You just got off the phone with a donor who said she wants to leave your organization a piece of property in her will. After your heart skipped a beat, did you say, “Thanks, but no thanks”?
Maybe (hopefully) not in those exact words.
However you put it, many nonprofits across the U.S. can be wary about accepting real estate donations, turning away an estimated 80% of these types of gifts. Reasons range from time-strained staff to lack of expertise, including how to properly evaluate properties, manage legal and tax issues, and handle maintenance and other property ownership costs.
“Big” numbers aside, how do you answer the call when it’s just you and the donor—and that piece of property? Do you automatically say no thanks or consider the opportunity?
Because let’s face it: Real estate can be a complex and time-consuming gift transaction. Title, legal or environmental issues can come into play, as well as ROI, not to mention potential family disputes.
Despite risks, however, real estate, when properly vetted and managed, can be a real boon—and real satisfaction—for both the donor and charity involved.
The Two Ps of Real Estate Donations: Planning & Professionals
Perhaps today’s takeaway is that yes, managing real estate gifts can be more complicated. But—and these points are key—if you put a few important pieces into place ahead of time, you’ll know exactly what to do and who to go to when you finally get that donor call. You could also open the floodgates to a new source of planned giving potential.
Turning “No, Thanks” Into “Thanks!”
While you’re more likely to be familiar with tried-and-true planned giving tools (bequests, beneficiary designations, stocks and bonds, cash), more nonprofits are accepting real estate gifts. It makes sense. While these numbers are continually in a state of flux, real estate generally comprises more of our individual personal wealth (at 43%) than do stocks (23%), bonds (20%) or cash (14%)¹.
Advantages exist for donors too. Donating real estate can lift the burden of property management and provide a lifetime income stream, among other benefits.
There’s potential here—for both parties. So what’s the next step or one of the first keys to unlocking this great possibility?
First, you must have, or put into place with board approval, a gift and acceptance policy that includes real estate with a decision-making structure. Adhering to the policy approval process provides a clear roadmap for all involved to investigate each opportunity confidently and effectively.
This quote from Sandy Urie, chairman and CEO at Cambridge Associates, says it all: “If you have a good process, it tends to lead to good outcomes. If you don’t have good governance, then you probably aren’t going to make good decisions.”
Second, assemble a team—your go-to experts so you don’t have to go it alone when handling real estate gifts. Besides you and the donor, a basic team combination should include a gift acceptance board committee member (if applicable), the donor’s financial advisor and/or estate planning attorney, the realtor handling the transaction and a charitable real estate consultant.
Consulting services can be tapped, too, when in-house planned giving teams are tight or feel uncomfortable with the level of expertise required with these types of gifts. The point is this: Experts who specialize in charitable real estate are out there to help guide your staff and board or lead the process if your team is unfamiliar with its details.
Thought to consider: Another option if you just can’t do the deal in-house—contact your local community foundation. They may be able to help facilitate the real estate transaction so that the donor’s gift ultimately goes back to your nonprofit. They also may be able to tap into or connect you with experts in handling charitable real estate gifts.
Lunch & Learn—Getting to Know the Donor
What do you do after that first phone call? Gateway due diligence by having a candid conversation with the donor about his or her intentions with the donation. Invite them to lunch, or to a meet and greet on-site. Include your ED and a member of your gift acceptance committee or board to determine:
- Why the donor has chosen to donate the real estate. Giving real estate must first—and always—stem from goodwill and a heart to help fund the nonprofit.
- How long has he or she had the property or building?
- What’s the property’s history?
- Where is the donor emotionally in letting ownership change hands, even if he or she continues living on the property?
- How does family feel? Anyone contesting the transaction?
- Are there potential issues—zoning, titles, liens or the structure of the gift itself?
By no means is handling a real estate gift a linear route. You may revisit the gift acceptance policy after your initial donor meeting, or you may add members to your consulting team. Whatever the case, prepare yourself for that possibility but feel confident in the vital pieces you already have in place:
- a sound and robust process to vet the prospective gift
- access to capable consultants to guide, answer questions and find solutions as issues arise.
Above all, remember that good things take time. Various individuals are involved in the transaction as well as invested family members, not to mention the time involved in attending to the details to complete the sale or property transfer.
Keep your eye on the prize, because within time both you and your donor will have come out on the other end and created a planned gift opportunity that stands the test of time. I can’t think of a stronger foundation on which to build your mission—and your donor’s unique legacy.
¹ The Secret Power Behind Real Estate Donations, Dennis Haber, Esq. & Chase Magnuson, CCIM, 2014.
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Have you handled real estate gifts? How did you ensure the process was a win for all parties? Any twists and turns along the way? Feel free to share and add to the conversation.
BONUS: Hear from industry expert, Russell James, J.D., Ph.D., CFP®, on Why Cash Is Not King in Fundraising. In our complimentary webinar, he shares the secret to fundraising growth: accepting real estate gifts and other noncash assets.