No Buyers? Sell Tickets

Slow Real Estate Market Leads To Uptick In Charitable House Raffles

August 14, 2009|By Lorraine Mirabella | Lorraine Mirabella,

Would you take a $100 chance on winning a $1.6 million house?

Organizers of an estate home raffle in Baltimore County are betting as many as 35,000 people will step up to buy a ticket, compelled by the unusually big prize - a 5-bedroom mini-mansion on an estate lot in Phoenix - and the chance to help out a local charity.

House raffles such as this one have been used as fundraisers by a handful of nonprofits for years, and they are a growing phenomenon as home sellers caught in a recession look for creative ways to stand out and nonprofits seek alternative funding. Requests to put on raffles in Maryland have multiplied during the past two years.

In Maryland and other states, a home seller must work with a nonprofit, which buys and raffles off the home and typically pays the marketing costs. If the nonprofit can't sell enough tickets to buy the home at the appraised value and make an agreed-upon minimum profit, the raffle must be canceled and the ticket money refunded.

For homeowners, "it's a creative new idea," said Ser Greene, who started a Web site a year ago to link nonprofits with homeowners who want to sell through a raffle. "If your home is chosen to partner with a nonprofit, it's easier than trying to sell your home in this marketplace. A nonprofit will buy the house at the appraised value. It's another option when you're trying to move."

For the raffle in Phoenix, in Baltimore County, custom builder Alan Klatsky of Prestige Development Inc. has teamed with Upperco-based nonprofit the Universal Peacemakers Foundation, which helps financially troubled homeowners, on what they've dubbed the Great American Dream Home Raffle. The idea is to raise $3.5 million selling tickets online, enough so the nonprofit can pay Klatsky the appraised value of the newly constructed model home and have money to start an endowment fund and expand counseling services.

The holder of the winning ticket to be drawn Oct. 15 gets the house. It's a 6,200-square-foot "European" style design on 1 1/2 acres with a huge center hall, gourmet kitchen, walnut floors, 16-foot ceilings and a his and hers marble bath in the first-floor master suite. Klatsky said he came up with the raffle idea about three months ago after completing the model for the 11-home Brighton Hills subdivision, where no homes have sold yet.

"The house is sitting there, and the real estate market is slow," said Klatsky, who said he liked the idea of helping out a nonprofit, and "If I'm able to get some exposure to sell other lots, that would be terrific."

Maryland is seeing growing numbers of applications. The Maryland Secretary of State's office, which approves applications, received 11 this year and 11 last year, up from just one in 2007 and none in recent memory before that, said Michael Schlein, an investigator in the charities and legal services division.

Of 11 submitted this year, nine are under review. That includes the Universal Peacemakers' application, Schlein said. In another raffle planned for this year, Operation Second Chance hopes to raffle two houses in Hagerstown worth a total $180,500 on Sept. 15.

Of the 12 applications in 2008 and 2007, four never followed through on their applications, five were unable to sell the minimum number of tickets and two others were completed.

Those included a $370,000 house in Hagerstown, raffled in March 2008 by San Mar Children's Home, which raised $214,126, and a $1 million house in Annapolis, raffled in January by We Care and Friends in Annapolis, which provides funding for drug and alcohol rehabilitation, and raised more than $25,162, according to the state.

Successful house raffles are able to meet their ticket-selling goals, resulting in a sale for the home seller, funds for the nonprofit and, for a lucky winner, a house, clear of a mortgage - though federal and state taxes apply, at an estimated 40 percent of the value of the house. But raffles don't always work.

A nonprofit risks losing the money spent marketing and planning the event. Even successful raffles can be problematic - for the winner. Winners of house raffles need to pay income taxes on their prize as well as property taxes, which could require securing a mortgage or selling a current home, neither of which are sure bets amid tightened credit.

"It can be an issue if you are not prepared to take on a mortgage for the new taxes," said Greene, of USAHomeraffle, noting that in the case of the Hagerstown farmhouse raffle, the winner ran into problems when he couldn't sell his current home and ended up with two mortgages.

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