Need advice on $5M property sale

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kenoryan
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Need advice on $5M property sale

Post by kenoryan » Thu May 03, 2018 5:21 pm

I bought a 40 acre farm 12 years ago, and it was for building a house and having a nice farmstead. Well we never ended up building there for several reasons. Fortunately it was close to a major freeway and the prices have shot up and for what I paid 400k is now probably worth $5M. Sooo, we are looking at putting it on the market to secure our retirement and quit our jobs in our 50s. I got a contract from the realtor and he has his fee as 6% in the contract. Is that something that is negotiable? Seems like I would be paying a realtor fee of $300k on this sale! Wow!

I know realtors charge 6-7% for sale of houses etc but what happens to that commission on a large deal like this? We have not signed the contract as of yet. Any advice would be appreciated.

Thanks in advance!

Mike Scott
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Re: Need advice on $5M property sale

Post by Mike Scott » Thu May 03, 2018 5:25 pm

Ask your realtor and shop around for better deals.

jebmke
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Re: Need advice on $5M property sale

Post by jebmke » Thu May 03, 2018 5:31 pm

There are plenty of houses around my county that go for $5M and up. I suspect the realtors are getting their customary 6% on those sales.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Carefreeap
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Re: Need advice on $5M property sale

Post by Carefreeap » Thu May 03, 2018 6:05 pm

Raw land sales typically have a larger commission, often around 10%. They are a lot more complicated and typically take longer (often years) which is why the commission is higher.

That said it sounds like you're in a hot area and probably want an experienced commercial broker, familiar with commercial development and/or subdividing for residential. I'd drive around the area and look at what else is for sale and interview a couple more agents. Also if you have any business contacts in the area (insurance, large property owner, et cetera) it would be helpful to get a referral from them.

And this is one scenario where I highly recommend retaining the services of a land/business attorney. Even the listing contracts can be complicated, not to speak of the actual sales agreement.

Taxes are going to be enormous too. You might want to talk to a CPA about doing a 1031 into other income producing real estate and/or doing an installment sale.

Congratulations and good luck!

kenoryan
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Re: Need advice on $5M property sale

Post by kenoryan » Thu May 03, 2018 6:16 pm

Carefreeap wrote:
Thu May 03, 2018 6:05 pm
Raw land sales typically have a larger commission, often around 10%. They are a lot more complicated and typically take longer (often years) which is why the commission is higher.

That said it sounds like you're in a hot area and probably want an experienced commercial broker, familiar with commercial development and/or subdividing for residential. I'd drive around the area and look at what else is for sale and interview a couple more agents. Also if you have any business contacts in the area (insurance, large property owner, et cetera) it would be helpful to get a referral from them.

And this is one scenario where I highly recommend retaining the services of a land/business attorney. Even the listing contracts can be complicated, not to speak of the actual sales agreement.

Taxes are going to be enormous too. You might want to talk to a CPA about doing a 1031 into other income producing real estate and/or doing an installment sale.

Congratulations and good luck!
I forgot to mention the following points...

The land is currently zoned residential and ag. I pay very little in property taxes. I get it back in rent from the tillable farmland.

The area is being developed for commercial properties like a business park. Speculators are buying land and putting up warehouses. Development cost would be borne by the developer. Water and sewer are not far. There is a very popular huge Seattle based company ‘fulfillment center’ that abuts my land. Yes the market is Hot. I expect the land will sell in a year or less.

We just had a big Korean company buy 1000 acres 10 miles away and they are building a mega factory.

I’m happy to pay LTCG taxes and walk away with cash to invest in my taxable account rather than buy another property.

rugger2
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Re: Need advice on $5M property sale

Post by rugger2 » Thu May 03, 2018 6:24 pm

This happen to be in the Inland Empire?

123
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Re: Need advice on $5M property sale

Post by 123 » Thu May 03, 2018 6:35 pm

rugger2 wrote:
Thu May 03, 2018 6:24 pm
This happen to be in the Inland Empire?
Just a note to clarify the area referred to by rugger2. The "Inland Empire" is a local name for the Ontario-Riverside-San Bernardino area on Southern California, generally 50 miles inland from Los Angeles. Many might extend the area outward to include some of the High Desert and Moreno Valley.

We'll see if the OP wants to divulge the general area.
The closest helping hand is at the end of your own arm.

kenoryan
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Re: Need advice on $5M property sale

Post by kenoryan » Thu May 03, 2018 6:46 pm

123 wrote:
Thu May 03, 2018 6:35 pm
rugger2 wrote:
Thu May 03, 2018 6:24 pm
This happen to be in the Inland Empire?
Just a note to clarify the area referred to by rugger2. The "Inland Empire" is a local name for the Ontario-Riverside-San Bernardino area on Southern California, generally 50 miles inland from Los Angeles. Many might extend the area outward to include some of the High Desert and Moreno Valley.

We'll see if the OP wants to divulge the general area.
I'm in Wisconsin.

Bacchus01
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Re: Need advice on $5M property sale

Post by Bacchus01 » Thu May 03, 2018 6:50 pm

kenoryan wrote:
Thu May 03, 2018 6:46 pm
123 wrote:
Thu May 03, 2018 6:35 pm
rugger2 wrote:
Thu May 03, 2018 6:24 pm
This happen to be in the Inland Empire?
Just a note to clarify the area referred to by rugger2. The "Inland Empire" is a local name for the Ontario-Riverside-San Bernardino area on Southern California, generally 50 miles inland from Los Angeles. Many might extend the area outward to include some of the High Desert and Moreno Valley.

We'll see if the OP wants to divulge the general area.
I'm in Wisconsin.
Foxconn area? If so, you won’t need a realtor. Hang a sign and get an attorney.

texas lawdog
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Re: Need advice on $5M property sale

Post by texas lawdog » Thu May 03, 2018 8:32 pm

Have you thought about an auction?
With proper reserve and advertising you could test the markets in the area to see what the land is really worth.

Good luck,

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Pajamas
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Re: Need advice on $5M property sale

Post by Pajamas » Thu May 03, 2018 8:36 pm

No need to pay someone $300k. Shouldn't be hard to find a broker willing to do it for less. Even the one who sent paperwork over for 6% probably would.

cheesepep
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Re: Need advice on $5M property sale

Post by cheesepep » Thu May 03, 2018 8:44 pm

Shop around. I've sold several houses before and use only one realtor who does it for between 4-5%.

Doohop65
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Re: Need advice on $5M property sale

Post by Doohop65 » Thu May 03, 2018 8:57 pm

I am also in Wisconsin and somewhat familiar with real estate auctions/vacant land. You may be able to find an auctioneer willing to take the project with the ability to set a reserve.

More and more land auctions have the buyer paying the fees. This would certainly be factored in by any buyer but it would still come from their pocket.

In this type of situation you would still hold all the cards. If you received the bid you want you can accept. If you prefer to reject the bid it will cost you nothing.

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randomizer
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Re: Need advice on $5M property sale

Post by randomizer » Thu May 03, 2018 9:08 pm

That's a stomach-churning amount. I'd definitely shop around.
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IngognitoUSA
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Re: Need advice on $5M property sale

Post by IngognitoUSA » Thu May 03, 2018 10:10 pm

If I were you, I would sell half and see if the area takes off even more. This is assuming it can be sold in parcels.

ArmchairArchitect
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Re: Need advice on $5M property sale

Post by ArmchairArchitect » Thu May 03, 2018 10:58 pm

Use Redfin (www.redfin.com). 1.5% commission, and we got superior service.

kenoryan
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Re: Need advice on $5M property sale

Post by kenoryan » Thu May 03, 2018 11:28 pm

Yep. It’s the Foxconn craze going on here. Everyone wants a piece of the action. After looking at all the comments, I’m thinking since we are listing at 140k an acre, maybe we should just be inflexible on the price. But the realtor commission really bothers me. $300k! Ouch!

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snackdog
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Re: Need advice on $5M property sale

Post by snackdog » Fri May 04, 2018 4:39 am

For $300K maybe it's worth getting your own real estate license.

denovo
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Re: Need advice on $5M property sale

Post by denovo » Fri May 04, 2018 4:55 am

6 percent is a ripoff. I guarantee you will find brokers willing to do this for 2 percent.
"Don't trust everything you read on the Internet"- Abraham Lincoln

Bacchus01
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Re: Need advice on $5M property sale

Post by Bacchus01 » Fri May 04, 2018 5:41 am

IngognitoUSA wrote:
Thu May 03, 2018 10:10 pm
If I were you, I would sell half and see if the area takes off even more. This is assuming it can be sold in parcels.
Its the Foxconn area, I don’t think selling half would be attractive. Companies are putting up huge buildings. There is an Amazon distribution center in the area as well.

I would suggest to the OP that if other ones are sellers ng at $140K/acre, to ask $175k. The frenzy has already started. I would bet you a premium over current transactions.

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NCPE
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Re: Need advice on $5M property sale

Post by NCPE » Fri May 04, 2018 7:06 am

As they - say all things in life are negotiable.

Last time I checked in my area realtor commissions on unimproved land runs 10% or better. You can shop around but if the area is really that booming I would be surprised that you have not already been approached by developers / speculators / vultures looking to make a quick buck.

smackboy1
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Re: Need advice on $5M property sale

Post by smackboy1 » Fri May 04, 2018 7:32 am

kenoryan wrote:
Thu May 03, 2018 11:28 pm
But the realtor commission really bothers me. $300k! Ouch!
Don't fixate on a few % of a potential multi million $ deal. The commission is negotiable but it's only part of the decision making process. This is a commercial transaction so think of it like a business. Request proposals from at least 3 commercial brokers and pick the one you have the most confidence will get you the highest NET PROFIT on the transaction. Pick a company with experience and connections in this particular type of market, which may not necessarily be the one with the lowest commission. As they say, you provide the steak, they provide the sizzle. Also, the other half of the equation is the buyer's broker who will want their split of the commission. Buyer's brokers can have tremendous sway over their client's decision, so sometimes paying them a full split commission is necessary to incentivize them. Make sure it's written in your listing contract how the split works if there is or is not a cooperating broker. Example, your broker might only get 2.5% no matter what the buyer's broker gets (maybe 3% or more), but if there is no cooperating broker your broker gets 2.75%.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

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lthenderson
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Re: Need advice on $5M property sale

Post by lthenderson » Fri May 04, 2018 8:01 am

kenoryan wrote:
Thu May 03, 2018 5:21 pm
I know realtors charge 6-7% for sale of houses etc but what happens to that commission on a large deal like this? We have not signed the contract as of yet. Any advice would be appreciated.
Why are you even using a realtor? I live in the rural Midwest and when we sell a farm, we simply call up the farmers nearby who might be interested in it and let the bidding commence. There is no commission paid at all. Farm land is unique in that in any given area where most farmers are looking to expand, it is finite. Also, the farmers interested in it are geographically locked to be nearby which makes contacting them pretty easy. In my lifetime, my parents have purchased and sold a couple thousand acres and never once used a realtor.

hws
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Re: Need advice on $5M property sale

Post by hws » Fri May 04, 2018 8:16 am

I would suggest that you work with a commercial real estate broker rather than a realtor. They will have a much broader sense of who the potential buyers are for this property and the expertise to find them. Rates are absolutely negotiable and should not be 6%.

Luke Duke
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Re: Need advice on $5M property sale

Post by Luke Duke » Fri May 04, 2018 8:45 am

lthenderson wrote:
Fri May 04, 2018 8:01 am
kenoryan wrote:
Thu May 03, 2018 5:21 pm
I know realtors charge 6-7% for sale of houses etc but what happens to that commission on a large deal like this? We have not signed the contract as of yet. Any advice would be appreciated.
Why are you even using a realtor? I live in the rural Midwest and when we sell a farm, we simply call up the farmers nearby who might be interested in it and let the bidding commence. There is no commission paid at all. Farm land is unique in that in any given area where most farmers are looking to expand, it is finite. Also, the farmers interested in it are geographically locked to be nearby which makes contacting them pretty easy. In my lifetime, my parents have purchased and sold a couple thousand acres and never once used a realtor.
No one is paying $5MM for 40 acres of farmland. They are paying $5MM for 40 acres of commercial real estate.

Strummer
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Re: Need advice on $5M property sale

Post by Strummer » Fri May 04, 2018 11:23 am

hws wrote:
Fri May 04, 2018 8:16 am
I would suggest that you work with a commercial real estate broker rather than a realtor. They will have a much broader sense of who the potential buyers are for this property and the expertise to find them. Rates are absolutely negotiable and should not be 6%.
Yes, this.

riplip
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Re: Need advice on $5M property sale

Post by riplip » Fri May 04, 2018 11:42 am

I have been in the commercial real estate business for over 25 years as a developer, owner and investor (multifamily, office, land and retail). I have never understood those who nickel and dime brokers on commissions. As a rule of thumb I generally don't negotiate these types of fees and make sure the brokers are paid in quick order. I do require that the broker fee is competitive and more importantly they are very good at what they do. This has paid off over the years ten-fold as I generally see deals before they go to market because the brokerage community knows that I wont stiff them and I am good to work with. Residential real estate is a completely different story.

OP - my advice which was suggested above would be to issue a request for proposals form 3-4 commercial brokerage companies either in the immediate area or the closest larger city to your property ( 1 or 2 preferably with a national presence), pick the one who you feel would best represent you. You should ask what their commission split or co/pay with an outside broker is? I generally like to see at least 50% of the commission go to a cooperating broker. One item you can certainly negotiate is the amount paid to your broker if they are the one who sells the property. Perhaps from 6% to 4%. Either way a good broker will earn his commission in this case, not only in pricing the property correctly, but in the contract negotiations and due diligence phase and ultimately may save you as much or more than you are paying in the commission amount. Good luck, nothing like owning property in the path of progress!

pennylane
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Re: Need advice on $5M property sale

Post by pennylane » Fri May 04, 2018 12:00 pm

I'd do it for 2.5%. I do RE in New York.

6% is typically what I would charge for selling something in the 400k and below range.

riplip
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Re: Need advice on $5M property sale

Post by riplip » Fri May 04, 2018 12:37 pm

Have you thought about tax consequences? May want to consult tax attorney/CPA as well. I would be looking to exchange into something if possible.

Plutus
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Re: Need advice on $5M property sale

Post by Plutus » Fri May 04, 2018 4:26 pm

I hope you get it. Foxconn is paying 50k/acre for unimproved farmland. They also bought a big piece abutting Maplecrest CC that will be a housing development for their executives/managers. It is a pretty massive project. We have farmland in the area as well. A rising tide lifts all boats, if you will.

kenoryan
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Re: Need advice on $5M property sale

Post by kenoryan » Fri May 04, 2018 6:34 pm

1000 acres of land was acquired by Foxconn at 55 an acre. But there was no precedent. Nobody wanted land here. Now that Foxconn is here, there will be hundreds of little guys wanting to put up a facility just to service their contracts and dealings with them. I feel land, especially in the development corridor along the freeway will be very attractive to these guys that want to have a warehouse to store stuff for supplying Foxconn. Maybe we are jumping the gun by planning to list our farm, but it's like selling stocks. You never make a loss when you book a profit. That's what I am telling the wife. She wants to wait a couple of years for the Foxconn dust to settle. Housing prices also are about to see a big rise in the next few years in this area. Houses are selling faster than they can be listed. And we haven't seen the full force of Foxconn yet. Maybe I will wait.

investingdad
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Re: Need advice on $5M property sale

Post by investingdad » Sat May 05, 2018 7:56 am

Good luck, OP...I'm genuinely happy you have this opportunity. I will say that in southeast PA where a certain online realtor has established a warehouse presence the land values have gone way up as business rushes in.

I guess the question is... does this sale cement your early retirement and secure your future finances right now and what is that worth to you?

kenoryan
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Re: Need advice on $5M property sale

Post by kenoryan » Sat May 05, 2018 9:00 am

investingdad wrote:
Sat May 05, 2018 7:56 am
Good luck, OP...I'm genuinely happy you have this opportunity. I will say that in southeast PA where a certain online realtor has established a warehouse presence the land values have gone way up as business rushes in.

I guess the question is... does this sale cement your early retirement and secure your future finances right now and what is that worth to you?
Absolutely, That IS the million dollar question! Sell now and cash out, or wait and hope for a bigger cash reward. What would you do? Assuming good health, a steady well-paying job, no debts.

Marketman
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Re: Need advice on $5M property sale

Post by Marketman » Sat May 05, 2018 9:55 am

Your property may be more of a commercial asset rather than residential. And yes, those fees are negotiable. For 5 mil, I would think you could get a 4% commission from a commercial relator. In my area that is the going rate. At most, you should pay 5%

Strummer
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Re: Need advice on $5M property sale

Post by Strummer » Sat May 05, 2018 3:07 pm

kenoryan wrote:
Sat May 05, 2018 9:00 am
investingdad wrote:
Sat May 05, 2018 7:56 am
Good luck, OP...I'm genuinely happy you have this opportunity. I will say that in southeast PA where a certain online realtor has established a warehouse presence the land values have gone way up as business rushes in.

I guess the question is... does this sale cement your early retirement and secure your future finances right now and what is that worth to you?
Absolutely, That IS the million dollar question! Sell now and cash out, or wait and hope for a bigger cash reward. What would you do? Assuming good health, a steady well-paying job, no debts.
Aside from what commission you'll be paying, that seems like the key point in the discussion.

If you get $6M instead of $5M, would it alter your lifestyle or plans in any significant way?

What is the opportunity cost of acting later instead of acting now? Do you plan to travel when you're retired? Are there any potential health issues that might crop up that would make that difficult if you wait? A bird in the hand and all that.

GibsonL6s
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Re: Need advice on $5M property sale

Post by GibsonL6s » Sat May 05, 2018 4:02 pm

Stop don’t do anything until you know the highest and best use of the property. Is it going to be used to develop office retail or apartments. Don’t focus on the commission until you understand the true value. Then find the best broker to sell it.

kenoryan
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Re: Need advice on $5M property sale

Post by kenoryan » Sat May 05, 2018 6:02 pm

It’s in an area of warehouses. No offices or apartments.

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vitaflo
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Re: Need advice on $5M property sale

Post by vitaflo » Sat May 05, 2018 7:50 pm

Be careful. You're using phrases like "probably worth $5m" and "I feel...". What you think it might be worth and what it actually is are two different things. I had a friend sell farmland for development and he had an idea in his head about what it was worth because it was an up and coming, quickly developing area. He wouldn't budge from his number, and as such missed the peak. He eventually got about 60% of what he originally asked for 5 years later because all of the farmland that sold and developed around his made developing his property more difficult.

Let the pros figure out the real value and maximize it. Don't get married to your own number. Sell as the area is becoming hot, not after it already has been. You will have a great gain regardless of what you sell it at, don't get greedy.

CurlyDave
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Re: Need advice on $5M property sale

Post by CurlyDave » Sun May 06, 2018 12:07 am

kenoryan wrote:
Thu May 03, 2018 6:16 pm
...I’m happy to pay LTCG taxes and walk away with cash to invest in my taxable account rather than buy another property.
Just in round numbers LTCG rate is going to be 20% on most of that money, plus 3.8% surtax, plus 7.65% Wisconsin, plus 6% commission. Now I know you get to subtract the 6% from the gain, but you are still north of 35%.

A $5M sale is going to net you about $3.3M after taxes.

Personally, I would about 100 times rather do a 1031 exchange into rental properties.

Worrying about 6% vs. 4% sales commission when uncle and his brother Wisconsin are going to take 30+ % is worrying about a few loose quarters vs. a Jackson.

kenoryan
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Re: Need advice on $5M property sale

Post by kenoryan » Sun May 06, 2018 2:05 am

CurlyDave wrote:
Sun May 06, 2018 12:07 am
kenoryan wrote:
Thu May 03, 2018 6:16 pm
...I’m happy to pay LTCG taxes and walk away with cash to invest in my taxable account rather than buy another property.
Just in round numbers LTCG rate is going to be 20% on most of that money, plus 3.8% surtax, plus 7.65% Wisconsin, plus 6% commission. Now I know you get to subtract the 6% from the gain, but you are still north of 35%.

A $5M sale is going to net you about $3.3M after taxes.

Personally, I would about 100 times rather do a 1031 exchange into rental properties.

Worrying about 6% vs. 4% sales commission when uncle and his brother Wisconsin are going to take 30+ % is worrying about a few loose quarters vs. a Jackson.
Wow, thanks! those are impressive numbers. I will have to sit down and think about it again.

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