When a school district is considering selling real property that is no longer needed for school purposes, the school district has several methods from which to choose. This Legal Update will review several of these options.
Importantly, school districts are not required to follow a specific competitive bidding process under state law, though a variation of that process may be a successful method of selling school district property. Although state law does not specify a particular method that a school district must use in selling real property, a school district should consult its current polices to make sure that a specific method has not been adopted. Further, for common school districts and union high school districts, elector approval is not required for the sale of school district property that is no longer needed for school purposes.
One method that a school district may use to sell real property is to implement a request for proposal process, which would require that the school district publish a notice to the public to announce that it is selling certain real estate. The notice would describe the real property and include a description of the key sale terms that the school district is seeking, such as that the real property will be sold in an “as is, where is” condition. The school district would specify a date by which all proposals must be submitted, subject to the school district having the right to reject any and all proposals. Ultimately, the school district would select a proposal, to the extent that it meets the school district’s bests interests, subject to entering into a binding Offer to Purchase.
There are advantages and disadvantages to using a request for proposal process to sell school district property. The potential advantages include costs savings and a relatively straightforward process. A potential disadvantage is that the school district may not receive as many proposals, or as favorable terms, as it might receive if it listed the property with a real estate broker. In a seller’s market, it is likely that having a property listed by a real estate broker will generate more competition and more favorable terms. However, these factors are dependent upon the real estate market at the time of the sale. If the school district opts to use a request for proposal process, the school district should still obtain an opinion from a third-party regarding the market value of the property, such as an appraisal or other market analysis.
A second method that a school district may use to sell real property is to list the property with a real estate broker. If a school district uses this method, it should carefully review the language in the Commercial Listing Contract – Exclusive Right to Sell, including as it relates to an obligation on the part of the school district to provide a real estate condition report. As discussed in a previous Legal Update (June 16, 2022), a school district should be cautious in determining whether to complete the report and, if it does, the content thereof.
As with the request for proposal process, there are advantages and disadvantages to listing a property with a broker. A potential advantage is widespread exposure of the listing, which would help to generate as much interest in the property as possible. Another advantage may be that the school district can rely upon the expertise of the real estate broker regarding market conditions. A potential disadvantage is the additional costs the school district will incur because of real estate commissions. Another potential disadvantage is that the real estate broker may not have expertise with selling school district or government-owned property and may overlook key issues.
A third method that a school district may use to sell real property is to negotiate with one or more specific potential buyers who have shown an interest in the property. The buyers may be individuals, private entities, or other local governmental bodies. For instance, it may be the case that a neighboring property owner has long expressed an interest in purchasing school district property upon cessation of use for school purposes. A school district is free to negotiate with potential interested buyers without publishing a proposal or listing the property with a real estate broker. This method may be the most practical and cost-effective, but there is also a risk that the school district may not be obtaining the most favorable terms if there is not sufficient competition involved in the method of sale. Therefore, it is important for a school district using this method to obtain a third-party opinion regarding the value of the property, such as an appraisal or market analysis, before entering into an Offer to Purchase.
Each method for selling school district real property offers advantages and disadvantages. The best method for a school district to use may also be based upon general real estate market conditions at the time, or even the type of market involved locally. In addition, a school district may start with one method, but if it fails to generate much interest, may choose to use another method. If there is little to no interest from potential buyers, it may be the case that the school district would be better suited using the real property for other purposes temporarily or leasing the school district property. Therefore, there are a number of factors that a school district should consider when determining which method to use in selling school district real property.
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or your Renning, Lewis & Lacy attorney.