hotel or restaurant, as Baca Grande had made. They didn’t seem to want to pay me $15 to listen to their pitch as Rayburn Country had. Nor did they come bearing palm trees as gifts as had GAC Corporation when it was pushing its Florida properties.
I filled out the coupon anyway.
Then Horizon called to set up an appointment to give their sales presentation. They reached my husband, instead of me, and he, in a last, desperate effort to get rid of a persistent salesman, told the salesman that he wasn’t interested in buying land and that his wife was writing a story.
The salesman came by my office to offer help with the story. The district manager knew he had come, he said, and Horizon would be glad to have me come by their offices to look at materials and ask questions.
Meanwhile, he would fill me in on the abuses of the land sales industry—the abuses of the other developers, that is. Horizon was different.
He told me the Mafia was involved in some Florida land. Also, he said, the Federal Government made another Florida developer give back $300,000 to some buyers in New England. He gave me the name of a local company that had been in trouble with the Securities Exchange Commission. And he said somebody in Dallas was “selling” Indian lease property. Those leases, he thought, could be invalidated at any time by the Bureau of Indian Affairs. He also thought a buyer could be sitting in his home one day and some Indian could come along and decide he liked it. And that would be that.
Horizon, he said, was as different from these other companies as night was from day. I filed away this claim for future reference.
My next contact with Horizon came at a two-day hearing on land sales abuses held in Houston last November by the Office of Interstate Land Sales Registration (OILSR), a federal agency under the Department of Housing and Urban Development. The Houston hearing was one of a series of public sessions throughout the nation designed “to find out what problems (land buyers) are having and to identify the fast-talking, silver-tongued sharpies who are causing those problems,” according to George K. Bernstein, Interstate Land Sales Administrator.
More people turned out in Houston for the hearing than for any of OILSR’s previous meetings. The complaints from the public were the standard ones: promises of quick investment returns that didn’t materialize; unkept promises for reselling the buyer’s property; land that flooded; misinformation about the growth potential of an area; and even one case where owners were promised “country living with city conveniences,” but found that running water apparently wasn’t one of those city conveniences. When water was finally put in, property owners received letters informing them the water was undrinkable, and that each family would be responsible for purifying its own water.
After the hearings, I talked with OILSR deputy director John McDowell. I told McDowell I wanted to narrow my investigation of land developers down to one company. “Who should I look at?” I asked.
“I can’t tell you who to investigate,” McDowell explained. “All I can tell you is who we get the most complaints on: GAC, General Development Corporation, Cavanagh, and Horizon. That’s some of them.”
(In fairness to Horizon, however, it should be noted that the Houston hearing only turned up one complaint against that company. A man who bought property in Rio Communities claimed the salesman had promised Horizon would resell his property for him when he was ready to sell. However, the company operates no resale office, he found out, and he could find no buyers for the property himself. OILSR estimates that 90 per cent of its Horizon complaints fall into this class.)
I had been so impressed by my previous contact with Horizon that I wanted to see for myself if Horizon really was different from other land companies.
The ad in the help-wanted section of the classifieds read:
SALESMEN ARE BORN
SURE THEY ARE, JUST LIKE the rest of us. Then they learn to sell through training and experience. Our salesmen come from many fields, but we have taught them how to earn more than they ever dreamed possible…
I had spotted it as a likely land salesman ad. One of the valuable lessons I had learned from the Horizon salesman months before was the way development companies use blind ads to advertise for employees. They don’t like to use their names or the kind of business they’re in because the industry has a black eye, the Horizon man had said. In addition to lacking a company name, the ads also tend to promise fantastic working conditions (my favorite begins: “Like to sleep late, play golf, eat a steak dinner every night?”) and the prospect of lots of money.
“Horizon,” the girl answered, when I dialed the number in the Salesmen-Are-Born ad.
Horizon’s training class was to begin the next morning, so I suggested I attend the three-day session, and after it was over, Horizon and I could both evaluate whether or not we wished to be associated.
There were only two other students in that week’s training class. Both were management trainees. We ended up having two trainers for our session. The first, a guy named Bill Williams, was being transferred to a Horizon office in West Texas. His replacement, just up from Austin, was Bob Towerie, a former Highway Department attorney who said he had seen how much money could be made in land while working for the state. He had been with Horizon since May.
The three days were spent helping us memorize the Horizon pitch and perfecting our presentations. We also learned a few little maneuvers for taking control of situations. For example: Suppose we walk into a house and see a big, comfortable chair sitting in the living room with a pipe on the table beside it. We know that’s where the man of the house sits. Sit in his chair, we’re told. That way we’ll dethrone the king. Then we’ll be in charge.
The central element of Horizon’s sales pitch is a large, loose-leaf notebook called the presentation manual. The book, which I was told cost $300,000 to produce, is ingeniously designed so that the cover makes a flip stand. It is full of beguiling color photographs. Horizon believes the notebook is the best tool for overcoming a common sales problem: people don’t want to buy sight unseen.
We were told the manual was psychologically designed to lead the prospect through the presentation at the pace the company wants him to go, giving him just enough information at the right time. Or, put in the company’s words: “The presentation manual is your best tool for control. Most prospects will want to jump from fact to fact or push the presentation to a climax too early. The presentation manual will keep them on your track and allow you to bring out the features when you want to bring them out.”
The salesman begins by trying to establish the credibility of the Horizon Corporation: its growth, its worth, its reputation. He talks of the beauty of the developments, emphasizing strongly Horizon’s master planning, and he lists the wide range of available activities, from swimming pools to country clubs to riding facilities.
The salesman shows the customer the land “chosen” for him.
“Now, Mr. And Mrs. Jones, the property I have just shown you has been registered in Washington, D.C., with the Department of Housing and Urban Development, and this Federal property report is yours to keep for as long as you may own the property,” the salesman says before surrendering the report. “Now, by law, I am required to get your signature that you have received this Federal property report. Would you please okay right here?”
But most people don’t sign so readily. They have questions, and Horizon has provided the answers, or “closes,” for their objections.
The customers want to think it over, so the salesman turns to a chart in his presentation manual that shows that 91 per cent of all people 65 and over are still working, living off relatives, receiving pensions, or on welfare. Only 9 per cent have investment income.
“Would we have to assume that these people who are still working at age 65 at least though about saving or investing? Wouldn’t we also have to assume that the people depending on friends and relatives also thought about saving and investing? And how about those depending on anything from Social Security to welfare? Can’t we assume that they thought about saving and investing all their lives? Now these 9 per cent (living off investment income), what did they do that the others did not do? They had to stop thinking about it and start doing something about it…Please don’t make the mistake that so many others do when opportunity exists. Okay, this agreement and let’s get you started in the direction of that 9 per cent who will one day live on income from investments.”
Perhaps the excuse is: We can’t afford to invest at this time.
“Mr. and Mrs. Jones, is it the monthly investment that would be a problem for you or is it the initial investment? [Usually, it is the down payment, the manual says.] In other words, owning this property would not really take food off your table or clothes off your children’s backs, would it? [Smile, says the training manual. Normally, the reaction is “no”.] Fine, then go ahead and okay in these two places.”
One salesman’s own technique was to ask the prospect what he would do if his father came to him that very day and said his mother needed an operation, but before she could have it, he needed to give the hospital $200. The father doesn’t have the money. “Could you find $200 for your mother?” the salesman asks. When the prospect answers yes, the salesman says he is not trying to suggest the property and the mother are equally important, he just wants to show the customer that he can get a hold of the money if he really wants to.
All Horizon management kept stressing honesty. Don’t tell the customer he’ll make money in two or three years; it’s more like 10 or 20, you don’t really know, they say. Don’t tell them we’ll resell their property. Don’t tell them they can sell their property at any time.
Horizon apparently decided I would do okay as a salesman—at least long enough to try to sell some land to my friends. Horizon—the Dallas office, anyway—does not use the steak dinner approach. Nor, to my knowledge, does it have free fly-ins. Nor, with a few exceptions, does it give away free gifts.
Instead, it relies heavily on its telephone room to find enough people to listen to the Horizon story in their homes. However, salesmen are expected to do most of their own prospecting for potential customers. That usually means a salesman’s friends and relatives get called on first.
I, however, insisted on seeing a real live presentation before I went out on my own. I was assigned to accompany a fairly new salesman on his appointments.
His talk was rusty, and I counted four mistakes in it, several of them major.
He told the couple that the cities near which Horizon has developments—Tucson, Phoenix, Albuquerque, and El Paso—were the four fastest growing cities in the nation. Not true. They are growing four times faster than the national average.
He said Horizon was the largest land developer in the country. Not true. It is the largest in the Southwest.
When the man indicated he wasn’t interested in Rio Communities because of the length of time till the investment matured, the salesman tried to switch him to El Paso. “In my opinion, this property will mature in five years,” he said. Mistake. We don’t know how long it will be.
And when the man said he still wasn’t interested, the salesman tried to interest him in buying El Paso or Albuquerque property which he could exchange later for land at Lake Livingston, when Horizon opens that development sometime in the spring. The man still didn’t buy.
Afterwards, I asked my companion if he knew that Bob Towerie, the Austin attorney, had said we weren’t to sell land based on being able to trade it in later for Livingston. The national office had not yet approved that trade.
The salesman hadn’t been told. “If they don’t allow the trades,” he said, “there are going to be a lot of unhappy people around Dallas. That’s the main way we’ve been selling land for the past couple of months.”
The next day, I had to make my first sales presentation alone. I couldn’t do it. I told the office I just didn’t have what it takes to be a saleswoman. It was true, I didn’t.
Very shortly after resigning from Horizon, I headed for Albuquerque. I wanted to find the answer to what I felt was the critical question: If one purchased property in Horizon’s Rio Communities, would that land be worth enough in 0 or 20 years to be a legitimate investment? Was, in fact, the population of Albuquerque exploding and would the spillover inevitably head for Rio Communities?
My first stop was Rio Communities. Rio Communities is actually five developments—Rio Del Oro, Rancho Rio Grande, Rancho Rio Grande East, Rio Grande Estates, and Canyon Del Rio—lumped under the one name.
Rio Communities is a massive acquisition of land 35 miles south of Albuquerque near the town of Belen. It consists of some 230,000 acres—a land area larger than Albuquerque. Rancho Rio Grande lies to the west of the Rio Grande; the other four developments stretch from the river east into the foothills of the Manzano Mountains up to the Cibola National Forest.
Most of those 230,000 acres are undeveloped desert land. The land has its own arid beauty, particularly on the bright, sunlit day I viewed it. No one else was around except a young Chicano on a Shetland pony and a station wagon-load of Horizon customers zooming north on the Manzano Expressway. The Manzano Expressway is a weird-looking phenomenon out in the middle of nowhere, an unpaved swath of freeway bulldozed across the landscape. Here and there a bullet-riddled street sign acknowledges some land-planners dream.
The wide-open spaces I had expected. But Enchanted Mesa, the developed area of Rancho Communities, was a surprise. Horizon had promoted its master planning so much and its color photographs had looked so good that I had expected to see the beginnings of a beautiful community.
But Enchanted Mesa is ugly. It doesn’t look like master planning to me; it looks like a poorly done rural subdivision. Its stucco and frame houses are some of the least interesting architecture around. (The most unusual, though certainly not the best looking, is a French provincial stucco with the French provincial part rising above the house proper, like a false front second story.)
In the older part (though not the newer) the streets are not curbed; utility wires drape across the sky; and regulations for things like fences seem non-existent.
The country club has been built, and so has the soon-to-be occupied shopping center. But despite what I think about Enchanted Mesa, it is the place to live in the Belen area. Enchanted Mesa has housing restrictions; anyplace else in the area an expensive house could have shanties for neighbors.
The photographer and I stopped at a Belen cafe. We told a woman there we were considering buying property in Rio Communities, but we wondered whether or not it is a good investment. “Maybe for your grandchildren,” she says.
We used the same story with a real estate agent in the area. The realtor pulled out files of letters. Three or four people each week write asking him to list their Rio Communities property. Another three or four walk into the office with the same request.
“I have to turn them down,” he said. “There is no market now for that property. I can’t sell their land.”
Horizon almost admits as much. We were taught in training class that the land investments are not liquid assets; they can’t be turned into ready money. But the Horizon ads, particularly the one from last spring, perhaps imply something else.
That ad said a typical Horizon buyer paid $395 for his lot 10 years ago. Today, the same buyer would pay $1,100 for a similar piece of Horizon land. Horizon says those aren’t arbitrary price increases; they’re the result of the law of supply and demand.
But a New York Magazine article last fall by Anthony Wolff quotes some anonymous Horizon executive as saying about one of Horizon’s Albuquerque developments: “We started at $600 a lot—couldn’t sell it. Sixty days later, we raised the price to $800, then 60 days later we raised it to $1,000 a lot. Then our pitch was simple: ‘Look, had you bought it four months ago, you’d have made four hundred bucks.’ And then sales really began to pick up.”
Even the Horizon Corporation seems to be having trouble selling its land. An article in The Albuquerque Journal quotes Horizon executives last summer as expecting a decrease in sales, which they attributed to adverse publicity. Horizon Corporation stock also dropped from $44 a share to $14 a share.
Before that stock drop, Standard & Poor’s Stock Reports noted that Horizon had had rapid growth which reflected its aggressive sales and promotion effort. However, considering the potential negative factors—like the financial reporting methods of the industry and the marketing practices used by land developers, Standard & Poor’s recommended that commitments should be limited to accounts willing to assume a high degree of risk.
The report also shows that the Federal Trade Commission began an investigation in October, 1971, into the advertising and sales procedures of the Horizon Corporation and several other land developers. (FTC says that investigation is not completed.)
Standard & Poor’s describes Horizon’s holdings as “generally uninhabited, consisting of desert-type acreage covered with low vegetation or grazing lands, although increasing emphasis is being placed on housing activity and the construction of support facilities so as to enhance the value of the remaining holdings.”
Future potential may well hinge on the building of viable communities in the land sales areas, the report notes. “This is important if Horizon’s investment-minded customers are to sell their lots profitably, thereby supporting market acceptance of the company’s product.”
Horizon is apparently planning to do more building. Trainers in Dallas said Horizon had recently purchased one of the major building outfits in Arizona.
To see what sort of viable communities were being built by Horizon, I talked to some of the residents already there.
Probably most residents in Enchanted Mesa, where Horizon does its building, like where they are living. I stopped one man out in his yard who had been living there for six years, and he thought the place was great. Some, however, are not so happy, the Seer’s Catalogue, an Albuquerque newspaper, points out.
Paul and Rita Gates, a retired couple from Chicago, and George and Michele Pafundi, from New York City, found Enchanted Mesa to be a “desert of despair,” the newspaper says.
The Gates were out of town when I was in Belen, and the Pafundis had just reached a settlement with Horizon and could not talk about their problems, but they said the Seer’s Catalogue story was essentially correct.
According to the newspaper, both families had been promised completed homes within 120 days after signing their contracts. Neither date was met, and Horizon took a full nine months to get the Pafundis into their house.
Once the Gates moved in, things got no better. The driveway was of different materials than they had been promised. The furnace didn’t operate properly. During the first hard rain, the house flooded because the roof bellies in the middle and the ground floor has no elevation to prevent seepage. The back bedroom and bath get no heat. The outside stucco is falling off, the doors have warped, and the septic tank caved in.
So much for the Gates. The Pafundis claimed that their house is slowly sliding off its foundation, and in the process is cracking walls, gapping walls from floors, and separating the room from its supports. All their utilities didn’t go underground as promised; telephone wires drape the property. The water heater flooded the basement. The ground is eroding and refuses to accept a fence, and the septic tank is about to cave in.
The Pafundis and the Gates said Horizon ignored their complaints. Then, George Pafundi erected a huge sign in front of his house for all potential Horizon buyers to see. “Const. By Horizon,” it says. “Not Fit to Live in—10 months of lies.”
Horizon says the problems were misunderstandings all around. Russ Wilde, a spokesman for Horizon, said the company never could get the Pafundis to tell them what was wrong. However, he said, all parties had reached an amicable settlement.
Horizon’s ability to build houses is perhaps only indirectly related to the future potential appreciation of a piece of land one buys in Rio Del Oro or Canyon Del Rio. Since most people do buy for investment, the investment potential remains the key question.
In other words, I still needed to know if Albuquerque was growing by leaps and bounds and if those hordes were headed toward Rio Communities, raising its value as they approached.
The Horizon training manual teaches the salesman to say that the city of Albuquerque had a population of around 100,000 people in 1940; in 1950, a population of around 200,000; in 1960, around 300,000; and in 1970, around 400,000. The authorities project it will have a population of almost one million by the year 2000.
Those figures are not exactly accurate. Horizon appears to be using the population for Bernalillo County, where Albuquerque is located, but even then the training manual figures seem to be incorrect. The back of a map of Rio Communities which Horizon gives away does use the official U.S. Government population figures for Bernalillo County: 69,391 in 1940; 145,673 in 1950; 262,199 in 1960; and 315,774 in 1970. For its year 2006 projections, Horizon uses the Albuquerque Planning Commission Kirschner Study of 1967.
There are, however, other less grand projections for the future growth of the Albuquerque area. The Albuquerque Industrial Development Service, the agency charged with attracting industry to the area, uses U. S. Bureau of Census population projections. Those projections only go as far as 1990, when Albuquerque is expected to have just under 560,000 people. Using their percentage increases for each decade, one could estimate that the Albuquerque area’s population at the turn of the century would be closer to three-quarters of a million rather than a million.
Still there are going to be a fair number of additional people around Albuquerque, even if one goes by the more conservative estimate. But are they going to be heading south?
Some of them undoubtedly will be. Every Albuquerque area expert says some of the growth is going that way; except, of course, the other land developers in the Albuquerque area. AMREP, Horizon’s biggest competitor, claims the inevitable pattern of growth is north, towards its Rio Rancho community which is being planned for 100,000 people.
Horizon’s Russ Wilde told me he couldn’t find out how many people were projected for Rio Communities, an unusual problem for a community that claims to have a controlled population density. However, the Middle Rio Grande Council of Governments had told me that planners figure there are 3.2 people per family. So, if just one family goes on each acre, Rio Communities’s 230,000 acres could hold nearly 800,000, almost the entire projected population for the Albuquerque area.
There is still another problem: water.
New Mexico environmentalists believe that someday there will be more people in the state than its limited water resources can support. Under New Mexico water law, one has no right to the use of water simply because it flows by or through or under his land. New Mexico considers that all surface and ground waters in the state belong to the public and can be appropriated for beneficial use. The idea of priority is also an important feature in New Mexico law. The earlier user of water has a better and stronger right to it than a later user, which means the earlier user gets all his water before the later one gets any of his. If a user needs more water than he has been appropriated, he must buy additional water rights from those who have them.
Russ Wilde, Horizon’s spokesman, assured me that Horizon had had surveys made that showed there was sufficient water to meet the needs of the anticipated population. The question had to be answered negatively in the Canyon Del Rio report since no special survey had been made there; however, he pointed out that Canyon Del Rio is adjacent to the other properties.
“We’ve got water out there now,” he said. “We’ve bought enough water rights now that we can more than meet the needs of the community for a number of years. After all, we’re in the Rio Grande Basin.”
The Central Clearing House, an environmental group in Santa Fe keeping an eye on subdividers, says it’s not quite as simple as Horizon says. Sally Rogers, Central Clearing House’s director, says Horizon does not know how much water is available, what the quality of that water is, or whether it is economically feasible to use it. As underground water is pumped out, it gradually becomes too brackish to use. Furthermore, she says, what water exists in the area already belongs to someone else; it has been appropriated for other uses.
At this time, subdivision homeowners can legally “steal” water for their own use. The state permits families to drill wells even if it takes water from an already appropriated source. But strong attempts are being made in the State Legislature to change that law. Quite probably by the time Rio Communities is developed, that loophole will be closed.
The federal government now requires land developers selling subdivisions of 50 or more unimproved lots with each lot smaller than five acres to register their property with the Office of Interstate Land Sales Registration. In addition, these developers must give purchasers copies of their federal property reports which require full disclosure of such information as when the deed is recordable, if water and other utilities are available, restrictions on the land, road access, and so forth. The federal law doesn’t restrict land developers from selling property that is under water, for example; all it does is require the developer to tell the buyer about it.
The problem is that salesmen sometimes don’t give buyers copies of their property reports. But even more often, buyers fail to read them.
If a Horizon lot purchaser receives his property report and reads it, he’ll discover some of the problems that come with his land. For example: