Common Misconceptions about Land Values

Land values have been all over the place in 2018. Some articles say that land values across America are up. Others say that values are sinking and will continue to do so. It’s no wonder that there is so little agreement on the current state of land values. So far, 2018 has been a whirlwind year with a jumpy stock market, new land and trade laws, and an unpredictable winter that created an uncertain market for land values. While we here at RLI can’t control the weather or the stock market, we can clear up some common misconceptions about land values to help you get a better understanding about land values in 2018.

1: The stock market is the best indicator of what will happen to land values

It used to be a general rule of thumb that land values mirrored the stock market. However, as we’ve seen in 2018, that’s not always the case anymore. There are many factors that impact land values. These include natural disasters, local and national laws, commodity prices, rate of return, and more. While the stock market is still a great way to get a general indication of the economy, it cannot be the sole thing you look to for understanding land values.

2: A higher demand for crops/livestock means higher land prices

Not necessarily. Even when a certain crop or type of land is in high demand, there are many outside factors that can prevent the value of the land from rising. For example, Nebraska has a booming cattle industry and has become a top beef producer for both America and China, but a severe drought has hurt the value of the land. Even though the demand for cattle is strong, the land values have not risen to meet it. Even high quality land can be impacted by forces outside of the land owner’s control. Forest productivity can be hurt by this too. https://www.rliland.com/site-index-measure-forest-productivity

3: Overall drops in land values mean all land values are suffering

While most land markets are interconnected, there are many types of land that can thrive even when others are suffering.  In the 2017 RLI Land Markets Survey the average change in the price of U.S. Land sold for Non-Irrigated Agricultural land was a modest one percent, while the average change in price for Development Greenfield land was an impressive four percent. A decrease in hunting has lowered some recreational land values (although recreational land remains the second most popular type of land sold, but timberland is expected to post strong growth rates at three percent.

4: There is no way to predict if land values will go up or down.

Looking at the state of today’s land values, it’s easy to think that they are unpredictable.

While there is no crystal ball that will predict exact values, there are some overlooked indicators that can give you an insight into which way the market will go. For example, land values will go up if lots of people move to one specific area. The amount of land will stay the same as the population goes up increasing the demand for land. This drives up the desirability and price of the land.

One thing to look out for if you are worried that land values are down is what the areas local land laws look like. Investors and businesses are skittish. They like to research local governments to see if there are any restrictive laws being discussed that could potentially take money away from their business. A lack of interest from outsiders can severely harm the land value of an area. Contact your local lawmakers to let them know the impacts of their laws.

Land values can be tricky. They rely heavily on each other in both bull and bear markets, but can also be independently impacted by dozens of different factors.  They may be hard to track, but understanding the common misconceptions about land values may be able to help you understand the value of your own land a little better. As much speculating as can be done based on the topics mentioned in this article, the best way to learn more about a property and its value would be to Find A Land Consultant. Land transactions require the specialized expertise of an experienced and knowledgeable agent.

Breaking Down Mineral Rights

Mineral rights are so complex that most of the time, people would instead hire a lawyer to deal with them. The bad news is, there is a lot of truth in that statement. Mineral rights can be tied up in tricky deeds going back generations. The good news? We’ve collected the most commonly asked questions about mineral rights to help you get a better understanding of one of the most complex issues in the land industry.

Q: What exactly are mineral rights?

A: Mineral rights are the legal rights to the minerals in a property. Whoever owns a property’s mineral rights has full legal rights to mine for and profit from those minerals.

Q: What kind of minerals are included in the term “mineral rights“?

A: There are lots of minerals that you can make a profit off if you own mineral rights. These include oil/natural gas, coal, precious metals (gold/silver), non-precious or semi-precious metals (copper or iron), and specialty earth elements like uranium.

Q: What minerals do I NOT have access to?

A: This is where mineral rights can get tricky. Sand, gravel, limestone, and subsurface water are all not covered by most mineral rights. These elements are typically considered part of the surface area of a property. Whoever owns the surface rights also owns the rights to the sand and limestone.

There have been many legal battles over what counts as a mineral. Here are just a few examples. To keep your mineral rights out of the courtroom, be sure to be explicitly clear with whoever you are buying or selling your rights to.

Q: Are mineral rights profitable?

A: Yes, but not as profitable as you might think. Private mineral rights owners received an estimated $22 billion in 2013. The government also makes a pretty penny off of mineral rights. In 2016, the U.S. government received roughly $2 billion in mineral productions (which includes oil, gas, and coal) on federal land.

However, the growing number of legal battles between states and landowners over mineral rights is starting to rack up a hefty tab. In some cases, the price of the lawyers and time in court can drain more money than the mineral rights are worth.

If the minerals in your land are oil or coal, you are competing with solar and wind energy. The rise in renewable energy sources also has the potential to lower the value of the oil or coal in your land.

Q: What are the most common ways that mineral rights are held?

There are three common ways that mineral rights are held. The first and most common is a unified estate. In unified estates, the mineral and surface rights are held together, so whoever owns the deed to the property owns both mineral and surface rights. A severed or split estate means that the mineral ownership is sold separately from surface ownership. In this case, whoever owns the surface rights does not own the mineral rights. The last type of estate is fractional. As the name implies, fractional estate is when you receive a portion of the mineral rights. Fractional estates are often used for inheritances, so that each heir can split up the profits equally.

Q: How do I know how much my mineral rights are worth?

Finding out how much your mineral rights are worth can be difficult. The value of mineral rights can vary day-by-day, because the market value of minerals is determined by calculating how much buyers would pay for mineral rights today. There’s no easy way to calculate how much your minerals rights are worth. One of the best ways of knowing the current value is to list mineral rights for sale and see how much people are willing to buy them for.  You can also list them on US Mineral Exchange.

Q: Will mineral rights increase my taxes?

Yes – if you are currently making a profit on those minerals. Unexercised mineral rights (if you are not currently making money from the mineral rights) are not taxed. If you sell those rights, you have to pay taxes on the proceeds. Income made from the minerals is taxable income.  But having valuable minerals and oil on your land can also increase your property value, which will be helpful when it comes time to sell.

Q: What are common mistakes people make when selling their mineral rights?

One is accepting the first offer on mineral rights. Don’t accept the first offer you get. Offers are the best way to gauge the price of mineral rights, so wait until you have a few offers to figure out what your mineral rights are worth and the best price for them. Mineral rights can be incredibly valuable, so take your time finding the best buyer. Another mistake is listening to rumors. Many people think the best way to figure out the value of their mineral rights is by asking their neighbors about their mineral rights and assuming yours will be similar. DO NOT DO THIS. The minerals in land range wildly from property to property.

Q: Can I buy the mineral rights to a property that isn’t mine?

A: Yes! This is becoming more common as the value of oil and minerals goes up. You need a real estate deed that details the mineral rights as well as proof of ownership of the mineral rights, a warranty deed, and legal documents. Learn more about buying mineral rights here.

Although we have covered a fair amount in this article, it still only scratches the surface of everything there is to know about mineral rights. Mineral rights are complex, but understanding the basics is a huge step forward to becoming a mineral rights expert.

About the author: Laura Barker is Marketing Assistant for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and had been with RLI since October 2017.

 

Investing in Land Real Estate for Retirement: What You Need To Know

Choosing how to save for retirement can be a decision that takes years. After all, that’s the money that you’ll be living on during your golden years. Most people stick to 401ks and stocks, but what many people don’t know is that you can invest in land real estate to save for retirement. Investing in land real estate can be a great way to save money long-term, but with any investment, you need to know what type of land to invest in, what sort of returns you can expect, and what to avoid when investing in land real estate.

There are many benefits to investing in land real estate. One benefit is that if you invest in land in different areas, you will be protected if certain properties are hit by natural disasters or the value of one type of land real estate drops. Geographic and commodity diversity can keep your money safe even in a rocky market. Another benefit is that land real estate (farmland in particular) sometimes have higher returns than stocks do. Most stocks can be expected to produce a six to seven percent return over time), while farmland has produced a steady 11.5 percent annual return over the past twenty five years.

If you are looking for a low-maintenance investment, vacant land is a great option. It is cheaper to buy than developed land, and you don’t need to spend money doing repairs or renovations. While this is an excellent investment to make in the long-term, you will have to be patient. This investment will take time to make money. You’ll also want to keep an eye on the market to make sure you’ll be able to sell it at the best possible price. Consider looking into vacant land properties in areas that are seeing an increase in population or jobs. This land will is likely to become more desirable over time, and you’ll be able to sell it at a higher price than what you bought it for originally.

When investing or buying vacant land, you should always know who you are buying from.Be careful of people who have only owned the land for a short amount of time and seem very eager to get the land off their hands. Vacant land takes times to accumulate value, so it’s suspicious if people only own it for a short amount of time. The owners might know something about the land that makes it less valuable. This is a perfect example of why it is so important to find an agent with the expertise and experience needed to conduct land real estate transactions – like an Accredited Land Consultant (ALC).

Timberland or forestland are also excellent long-term investments. The returns for timberland real estate tend to move counter cyclically to other markets.  Because of this, it will add portfolio diversification, lowering the risk of losing money. Timber is also a hearty crop that can provide you with returns for many years.

You should invest in timber or forest land only if you are planning to retire ten or more years down the road. You’ll have to spend money to plant trees and won’t get returns as they grow, but once the trees reach maturity, they will provide steady returns.

Although investing in land real estate to save for retirement is an excellent option, there are some key factors to look out for. Keep the following in mind while you look at different properties:

-You need to know the land inside out. You need to know everything about the land you are investing in. This means zoning, mineral rights, any environmental hazards on the land, usage restrictions, access easements, taxes on the property, and the likelihood of natural disasters in the area. If you think you are asking too many questions, you are not. Even small issues can end up costing you a lot in the long term. For example, you could have an incredible property with full mineral rights, but if the soil drainage is poor, the value of the land could drop so dramatically that any other positive factors wouldn’t matter at all. Finding an ALC near you can help ensure that you see the whole picture when it comes to investing in a piece of land.

-You need to be crystal clear on the taxes. This was mentioned in the previous bullet point, but it’s so important we added it again. Some properties have taxes that are so high that the taxes eat up any returns you make on the land. Speak with your land agent about this and make sure you understand what your costs will be before investing in a property.

-Are there wetlands on the property? Thanks to Waters of the US (WOTUS) and other laws, if you have wetlands on your property, huge parts of your land might not be useable. This could cause the value of your land to drop dramatically.

Investing in land real estate can be a great way to save up for retirement. Land real estate is a valuable and limited community that, historically, continually grows in value. If you do your research and spread your investments out over a few different types of land, you could have a successful start to saving and creating a well-balanced, diversified portfolio for your retirement.

About the author: Laura Barker is Marketing Assistant for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and had been with RLI since October 2017.

Tips To Stay Healthy During Flu Season as a Land Agent

2018 is facing the worst flu season in over a decade, and land agents have a high risk of getting sick. You might not be in an urban area surrounded by sick people all the time, but land agents are always meeting new people and touching doorknobs or handrails that dozens of others have also touched. If you aren’t careful, you or one of your clients could catch the flu. Here are some tips to protect yourself and your clients this flu season.

1: Keep Tissues on Hand At All Times.

When your clients are traveling long distances to visit properties, they often leave things at home or in their car. Tissues are one of the most common things to leave behind when visiting a property, so you should come prepared. Using tissues helps prevent the spread of germs from you to your client or vice versa. You can also use them to open doors if you notice your client coughing or sneezing a lot. Plus, it never hurts to show you are considerate and prepared.

2: Sanitize Things People Frequently Touch.

This can be difficult when you are visiting several different multi-thousand-acre properties. However, if you take a few minutes to wipe down the areas that most people touch (such as doorknobs, tables, shared farm equipment, and pens), you can significantly reduce the risk of spreading the flu. A quick swipe with a disinfecting wipe can be one of your best defenses against the flu.

3: Increase Humidity in Indoor Spaces.

You might associate warm temperatures with the flu, but the infection actually thrives in cold temperatures. Cold, dry air often leads to coughing, one of the most common ways of spreading the flu. There’s not much you can do about the humidity outside, but usually you can control indoor spaces. If there are indoor spaces on your properties, add some humidifiers to keep you and your client’s lungs clear.

4: Wash Off The Germs Before And After Meeting Clients

Meeting clients on a property that many others have been to is a battlefield of flu germs. Keep yourself healthy by washing your hands thoroughly before and after meeting with a client or visiting a property. This not only ensures your safety, but also protects your clients and properties from any germs you might be carrying. A small bottle of hand sanitizer is also a great way to ward off germs. For an extra level of protection, you can also pop a Vitamin C capsule before going into virus-happy areas.

5: Take care of yourself

This one might seem obvious, but many land agents are too busy to get the good night’s sleep and fresh fruits and veggies that can protect you from germs. In stressful times, it’s natural to reach for potato chips instead of apple slices, but you could be putting yourself at greater risk of getting sick if you do. If you are working around the clock, you can still squeeze in some time to make sure your body is strong enough to fight off the flu. Here are some foods and beverages that can keep your body strong enough to ward off germs:

-Beef. Beef is an excellent source of zinc, a mineral that helps build up white blood cells. While beef isn’t the easiest food on this list to travel with (if only twelve-ounce steaks fit in our glove compartments), you can bring along some beef jerky or make roast beef sandwiches or beef chili to keep your protein levels up.

-Blueberries. If you live on or near a property that grows blueberries, you are in luck. Blueberries have the highest amount of antioxidants of any fruit you’ll find in the supermarket. They are packed with vitamin C, vitamin K, manganese, and other antioxidants. Blueberries are also easy to carry around and travel well.

-Garlic. Garlic might not be the best smelling food on this list, but it does have a lot of surprising benefits. This spice contains allicin, a powerful antioxidant-packed compound. If you don’t want to go meet clients with garlic breath, there are also odorless garlic tablets  that give you all the benefits without the stink.

-Lemon or honey tea. If you are feeling under the weather, drinking water is one of the best ways to help you feel better. Tea is great for easing early symptoms of the flu. The steam and heat of the tea help open up the throat and can also stimulate the cilia (the hair follicles inside your nose). Lemon tea contains flu-fighting vitamin C, and also thins mucus. Honey tea soothes raw throats and is antibacterial.

Tea is especially great for land agents because you can take it with you anywhere and it is the cheapest option on our list.

This might be the worst flu season in a long time, but these tips can help you dodge the flu and stay focused on what you do best: succeeding in the land real estate industry.

About the author: Laura Barker is Marketing Assistant for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and had been with RLI since October 2017.

What’s All The Buzz About Bees and Land Real Estate?

Bees in America have been dropping like flies. Since the late 1990s, beekeepers, farmers, and scientists have noticed a steady decline in the bee population across the country. Before 2006, the usual number of bees that beekeepers lost due to frost or disease was 5-10 percent. After 2006, beekeepers saw that number rise to between a 30 to 36 percent decline in their hives. Panic really set in when a US report stated that American beekeepers lost 44.1 percent of their hives between March 2015 and April 2016.

So, what does this have to do with the land real estate market? Losing bees could have devastating effects on our farms, economy, and day-to-day life. As food pollinators, bees play a huge part in almost everything we eat and everything that our food (cows, pigs, turkeys, etc.) eats. Without them, landowners would lose the most efficient and cost-effective pollinators on Earth, driving the cost of farming and food way up. Farmers would have to invest in expensive pollination technology. If they couldn’t afford the technology, farmers would be severely limited in what crops they could grow since bees pollinate thirty percent of the world’s crops.

The loss of bees could also be disastrous for land values. Crops, livestock, and wildlife will drop in numbers and value without the bees around to pollinate the plants and food sources of the land. Since the value of land real estate relies heavily on the profitability of the land and its natural resources, a drop in bee population could mean a huge drop in land values.

No one knows the main reason bee populations are dropping, but there are several factors scientists believe are hurting our winged friends. A growing number of varroa mites, tiny crab-like parasites, have been feeding off of drone bees and can kill off entire hives. These mites are tiny and hard to spot, which lets them destroy hives from the inside out without anyone noticing until it is too late. Another possible reason is neonicotinoids, a powerful insecticide that slowly weakens bees.

People have been scrambling to find ways to help the honeybees. Almond growers in California are trying to breed more blue orchard bees (B.O.B.s). The blue orchard bees are known for being excellent pollinators. They are more efficient than regular honey bees; a few hundred female blue orchard bees can do the same amount of work as 10,000 regular honey bees.

Although introducing a new breed of bee sounds like a great idea, there are a few drawbacks to the blue orchard bee. For one, they do not produce honey. Another is that they have sluggish reproduction rates (bee keepers have only been able to increase their B.O.B.s a factor of three to eight every year, a tiny fraction of how quickly honey bees can be increased), so getting enough for the current American demand for bees might be tough. The cost of raising B.O.B.s is also still uncertain.

Technology also offers hope for the bees. Robo-bees may sound like something from a sci-fi moive, but in Japan, they are already a reality. Japanese scientists have created a remote-controlled drone the size of a dragonfly. These robo-bees are able to pollinate lilies and are currently being retooled to pollinate other crops. U.S. scientists say a similar product in is the works right here in our own country.

These robo-bees also have their drawbacks. They would be significantly more expensive than raising honeybees, and the risk of malfunctioning could leave fields without pollination for days or even weeks on end.

While the rest of the world is trying to figure out a cure for this epidemic, there are things you can do to help the bees:

Grow flowers that attract bees.  Lavender, white clover, and thyme can all help attract bees to your farm.

-Build a hive or sponsor one. Vice President Mike Pence had a beehive in his backyard and encourages others to do the same. Don’t like the idea of bees buzzing around where you go barefoot? You can also support a hive through websites like the Honeybee Conservancy  to help give bees a safe place to thrive.

-Make your land real estate bee-friendly. Besides planting bee-friendly flowers, you can also invest in pesticides that don’t harm bees.

The decline in bee population is a serious threat to everyone. However, with a raised awareness, people are starting to understand how important bees are to our food and land real estate. Because of this, there is hope that the bee population across America will be able to grow again.

About the author: Laura Barker is Marketing Assistant for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and had been with RLI since October 2017.

The Intersection of Environmental Factors and the Valuation of Rural Properties

The value of rural properties can be affected by an interplay of forces, which are continually changing, often in a cyclical pattern. These forces include social trends (population); economic circumstances (supply-side economic indicators); and environmental forces (potential contaminants).

There is a growing need for potential consideration of hazardous substances and their impact on property value. The consideration of environmental conditions is fundamental to the appraisal of rural real property.

Environmental Factors

Some situations where contaminants and hazardous substances may be involved in the appraisal of rural properties include soil contamination due to an abandoned industrial plant, groundwater contamination due to a leaking underground storage tank and pesticide runoff from farmland to rivers and streams. According to The Appraisal of Real Estate, 14th Edition, potential contaminants and hazardous substances may include asbestos, polychlorinated biphenyl (PCB), dioxin, trichloroethylene (TCE), radon, petroleum hydrocarbons, and lead.

Environmental liabilities associated with industrial plants are well known, but many other liabilities may be present in rural properties. Farmers once commonly used long trenches filled with DDT-treated fuel oil, called “cattle vats,” to rid cattle of mites and other insects. Once this practice fell out of use, the trenches were simply filled in. Farms often have aging underground storage tanks that held gasoline for farm machinery, and farmland also may be contaminated from an accumulation of fertilizers and pesticides.

In most cases, all environmental forces that effect land value must be considered. These issues can be specific to a property or considered external to a property. Appraisers should determine the type of detrimental factors present on the property. These include potential hazardous wastes.

Specialized Methods And Techniques

Over the past 25 years, the valuation profession has developed a set of recognized and generally accepted specialization techniques for estimating the effect of possible contamination and environmental risks on prices, markets, and values. These specialized methods are based on the three traditional approaches to value which include the sales comparison approach; the income capitalization approach; and the cost approach. These methods involve one or more of the following:

Paired Data Analysis Of Impacted and Potentially Impacted Areas

In paired data analysis, prices paid for properties that sold in an impacted area are compared to prices paid for otherwise similar properties that sold outside the impacted area to estimate the effect of the location on the sale price. More than one pairing is typically necessary to understand the effect of the location in the impacted area on the prices paid.

Analysis Of Environmental Case Studies

Environmental case studies are typically useful when a source site is being appraised or in a situation involving an impacted neighborhood or area where there are insufficient sales to understand the effect of the environmental issue on prices and values.

Multiple Regression Analysis Of Property Sales In Potentially Impacted Area

When property is specified and developed, a multiple regression model can be used to determine if the environmental issue is affecting the sales prices. The model can be designed to interpret the effect of issues such as remediation status, location in a contaminated area, distance from the site source, and other factors.

 The Role Of The Appraiser

Engaging the most competent appraiser is key in achieving a reliable, credible opinion of value for rural properties. Effort should be made to find a valuation professional with experience in rural valuations, particularly if there is a possibility of contamination. Appraisers are not required or expected to have the knowledge or experience required to detect the presence of hazardous substances or to measure the quantities of such substances. Like buyers and sellers on the open market, appraisers typically rely on the advice of others in matters that require special expertise.

Appraisers must be, at a minimum, licensed or certified for Federally-Related Transactions. If the client is a federally-regulated institution and the intended use of the appraisal report qualifies as a FRT, the appraiser will have to conform to the Uniform Standards of Professional Appraisal Practice and the Federal Institutions Reform and Recovery Enforcement Act.

For complex assignments, it may be prudent to engage a more experienced or credentialed appraiser. At the Appraisal Institute, for example, Designated Members have demonstrated a higher level of education and experience and received designations that include MAI and SRA.

 Key Steps

There are five key steps in an appraisal assignment involving possible contamination.

 Step 1: Determine the location of the possible contamination.

In determining the source of the potential contamination, appraisers identify whether it is from:

· A source site: A site on which the contamination is, or has been generated;

· A non-source site: A site onto which the contamination, generated from the source site, has migrated;

· An adjacent site: A site that is not contaminated but shares a common property line with a source site; or

· A proximate site: A site not contaminated and not adjacent to the source site, but that is near the source site.

The distinction is especially important in determining who is responsible for investigation and remediation costs, and whether that responsibility accompanies ownership of the property being appraised.

 Step 2: Determine the type of contaminant and the regulatory requirements.

The appraiser considers the type of contaminant and applicable regulatory requirements (permitted or accidental discharge, level of required cleanup); migration (soil contamination confined to the source site, groundwater contamination spreading off site); and remediation (soil removal, installation of a cap, groundwater pumping, vapor removal) characteristics.

Step 3: Determine the status of the property in the remediation lifecycle.

A remediation lifecycle consists of three stages of clean up: before remediation or cleanup; during remediation; and after remediation. The appraiser determines the status of the property in the remediation lifecycle. A contaminated property’s remediation lifecycle stage is an important determinant of the risk associated with environmental contamination.

The effect of contamination and environmental risk on property prices and values changes over time, typically decreasing as a site works its way through discovery and investigation, remediation and post-remediation stages.

 Step 4. Consider cost, use and risk effects as of relevant date and point in the remediation cycle.

Appraisers consider the cost, use and risk effects as of the relevant date and point in the remediation cycle as they relate to the type of property (source, non-source, adjacent or proximate).

Step 5. Estimate the “as is” value.

Finally, appraisers estimate the impaired, or “as is,” value. In most assignments, appraisers also are asked to compare the impaired value to the unimpaired value under hypothetical condition that the contaminant was not present.

Standards of Professional Practice

Reaching a credible and reliable opinion of value when dealing with potential contamination of rural properties can be a complicated procedure. Among the tools available to valuation professionals are two Appraisal Institute guide notes that may be particularly useful in the valuation of potentially contaminated properties including Guide Note 6: Consideration of Hazardous Substances in the Appraisal Process and Guide Note 15: Assumptions and Hypothetical Conditions.

Guide Note 6: Consideration of Hazardous Substances in the Appraisal Process

The purpose of Guide Note 6 is to provide guidance in the application of USPAP in the appraisal assignment. It is not to provide technical instructions or explanations concerning the detection or measurement of the effect of hazardous substances.

An extraordinary assumption presumes as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property, or about conditions external to the property, such as market conditions or trends, or about the integrity of data used in an analysis. An example of an extraordinary assumption could be suspected but not confirmed that there may be underground storage tank contamination. An environmental assessment by a qualified environmental professional would be required for such conclusions or determinations.

Guide Note 15: Assumptions and Hypothetical Conditions

In an example of a hypothetical condition, the subject property is the former site of heavy industrial use and the appraiser is aware that it might be contaminated, but this isn’t known for certain. The value opinion reflects the property as though the subject site is not contaminated on the date of value, which is the current date. This value is premised on the special/extraordinary assumption that the site is not contaminated.

The appraisal report would need to include a clear disclosure of this special/extraordinary assumption, and state that its use might have affected the opinions and conclusions.

Conclusion

Rural properties can be impacted by environmental contamination resulting in the release of hazardous substances into the air, surface water, ground water, or soil. These factors may complicate real estate financing decisions. The ability for appraisers to accurately identify environmental issues, and factor them into property valuation can, benefit consumers buying and selling land, lenders, and the valuation profession.

This article originally appeared in the 2018 Winter Terra Firma Magazine, the official publication of the REALTORS® Land Institute.

About the Author: James L. Murrett, MAI, SRA, is the 2018 president of the Appraisal Institute, the nation’s largest professional association of real estate appraisers. Based in Chicago, the Appraisal Institute has nearly 19,000 professionals in almost 60 countries. Murrett will be hosting a break out session diving further into this topic at the 2018 National Land Conference in Nashville, TN, in March.

When a Deal Goes Bad: Sink or Swim?

Your first reaction to bad news related to a real estate deal that you are brokering could mean the difference between the deal being saved or lost forever. If you have been a real estate agent or broker for more than a week, you have probably received bad news about a deal falling apart. You know the rush of emotions that comes when you read the email or get the dreaded phone call with “the problem”. How you respond from there makes all the difference in the likelihood of the deal coming together.

In Chapter Six of J. Paul Getty’s book “How to Be Rich”, “The Force of Habit”, he relays some advice he received early in his career as an oilman. “Always think of yourself as a man that has just fallen overboard in the middle of a lake.” This advice really resonated with me, probably because I have been thrown from a boat or had one capsize several times in my life.

In a boating incident, the first thing you must do upon entering the water is come to the surface for air, otherwise you die. That’s a given. The next thing to ensure your survival is remaining calm and orienting yourself to the boat or the nearest land. I experienced this firsthand one summer while whitewater rafting on the Ocoee River in Tennessee. We were shooting the section of rapids used in the Atlanta Summer Olympics, and there were some serious class 4 and 5 holes. It was our young guide’s first time to lead a raft through the course. Right in the middle of the most treacherous water, our raft hit a boulder and plunged all of the passengers into immediate peril. The rushing torrent grabbed us all. I had the good fortune of coming out of the raft and being able to cross my feet on the surface and point downstream, and as a result was picked up almost immediately by a nearby boat. My raftmates were not nearly as fortunate. All the rest of them waged a long battle with the cold, raging water. One of my friends had one of those experiences so close to death that you’ll never forget it. Casey rode the worst part of the Olympic course of the Ocoee River in nothing but his life vest.

Mr. Getty’s analogy is one we can all relate to. There will be times when we feel like a deal is sailing along marvelously, and suddenly we find ourselves plunged into the cold, wet reality of “the problem.” A decade as a land broker has taught me (often through hard knocks) the following suggestions for surviving and salvaging a land deal when trouble hits.

1. Compose yourself- Just as flailing and thrashing about when falling into the water exerts unnecessary energy and decreases your chances of survival, so does pitching a fit or “giving someone a piece of your mind.” You are a professional. Take a deep breath, a walk, a run, a drive, whatever you need to do to get in the right frame of mind to address the situation.

2. Orient yourself- You must identify with as much clarity as possible the answers to the following questions.

  1. What exactly is the problem?
  2. Whatisthesolution?
  3. Who can solve the problem?
  4. How long will it take and how much will it cost?

When learning of a problem, I almost never contact the parties to a transaction until I have a clear understanding of what the problem is and identifying the path to a resolution. Our job is not to cause undue alarm, but to help our clients and customers achieve the desired outcome of the deal.

3. Identify who and what can be salvaged- Is it going to be possible to save the deal? It may or may not be. There are a million mitigating factors that could come into play. The priority, if at all possible, is to save the relationships. Things happen beyond your control. What you do and how you do it will determine if you will have a working relationship with your client, customer, or vendors in the future. Try to rescue as much of the deal and relationships as possible, and at the end of the day be glad you got out alive.

4. “Embrace the Suck”- This expression, used by Special Forces operators, is very helpful in reminding them to “consciously accept an extremely unpleasant circumstance that cannot be avoided.” If you are going to be a good land broker, you will face extremely unpleasant circumstances. Fortunately most of our stressful situations, unlike our military friends, are not life-threatening. Make peace with the fact that you are going to have to navigate some rough water, point your bow in the right direction, and make every effort to reach a positive outcome.

5. Ask for Help- If you are in over your head or in unfamiliar waters, reach out to someone more experienced than you to weigh in on your situation. I have two of the best land brokers in Alabama, Dave Milton, ALC, and Fletcher Majors, ALC, on speed dial so that I can contact them when I encounter a scenario I am not familiar with. I answer calls almost every week from brokers and agents inside and outside my company asking for advice on different scenarios. Do not be afraid to ask for help. You have a responsibility to your clients to provide the best service and solutions possible, and none of us can know everything.

Two of my favorite maritime clichés are “Smooth seas do not make Seasoned Sailors” and “Lose your head, wind up dead”. I believe these maxims are equally applicable to the situations we face in brokering land deals. Any business that requires you to deal with people, property, and significant amounts of money lends itself to problems. The problems are unavoidable, they will come. Following the steps listed above has allowed me to survive and salvage many land deals and kept them from sinking into the dark abyss where dead deals go. Godspeed, my friends.

Jonathan Goode is an Accredited Land Consultant (ALC) and a partner with Southeastern Land Group. He is a licensed broker in Alabama and Mississippi, and is the co-host of the weekly radio program and podcast “The Land Show.”

The Land Market: Current Conditions & Outlook

The latest economic activity shows clear signs of improvement ahead. Consequently, the demand for land, especially for construction of commercial and residential properties, will be solid and rising throughout 2018 and into 2019. The demand for agricultural land is more difficult to predict.

First, let’s take a look at the economic backdrop. Gross Domestic Product (GDP) grew at a three percent annualized rate in the third quarter. That is quite remarkable in light of the temporary standstill in activity in hurricane-impacted regions. The big contributors were the solid rise in business spending on equipment, which burst higher by 8.6 percent, and improvements in net exports (exports rose 2.3 percent and imports fell 0.8 percent). Software spending rose spectacularly by 24 percent. Such demand is undoubtedly being driven by the new world of digital information. Land in the middle of nowhere could soon be sought after as more data centers need to be built. Information from every Uber ride and Amazon sale are being stored digitally. Every piece of information from GPS units and the future self-driving mapping of automobiles will also need to be stored.

Consumer spending is the biggest share of the nation’s economy and grew in the latest quarter at a decent pace of 2.4 percent. This is a tad short of the near three percent growth in consumer purchases in the past three years but still implies enough power to avoid any recession.

Third quarter GDP growth was also partly boosted by inventory accumulation of goods. Sometimes this is a good thing, as companies are ramping up production in anticipation of stronger demand ahead. However, it also hints at a potential economic slowdown if the large inventory buildup requires cutting back on future production.

Government spending has been neutral, neither adding nor subtracting to GDP growth. Federal government spending rose one percent while state and local government spending fell one percent during the latest quarter.

The missing piston to the engine of economic growth is currently real estate construction. Private commercial building construction spending fell by 5.2 percent and residential real estate spending from new home construction and home sales activity declined by six percent. Commercial building vacancy rates have been steadily falling across all property types over the past several years, and that will continue to be the case as new construction is just not coming around. As to the residential market, it is undergoing some of the tightest inventory conditions ever seen, with the quickening pace of homes selling right after coming onto the market and with multiple bids not uncommon in the lower price brackets. Home prices have been moving consistently above workers’ wage growth for the past five years. However, unlike the housing bubble days of 2005 with easy subprime credit, today’s market conditions reflect tight mortgage availability. The market has the feel of a “bubble” because of insufficient housing inventory. For the past decade, the construction of new single-family homes has been far below the 50-year historical average. Soft construction activity assures continuing tight inventory conditions, and there is certainly no oversupply in either the commercial or residential real estate industry.

I am forecasting that housing starts will rise from 1.18 million housing starts in 2017 to 1.30 million in 2018. This growth will still be insufficient to fully satisfy rising housing demand. The long-term historical average has been for 1.5 million new homes constructed each year in the U.S. The low inventory conditions of near four months’ supply implies continuing rising in home values in most parts of the country. Homebuilders have indicated that, on average, it takes only 2.9 months to find a buyer of their spec-homes. It is a fast moving market, considering that just five years ago it took over an average of eight months.

Homebuilders need to ramp up construction. However, they have been hampered by skilled worker shortages in the industry and from the difficulty of obtaining construction loans by smaller builders. As to the latter, there could be more loans coming down the pike, as some of the financial regulations that arose from the Dodd-Frank legislation are likely to be loosened somewhat for small-sized community banks. In regards to construction workers, it is going to take some time to recruit to fully meet the requirements. Trade schools are just not seeing enough interested people entering the industry, especially among the younger cohorts. Moreover, the hurricanes that devastated the Houston region and Florida will require a large number of construction workers just to replace the damaged and demolished homes. An estimated 50,000 homes were damaged in Houston alone and around 70,000 in Florida. This work is not adding to the housing stock, but an attempt to maintain current levels. That means that demand for land development in other parts of the country will see delays because of the acute worker shortage.

Last year’s Land Markets Survey conducted by the REALTORS® Land Institute and the NAR Research Department indicated that half of the members were involved in recreational and residential land transactions, and the average increase in value of those sales was two percent. Given that home prices have risen five percent in 2016 and another five percent in 2017, the prospect for land price increases should have seen an increase of that magnitude. For those involved in timberland sales, the rising lumber prices (partly attributed to global economic expansion and from wildfires in the Western U.S. states and in Canada) will permit a higher price sale in the upcoming year. Those specializing in agricultural land will face tougher conditions. The crop prices that farmers have been receiving over the past three years have been in a rut with prices now more than 20 percent lower compared to the boom times in 2012. Therefore, the yield from agricultural land will be lower.

Risks to the Economy

There is very little risk of an impending economic recession. Job openings are at a multi-year high and the number of people filing for unemployment insurance claims remains at historic lows. Such conditions imply that job growth of around two million is nearly assured in 2018. However, one area of concern relates to international trade war. Experience shows that job cutting occurs when both imports and exports decline measurably, as happened during the recent Great Recession and at the turn of the century. Also of course, many economists blame the 1930s Great Depression for tariff hikes across most countries around the globe at that time. President Donald Trump’s rhetoric on trade has been “tough,” including the idea of ending NAFTA and a trade war with China. Protection of intellectual property rights must be assured, and fairness in trade needs to be constantly examined. However, a unilateral increase in U.S. tariffs will certainly invite retaliation. Such actions, depending upon the magnitude of the tariffs, could easily wreak havoc on global supply-chain production and send the economies of the world on a downward path. Agricultural exports would be particularly hard hit, thereby hurting agricultural land prices. This development, therefore, requires alert watchfulness.

A second risk is related to the tax reform without proper safeguards for real estate. If the mortgage interest deduction is no longer attractive and/or property tax deductions are no longer permitted, then the demand in home purchases and residential developable land will decline measurably. Changes to, or even a removal of, the all-important 1031 like-kind exchanges could also greatly hurt land values.

However, assuming there are no shocks to the system from international trade and that tax reform is pursued properly without hurting real estate, then investments in land will be on the rise making now a good time to be in the land sales business.

This article originally appeared in the 2018 Winter Terra Firma Magazine, the official publication of the REALTORS® Land Institute.

 About the Author: Dr. Lawrence Yun is chief economist and senior vice president of Research at the National Association of REALTORS®. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1.1 million REALTOR® members.

How To Have a Great Hunt in February

 

By the end of January, most people have put away their guns and declared the hunting season over. February is one of the slower months for hunting. However, if you still have an itch to hunt, there are plenty of hunting opportunities for you in February. Here are some tips to help you have a great hunting season even after January is over.

1: Don’t Count Out Small Game

Deer season might be over, but there are still plenty of clever critters that will make for an exciting hunt. In many states, hunting small animals like rabbits and squirrels is legal throughout February. If you haven’t hunted squirrels before, it might not sound as exciting as hunting an elk or a wild boar. However, since the winter and the earlier hunting season have already claimed some of the weaker ones, the remaining squirrels will be cunning and make for a rewarding hunt. Rabbits are also a challenging hunt. They are one of the more popular small games to hunt, and it’s easy to see why. They have an excellent sense of smell and long-distance vision that only the most skilled hunters can know how to trick. If you are looking for a hunt that will challenge your brain as well as your hunting skills, small game could be your new favorite prey.

2: Some Animals Can Be Hunted Year-Round

While this does vary state by state, most states allow year-round hunting of animals that are considered pests or could harm the ecosystem of the land. Wild pigs and coyotes are some of the more popular animals to hunt year-round. Coyotes are highly intelligent and adaptable animals that have gotten a passionate following over the years in the hunting community.

Also, wild pigs can be hunted year-round in twelve states (California, Florida, Georgia, Louisiana, Michigan, New Mexico, North Carolina, Ohio, South Carolina, Texas, Virginia, Wisconsin). These husky creatures have an unpredictable temper, so only go after them if you are an experienced and thrill-seeking hunter.

3: Check Your Calendar

Depending on where you live, you might have more time to hunt big game than you think. Alabama allows deer hunting until February 10th, thanks to the varying rutting seasons around the state. Hunting seasons can shrink or grow based off population, rutting season, and the needs of the land.

4: Hunt Smarter, Not Harder

Every hunting season has its ups and downs. Hunting in February is no different. Fewer hunters means less competition for you. The barren land and fallen leaves mean you will have an excellent view of your prey. The catch? They can see you just as clearly. This is the time of year to break out your best camo.

Another drawback for hunting in February is that most of the prime hunt has already been harvested. January hunters have taken out the biggest game, and Mother Nature has taken the animals not fit enough to survive the harsh winter season. You might have missed the biggest animals of the season, but there are still lots of animals out there ready to give you a memorable day in the great outdoors.

Hunting in February is for hunters who like a challenge. Even though you might not catch the buck of your dreams, there is still plenty of great hunting to be had.

About the author: Laura Barker is Marketing Assistant for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and had been with RLI since October 2017.

The Land Market Trends Across America

Last year was a crazy year for the land industry. An unpredictable market and multiple natural disasters made 2017 hard to follow and made it even harder to predict what would happen next with the land industry.

Even with so many unpredictable factors, The RLI 2017 Land Market Survey, shows that last year was an overall good year for land real estate. In 2017, we had stronger economic growth. After a three-year decline, prices rose for all land types, and timber and greenfield development land are expected to post the strongest growth rates at three percent. Other surveys also prove it was a strong year for land real estate. As shown in the 2017 Land Values Summary, some regions thrived (the Pacific region saw an 8.7 percent increase in average value of real estate) while other struggled (the Northern Plains saw a 1.8 percent decrease). While overall, the value of United States farm real estate is averaged at $3,080 per acre (up 2.3 percent from 2016), some states faced drawbacks because of the natural disasters causing a decrease in hunting land sales. To learn more, we rounded up quotes from top ALCs across America about how their region’s land industry was influenced by 2017.

While U.S. lands typically sold slightly faster in 2017 than in 2016, some states saw a slower sales time frame. However, slower land sales doesn’t necessarily mean a lower need for quality farm land. In Wes Des Moines, Iowa, Sam Kain, ALC, who is the Assistant Vice President and Real Estate / National Sales Manager for Farmers National, noticed a slower time frame in the buying and selling process as a result of clients wanting to get the best possible value for their land. “Buyers of farmland are being more deliberate about their decisions, but farmers and investors are very interested in purchasing the right piece of ground that makes sense for them. Lenders are being more cautious in the amount of money they will lend on a land purchase, but there is still enough capital in the country to create demand for good land,” Kain said in an article published on Farm Forum.

Although sales might take longer than before, the value of the land in Iowa has remained strong. “Values for good land have been fairly steady during the past year and have even seen a slight increase since harvest,” said Kain.

In the Midwest, Aaron Graham, ALC, the President of National Land Realty, from Gretna, Nebraska, noticed a growing concern in the land industry about how the decline in hunting could affect recreational land sales. “Although I have seen reports in our Midwest area stating land values, specifically tillable farm land, have crept up slightly, transaction volume remains a long distance from the market peek in 2014,” said Graham. “There is some increasing concern for the recreational/hunting lands sector from a recent U.S Fish and Wildlife Services report, which states that over the last five years the number of hunters across the U.S. has declined a whopping fifteen percent.”
Not long ago, the Midwest held the most expensive hunting land per acre (averaging about $2,975 per acre, according to a 2015 Whitetail Properties post). Could tillable farm land replace hunting grounds as the Midwest’s most profitable land real estate? Only time will tell.

In the south, Texas is struggling to keep up with a new demand for affordable housing. However, the new affordable houses that are available on the market are selling at lightning speed, which could be good news for the future. “The Northeast Texas housing stepped back because of the supply constraints for homes under $300,000, however, the new homes have continued to catch up on demand. Express homes are being constructed and sold in our area. The resale of homes and supply of listings fell, but the average home sold in less than a month,” said Wendy Johnson, ALC, with United Country Real Estate-Texas Landmark Properties, from Royse City, Texas.

Johnson has also noticed a conflict of interest between buyers and sellers. “Owners are selling off tracts or all of their land to developers, and to buyers wanting smaller tracts of land. However, buyers are looking for land to build their homes on that provide ponds, trees, etc., which is a challenge. The rising land cost in many areas has significantly increased, for example, in McKinney, Anna, Caddo Mills, Royse City, Rockwall, Blue Ridge, Farmersville, and surrounding areas.” According to the latest RLI + NAR Land Markets Survey, residential transactions are expected to go up four percent in 2018, with recreational and commercial closely behind at three percent.

Despite Hurricane Irma’s devastating effects on the state, Florida’s land industry is flourishing. “In Florida, the recession is a distant memory.” Says Caleb McDow, ALC, who serves as a Vice President for Crosby & Associates, Inc., from Winter Haven, Florida. “Land is in high demand for both commercial and residential development. Demand is also high for agricultural land. We consistently have more buyers than sellers, which is resulting in higher land prices and lower returns for agricultural investors.”

Despite the Southwest facing some of the worst of the natural disasters of the last few years, including devastating wildfires, irrigated land values and the housing market are holding their own. “The Southwest’s land market is experiencing a few different markets in and among itself right now,” says Justin Osborn, ALC, who is a Licensed Associate Real Estate Broker for The Wells Group Durango, from Durango, Colorado. “Due to the arid climate, irrigated land continues to be in high demand, especially if it’s turnkey and income producing farm ground. The strong housing market has greatly affected development parcels near city limits and caused those to also be in high demand the past eighteen months. Recreational properties still take some time to move, but those that have live water and border public land will obviously sell faster than those that don’t. The market for large acreage dry land parcels continues to still be quite stagnant.”

Even in states whose land industry was rattled in 2017, there is still a lot of good news that can be taken into 2018. Overall agricultural land value has increased, land sale volumes are rising at a healthy rate, and an overturn of the controversial Waters of United States (WOTUS) rule is expected. No matter where you are from across this great country, 2018 is shaping up to be a great year!

About the author: Laura Barker is Marketing Assistant for the REALTORS® Land Institute. She graduated from Clark University in May 2017 and had been with RLI since October 2017.