Would you buy a house raffle ticket?

coteheleJune 28, 2010

I have been asked by a preservation organization to chair a committee working with a couple who proposed we partner to raffle their moved and rebuilt 1835 cabin. The couple and the preservation organization would share the profits; of course the lyons share goes to the couple. Without saying too much about the property, it is an excellent reconstruction. The 5-acre site is in keeping with primitive living although it has well-concealed modern amenities such as electricity, septic, indoor water, washer, dryer, vintage range, shower, and toilet. It has been featured in several national magazines as well as a (high standard) book of historic houses.

I need to see this project clearly rather than just looking at the beauty and charm of the cabins (there are two), outbuildings and property. What questions, pit falls, liabilities, benefits...you get the idea... would you be considering going into this partnership?

Thanks for your thoughts,


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So people would be buying tickets in hopes of winning the property? From a buyer's perspective, I'd be concerned about the value of the property and the tax implications. I'd hate to win and then lose the property because I couldn't afford the taxes I assume I'd have to pay on my gain.

What would happen if I won, had an inspection done, and decided that I didn't want the house after all? I mean, houses aren't like cars, you can't return a lemon for a new one. So if the winner doesn't want it, who owns it? Do you draw a new winner?

    Bookmark   June 28, 2010 at 11:57AM
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House raffles usually involve new properties - I think because any idiot can buy a ticket, while not every idiot can manage ownership of an old and quirky property. So I might buy a ticket, but is this the best way this couple can think of to steward the property? Is your preservation society perhaps being used because they can't find a buyer any other way? If they are doing it to support the preservation society, offering tours or open house or hosting an event, or selling the property and making a donation would be far more effective and less burdensome.

We have new home lotteries around here all the time, in BC; they are common way of hospital fund raising in particular, plus there is always a PNE prize home. You could check some of those for terms and conditions (current VGH lottery is called hometown heroes). Also, these lotteries usually offer a cash alternative. Check local regulations.

And what if you don't sell enough tickets?


    Bookmark   June 28, 2010 at 12:04PM
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As a potential ticket buyer....I'd buy one in a heartbeat. LOL. As a partner in participating in this action the first thing I would do is have the charity group contact an excellent real estate and/or tax attorney to ask those questions. If I were going to participate in it, I'd want to be sure any liability would fall on their shoulders and not mine. And have it in writing.

    Bookmark   June 28, 2010 at 12:56PM
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I wonder if you could limit raffle ticket buyers to people who can prove they can pay the taxes upon winning the property.

    Bookmark   June 28, 2010 at 1:03PM
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Thanks for your thoughts!

We are hoping for a low appraisal to keep the taxes as low as possible. The tax liability would be significant. A cousin of one of our members is in bankruptcy because she could not pay the income taxes on a won property and could not get a mortgage. We plan to have a survey and proven clear title to the property before we begin ticket sales.

Unfortunately state raffle regulations prohibit restrictions on ticket sales. We are considering a ticket price of $500 - $1,000 as well as specifying the value of the property and alerting the potential owners of tax liability. We hope those steps attract only financially responsible owners. A cash prize alternative is a possibility. We are checking to see if we must offer that as an option. If ticket sales are poor, I would be surprised. A number of people across the country have expressed interest in purchasing the property over the years. However it is always a possibility. We are considering a 50/50 split of the ticket sales after expenses. The owner and HP group will share 50 percent.

The house will be open for inspection to any who plan to purchase raffle ticket(s). It will be sold 'as is' with full disclosure of known issues. Again, hopefully no one would purchase a raffle ticket who would decline ownership. Thanks for bringing up the possibility. We will look into it.

One reason the owners want to raffle the property is that there is little chance they could get near the value with an outright sale. The owners are just worn out caring for the place, and want to move into town. Our organization is planning to apply for a community block grant with a significant match. Our portion of the sale would likely raise the matching funds. It would be nearly impossible to raise that amount with house tours.

We and the owners have already consulted with a tax attorney and CPA who have been involved with house raffles in the state. Both parties must agree on all the details, and we will have a detailed contract before proceeding.

Thanks again.
Any other thoughts?


    Bookmark   June 28, 2010 at 1:48PM
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Yes: think about the clients you are looking for with a ticket price of up to $1000 and someone who is fiscally responsible enough to be able to afford taxes. Who is fiscally responsible AND likely to gamble $1000? Not a likely combination. A lot of people may want to buy the place, that doesn't mean they'll want to gamble on it.

Your description of the owners matches my suspicions: looking for a way to get more money for the property than a sale would generate.


    Bookmark   June 28, 2010 at 7:55PM
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I'm with Karin. I'd pay a fair price for the cabin and land in a standard sale but would not gamble $1000 for just a chance of ownership.

    Bookmark   June 29, 2010 at 7:52AM
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Good point, Karin. $1,000 is much more than many people would pay for a ticket. A lower price point may be better for ticket sales. But the lower the ticket price, the more tickets sold, there is less chance of winning. There are many factors to consider. The goal from ticket sales and the ticket price have not been determined. Maybe there is not a sweet spot. We need to take a look at other property raffles -successful and not.


    Bookmark   June 29, 2010 at 8:37AM
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Judy I'd purchase a ticket at $1,000 and there are many who would, if we knew that there was a limited number of tickets sold. If it was a good property bet....I'd want to set up a website with info on the property, the possible tax implications to someone in an average tax bracket etc. You'd want that disclosed on the tickets or to be included in the sales people's notes (I probably wouldn't ask frankly unless we're talking about a multi million dollar property). Then of course are there any restrictions on reselling the property etc? Any historical restrictions on it's development (ie has it had grants that require it to comply with any specific historical issues etc).

Given the housing market, this kind of thing isn't unheard of as a way to sell a home and making the local historical society a gift for managing it is a great idea. I'd not sell tickets myself (I don't do that sort of thing...business reasons) but I'd probably buy :) Feel free to email the property info if you do end up going forward pretty please???

Every house raffle I've ever seen did have a minimum ticket sales disclosure with required refund of a ticket purchasers funds in full if the lottery is not successful. In that case, who takes the hit for the cost of the advertising etc?????

    Bookmark   July 1, 2010 at 4:34PM
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Say we are looking to sell $500,000 in tickets. How much does the chance of winning figure into a decision to buy a ticket? 5,000 at $1,000 each or more tickets at a lower price? At $100 each we would need to sell 50,000 tickets. Of course selling 5,000 tickets is great if the people could be found who would buy them.

We are planning on a website with information, pictures and video of the house, all the state's required boilerplate information, tax information, and running tally of number of tickets sold.

Unfortunately, the owners are putting/want no restrictions on the property. This is mostly a Main Street group recently incorporated into our preservation organization. I'd like to insist protective covenants be placed on the property. I don't think it would fly. It seems wrong for a property to pass through the HP group without protecting it.

The possibility of insufficient ticket sales was discussed. Switching to a 50/50 raffle is being considered. The 50/50 would be after expenses. There again, if one bought tickets for a house how would winning money instead be received? That scenario would also be clearly stated up front.

One thing that troubles me is that the owners are assuming no risk. All their marketing, survey, inspection, etc. expenses are reimbursables. The house sells, they get their price, paid expenses and we get a percentage of the total ticket sales. If it is switched to a 50/50 raffle, expenses are paid, the winner gets 50% and the owners and preservation get 25% each, and they still have the house. They cannot loose either way.

I will send you an e-mail if we go ahead with this. The gaming license was approved this week. It will be several months before we get state approval for the house raffle. We are not permitted to market the house or sell tickets prior to approval.


    Bookmark   July 1, 2010 at 7:22PM
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I think you need a math course. 5000x1000= 1 million.

50,000 tickets at $100 = 1 million.

You only need to sell 500 tickets at $1,000 to come up with $500,000

At $100 you would need to sell 5,000.

    Bookmark   July 1, 2010 at 10:24PM
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One of the things that I'd be looking at is the value of the house. If we're talking about a $100,000 house I wouldn't spend a grand on a ticket. If it's a million dollar house I'd be in. For a $250,000....maybe a $500 ticket? I'd try to scale your price to your market. I wouldn't sell a thousand dollar ticket if your house isn't a half million dollar home (appraised or tax assessed value). think of scaling your ticket price to your house value somewhat...ie a lot of tickets at 100 if it's a 200,000 or below price is likely to be more successful than trying to market a thousand dollar ticket for a house of that value.

People are going to do a little homework on a grand price ticket so be prepared to have an appraisal that makes sense next to your tax assessed value.

You throw me off when you say that the homeowners are going to get their full price no matter what....you mean they're not taking a bit of a loss here as a tax deduction? That seems....well like an easy way to sell a house. I'd come back a bit hardball on them. It's only a donation when you give something up. Getting full price and "offering" the difference to the HS seems a bit greedy..and a bit inappropriate. I certainly wouldn't expect you'd be paying all of the advertising costs etc. What on earth would their agent fee be? I think your HS might be getting snowed here. I've been involved with a lot of fund raisers....and this has a bit of a smell to it. Not on your part or the HS. I've seen charities take a hit when trying to take advantage of something that sounds too good to be true. People on the board don't think it through...the possible numbers make their eyes glaze over and they forget the downside.

I think if you go forward as is with the homeowner expecting a full return, you're going to take a hit, not make money. You won't embaress yourself...the lottery winner will win something, but it could cost your society more than you might think. I'd go back with a reasonable return idea to the homeowner and the offer to split the costs of marketing, no matter the outcome. They can still take this as a deduction if it's a reimbursement to the HS. So it's still a decent deal for them.

    Bookmark   July 2, 2010 at 8:55PM
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As you say: "One thing that troubles me is that the owners are assuming no risk. All their marketing, survey, inspection, etc. expenses are reimbursables. The house sells, they get their price, paid expenses and we get a percentage of the total ticket sales. If it is switched to a 50/50 raffle, expenses are paid, the winner gets 50% and the owners and preservation get 25% each, and they still have the house. They cannot loose [sic] either way."

I hate to keep saying the same thing, but if it quacks like a duck....

If I were on the board of the society, I'd be checking the personal liability provisions in the bylaws and any acts that apply. This deal stinks for your society and is a freaking godsend for the sellers, who are in the situation of all collectors of quirky things: you have something that is worth a lot, but for which only a few buyers exist. It takes both time and money to find those buyers, and if you don't expend that time and money, YOU WON'T GET THE FULL VALUE OF YOUR ITEM. These owners are looking for someone to rescue them from that reality, and your society is coming riding along on a white charger, lance at the ready.

At least, that's how it is reading to me, and nothing that you're adding to the picture is changing it significantly. You may not be able to dissuade your society, but you can decide whether or not to chair this committee.


    Bookmark   July 4, 2010 at 3:49PM
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"It will be several months before we get state approval for the house raffle."

Don't hold your breath. This raffle sounds like it would not be legal.

If the owners are profiting from the raffle sale it is not legal. (Even if they do not profit, there is the intent to profit.) A person cannot hold gambling raffles. In some states a license if required to hold raffles and gamble or to own a casino, and they are nearly impossible for the average person to get besides the fact that the licenses are very expensive when granted. Some states allow non-profits to hold raffles but there is a dollar limit on the prizes that can be offered. In the scenario you describe the owners want to profit by offering a raffle and are trying to partner with a non-profit group to "make it legal". The terms you are describing still do not pass the legality test.

Basically from what you say, they intend to raffle off the house that they own and donate a portion of the proceeds to your organization for a tax write-off.

One option your group may have is to buy the house outright from the couple and own it and then raffle it, but since you say the owners was to get maximum buck for the house I'm sure they will decline your offer considering it too low.

    Bookmark   July 5, 2010 at 3:42PM
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I have been mulling over these last three posts for awhile, and I still have some grave concerns about the whole raffle idea. Today, the sister of the home owner (she is a HS member) came by to talk about the raffle. I brought up most of the points the three of you mentioned. Most she had not considered.

What disturbed me most was the owners will receive much more for the property than it is probably worth. I don't think that is right. They are determined to sell using a raffle, and if our HS doesn't agree to be the non-profit 'partner', they will find another non-profit. They don't want to do a conventional sale because so many people will go through the house that are just curious but have no intention of buying. Kind of sounds like an excuse to make a huge profit with no donation (Igloo's definition) to the HS beyond the over sale of tickets. It doesn't reflect well on our HS.

If all the tickets sell, the HS will make something. She did find out the owner may not have any financial transactions related to the sale/raffle of the house with the HS. We will be responsible for all the expenses of the raffle, including marketing and showing the house. The HS would establish a bank account only for raffle and pay expenses from that account. At present we have an extremely small amount of money. There is no way we have the assets to market the property. If the owners market as we anticipated, they want to be reimbursed for the expenses. I don't see how that can legally be done.

She is going to check on the legality of the owner profiting from the raffle. The accountant advising both parties has done several house raffles in the state. The house was built by a developer and the raffle done by a non-profit.

I told the sister I would not commit to even being on the committee at this point, but will continue to discuss the raffle with her and try to help think it through.

Thanks again for your comments.


    Bookmark   July 9, 2010 at 4:25PM
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Judy I'm glad you're really mulling this over. It does not pass the smell test to me (stinks like chit must be chit?) I have seen raffles to get the value of the house, (appraised or TAV) but not to profit beyond that...though of course it's a possiblity. Gambling laws do vary significantly in different areas of the country.

It sounds to me though like this is a recipe to bankrupt the HS (if it fails). As a person who donates, I look at the kinds of "investments" an entity gets involved with and make my determination as to if I want to give them more money (to possibly throw away after bad). IF it failed, it could have a significant effect on your future donations. Particularly your larger dollar donators as they tend to look at stuff like this more than the small donation folks.

I think Karin summed it up well. It's something special and they want everything they have in it. Well that's cool when it happens, but most of the time it takes years and years and not a non profit to bail you out of a backwater situation. :)

They want you to show the place, etc. That's rediculous Judy. Again I see greedy people out to screw you here, sorry. They should have an agent who will do that for a lump sum fee that can work with you. Yes ticket holders should be allowed to see it, so that has to be arranged, but that can be done over a few weekends say once a month, not on appointment given we're just talking about a thousand or less dollars.

But even if they did worry about people going into the house....get over it! We looked at many houses that we had to provide proof of financial ability to purchase (a 90% letter or accounts verification of assets) to see. It's standard operating practice for larger sales.

I'm glad your eye is on this Judy. But given you are now an informed board member...consider carefully if you'll carry on even on the board if you recommend no and they go forward. There are liabilities that can be attached to "informed" members if something goes horribly wrong.

Best of luck

    Bookmark   July 9, 2010 at 9:51PM
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"I think you need a math course. 5000x1000= 1 million.

50,000 tickets at $100 = 1 million."

Want to try that one again?

5000 x 1000 = 5 million

and 50,000 x 100 = 5 million also.

    Bookmark   July 10, 2010 at 4:55PM
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