Confessions of a Land Pro: Andy Flack, ALC

Have you ever wondered how the best land brokers got to the top of their game? “Confessions of a Land Pro,” a new series from the REALTORS Land Institute’s Future Leaders Committee, aims to answer that question. Featuring interviews with top producers from various regions and markets, “Confessions of a Land Pro” uncovers the journey to the apex of an ever-changing industry.

Our second installment features Andy Flack, ALC, principal/broker of Homeland Properties in Huntsville, TX, in conversation with Clayton Pilgrim, ALC, land specialist at Century 21 Harvey Properties in Paris, TX.

Watch or listen to the episode & learn about Andy’s highly successful career in land. Whether you’re just getting started in land real estate or you’re a seasoned agent with years of experience, we hope you can gather some nuggets of wisdom from “Confessions of a Land Pro.”

More “Confessions of a Land Pro”:

 

Best Practices for Working with an Appraiser

An appraiser’s role is to be an independent third party who does not advocate, represent or serve any party’s interest. An agent’s role is to advocate, represent and act in the best interests of the client. In spite of these differences, appraisers and agents do have plenty in common: ethics, integrity, cooperation, standards of practice, professional service and values.

As a broker or agent, how should you communicate with the appraiser? Let’s take a look at the do’s and don’ts of working with appraisers. When you’re done reading, take a short quiz of common questions to see how well you know how to work with an appraiser!

What to Provide the Appraiser

As applicable and available, providing the following helps the appraiser perform their function:

  • Helpful, relevant information
  • A copy of the complete sales contract
  • A copy of home inspection
  • Copy of listing information
  • Listing history:
    • When originally listed and price
    • Any reductions and when
    • DOM (days-on-market)
    • If this is first time listed ever or if you know it’s been listed in the past
    • Date of purchase agreement
  • Financing considerations – is the seller paying points/closing costs for buyer
  • Applicable comparable sales information, including DOM
  • Title policy or abstract copies that describe any encroachments or easements
  • Reports on termites, septic systems, wells, etc.
  • Written property agreements such as maintenance agreements for shared driveways, etc.

What Not to Provide the Appraiser

Providing any of the following hinders the appraiser from doing their job independently and without serving any party’s interest. If this information is provided to an appraiser, the appraiser is required to turn down the assignment per USPAP (Uniform Standards of Professional Appraisal Practice).

  • The owner’s estimate or opinion of value
  • The desired value for the property based on the amount of the loan/mortgage
  • Intimidations or bribes: do not promise work or threaten to take it away
  • Requests for comparable sales/comp checks prior to ordering an appraisal. This is a violation of USPAP. An appraiser can provide ALL sales in an area, but as soon as the appraiser provides sales that are comparable to a subject property, they are doing an appraisal and are subject to all USPAP requirements.

Best Practices for a Broker/Agent

Aside from the do’s and don’ts, there are some general best practices a broker/agent can follow to facilitate a smooth appraisal.

  • The agent should be the one who lets appraiser into the property.
  • The agent should be a good resource. Good appraisals rely on good information.
  • Do not boycott or publicly disparage an appraiser.
  • Be professional and courteous.
  • Return calls promptly from appraisers requesting information about a sale. Confirmation of sales is needed in order to determine whether a sale is a good comparable or not.

What’s Needed: A Broker Price Opinion or an Appraisal?

The main difference between a broker price opinion (BPO) and an appraisal is that an appraisal provides an opinion of value, while a BPO provides a recommended list or sale price. A BPO is completed by a REALTOR® and clearly states that it is not an appraisal. Similar to an appraiser, the REALTOR® needs to be geographically and property competent to complete the BPO. The REALTOR® and appraiser ask similar questions about the property, but a BPO, unlike an appraisal, does not have to conform to USPAP requirements.

Quiz


Think you know the ins and outs of how to work with an appraiser? Take the quiz below to see if you can answer some common questions.

About the Author

 Terri Jensen, ALC, is your Minnesota land resource: real estate, auction, appraisal, consulting, 1031 exchange. Property types: ag land; hunting/rec land; development land – residential, lakeshore, commercial, institutional; land-in-transition; rural residential… Of 18,000+ REALTORS in Minnesota, Terri is one of only 14 to earn the ALC (Accredited Land Consultant) designation. Rely on Terri’s education, experience and expertise to assist with your land situation or need! Licensed Broker in MN & N/E; Licensed Appraiser & Auctioneer in MN.

Introducing “Confessions of a Land Pro”

 

Have you ever wondered how the best land brokers got to the top of their game? “Confessions of a Land Pro,” a new series from the REALTORS Land Institute’s Future Leaders Committee, aims to answer that question. Featuring interviews with top producers from various regions and markets, “Confessions of a Land Pro” uncovers the journey to the apex of an ever-changing industry.

Our first installment features Bill Eshenbaugh, ALC, founder and president of Eshenbaugh Land Company in Tampa, Florida in conversation with guest interviewer Ryan Sampson, ALC, Principal of Eshenbaugh Land Company. Bill began his brokerage nearly 30 years ago, and since then has sold tens of thousands of acres and done more than $1 billion in land sales.

Watch or listen to the episode & learn about the ups and downs of Bill’s highly successful career in land. Whether you’re just getting started in land real estate or you’re a seasoned agent with years of experience, we hope you can gather some nuggets of wisdom from “Confessions of a Land Pro.”

Value Beyond the Surface: Part I

This post is part one of a two-part article from LandGate. It originally appeared in the Winter 2021 issue of Terra Firma magazine.

The Economic Opportunity of Land Resources for Real Estate Agents

Land real estate agents can earn significant income by marketing land resources which increase the value and revenue potential of land. These land resources can oftentimes exceed the traditional real estate land values and create exciting opportunities for agents. Some of the key questions agents are asking include: How do you know if the land has valuable mineral, solar, or wind resources? How much are these resources worth? How do you market land resources for the true market value given the complexity of land resource valuations? The reality is that land resources can be worth anywhere from two to ten times the value of the surface land real estate. In certain parts of the country, minerals alone have sold as high as $100,000 per acre and landowners have received as little as $250 per acre for their minerals in the same location.

Land Resource Market: $5 Trillion Per Year

Based on data before the Covid-19 pandemic, the total US residential real estate market was around $9 trillion per year. The land real estate market was estimated to be a $500 billion market. The market of land resources associated with land is around $5 trillion per year. As the demand for energy continues to grow, the land resource market will continue to increase. Land resources are a large market but due to the complex process of evaluation, the market has only been accessible to resource companies with the capacity to value these assets. Sellers and their agents have fallen prey to land resource flippers and small sale prices due to their lack of information.

Continuous Opportunities After a Sale

Real estate agents may think once they sell a property to a buyer, their work is done. But in fact, the buyer (new landowner) has additional options to lease certain property rights to resource companies, providing an additional way for agents to monetize the same property they just sold.

Challenge: Comparable Sales Misleading in a Flippers’ Market

Resource companies commonly send multiple offers from subsidiaries to create a false sense of market value. Some comparable sales data from resource companies is relevant, most isn’t. Resource companies always use the income approach to value acreage by risking future cash flows, the same exact way financial analysts value assets and companies.

Land resource valuations are extremely complex because there is a string of data points, calculations, and forecasting involved. To determine the acreage value, a resource company calculates the resource availability, extraction, commodity sale price, forecasted revenue generation, installation cost, operational costs, capital costs, taxes, incentives, and much more. These complex calculations leave agents and landowners at a disadvantage and in a position where they must rely on the developer to offer fair terms, which is rarely the case.

The result is that middlemen come into the market, commonly known as flippers. These flippers know that they can lease these rights to resource companies for up to ten times what they paid for it. Another scenario is that landowners enter into long-term agreements with a wind or solar developer leaving significant money on the table, or agreeing to unfavorable terms. Landowners and agents rarely achieve alone the best deals without land resource experts supporting them.

Most online mineral marketplaces do not provide valuations because they lack the technical expertise but also because they get paid by mineral buyers to capture great properties for cheap. Agents also need to be careful partnering with any land resource marketplace since some of them charge fees to both buyers and sellers which creates legal challenges.

Solution: Transparent Marketplace with Land Resource Experts’ Help

The only way to fix this market deficiency is to properly assess the full economic value of the land resources. Negotiations always involve exchanging ownership information, negotiation, economic valuation exchanges, complex lease negotiations, title verification, and closing. Companies like LandGate have land experts who solve this market deficiency and do all of the work for the agent making it easy for them. LandGate and other companies provide data intelligence and land experts who help calculate land resource value the way that resource companies would, making the subsequent considerations easy for land agents to understand.

Challenge: Buyers are Specialized and Transactions are Complicated

Another challenge in land resource marketing is that the process involves contacting buyers specific to each land resource. Within a resource type, most the buyers that landowners will be able to contact are likely to be middlemen. Even within a single segment, such as oil and gas minerals, specific top buyers change frequently depending on funding availability. Just in the past four years, oil and gas buyers have transitioned from public exploration and production companies, to private equity, to private investors and family offices as being the primary buyer class today.

Solution: Land Resource Experts Critical to Negotiate

Given the ever changing market, it is essential that agents work with land resource experts who know these buyer segments. LandGate, as an example, has over 30,000 buyers of land resources. Work has been done with oil and gas, solar, and wind developers so that the language used in these transactions is industry standard and results in the best deals for agents. The following are a few specific examples of the more common resources that landowners and agents often overlook when considering an acreage transaction. Land resource deals are very complex: true market value, reasonable terms, and expectations. It is very important for agents to find experts who are able to assist them with these transactions: valuation, title, negotiations, terms, and closing.

This post will be continued.

About the Authors

Eric Thompson is the Vice President of Business Development at LandGate, an online marketplace for land resources. Since entering the oil and gas industry in 2015, he has handled over $300 million in asset transactions. Eric holds both graduate and undergraduate degrees and lives in Houston, Texas.

Dan McCue is Vice President Land at LandGate. He has been a successful Oil and Gas Land Professional for 40 years. He is an adjunct professor and twice-published author with The University of Texas at Austin’s Petroleum Extension (PETEX).

Yoann Hispa is CEO and co-founder of LandGate. Yoann has 17 years of experience in the energy industry doing billions of dollars in valuations, acquisitions, divestitures, and development projects in leadership and technical roles. Yoann holds an Executive MBA, three Masters in Engineering and Geoscience, and a BSc in Math.

The Road to Rural Internet Access

Read a vacation rental listing for a rural area and you’ll sometimes see “no internet access” promoted as a plus point. Such marketing chutzpah may work for a weekend break but for people looking for a permanent home, rural internet access in the form of fast and reliable broadband is a deal breaker. That’s even true after a year when remote working was put to the test like never before.

We’ve written before about the absence of broadband services in rural areas, including those relatively close to major cities. Fixed-line expansion is still a pipedream for rural internet access in many places but wireless services are increasingly looking like an answer. That could be tremendous news for landowners and investors.

Barriers To Rural Internet Access

Federal government programs to expand rural internet access through wired broadband are proving big on ambition and slow in reality. Earlier this year the Federal Communications Commission launched a $20.4 million “Rural Digital Opportunity Fund” program to bring broadband to areas currently without access. However, a controversial decision means none of that money will go to areas that have already had any funding from a similar program by the Department of Agriculture or from state programs, even if that funding proves inadequate.

Throw in ongoing disputes about the accuracy of maps showing which areas have adequate broadband and it’s a recipe for confusion, particularly given the likely political changes in the FCC’s management in the coming years. Perhaps the most important conclusion is that residential development land in those areas which do get funding will become far more attractive.

Some had placed their hopes on Google’s programs combining fiber services and localized Wi-Fi. That’s proven a disappointment for rural internet access, however. Rather than reach places with little existing infrastructure, Google has concentrated on targeting more densely populated areas where the problem is a lack of competition rather than availability.

Mobile Broadband Options

Instead, it’s mobile broadband that could really make a difference outside of the cities and suburbs. 5G is the big topic of debate for rural provision, though some have questioned whether it will be a real game-changer.

The good news is that the FCC has made a couple of moves to increase the likelihood of 5G reaching underserved areas. The first is cutting the bureaucracy involved in upgrading a 4G tower to the new technology. The seconds is the removal of government fees imposed on carriers building 5G networks in major cities. In theory at least this money could instead go towards expanding service to less populated areas.

5G has some significant limitations, notably that it uses a shorter wavelength than 4G. While that’s what allows for faster data speeds, it means the range of a relay station is considerably shorter. The answer is likely to be different locations having a different trade-off between speed and range.

Given the economics of serving a less densely populated area, that could mean 5G services in rural areas are little faster than a good 4G signal today. That said, such speeds will likely be enough for many users and what really matters is getting an affordable and reliable connection in the first place.

Satellite Internet The Next Big Thing?

Satellite internet is the other big hope for rural internet access. Previously it’s been a service that sounds great in theory but hasn’t live up to the hype. Not only has it been prohibitively expensive, but upload speeds have been cripplingly slow, with lag also a major problem. That’s a measure not of how quickly data transfers, but how quickly devices can respond to a request and begin the transfer. Too much lag and increasingly popular services such as video conferencing become frustratingly ineffective.

The big tech firms are on the case, though. Google’s sister company Loon is trialing a technology that uses high-altitude balloons to build a network of relay stations in the sky accessible through existing LTE technology in smartphones and laptop dongles. After nearly a decade of development it’s now being used for real in Peru and will soon be available to consumers in Kenya. The next step will be discovering if it’s financially viable as a commercial service before rolling it out worldwide. It would also likely require Federal Aviation Authority approval if launched in the US.

Perhaps the most exciting option is Starlink, a fleet of low-altitude satellites operated by SpaceX, the same company that runs commercial flights to the International Space Station. It’s running commercial tests with customers in the US who’ve paid $499 to buy receiver equipment and a $99 monthly service fee for unlimited access. One tester in an Idaho national forest with no access to cellular service reported downloads of 120 Mbps and uploads of 12 Mbps with no significant lag.

Which of these mobile technologies proves viable in the long run remains to be seen, but it’s worth exploring current and future availability in a location when assessing land value. A rural setting with city-like communications could be the dream scenario for potential residents, making location more important than ever.

fence-mountains-slope

Top 10 Fence Options for your Land

You’ve found the perfect parcel of land, but the lack of a fence means you may have to purchase some fencing to enclose your property. Or perhaps you’re looking to sell some rural land, and are worried that potential buyers may be turned off by the lack of a fence.

Either way, there are plenty of options for land fencing you can choose from. And, in addition to attracting potential buyers in an increasingly competitive land market, many of the following fencing options can also help to increase land value as well. Consider the following land fencing options and choose one that best suits your needs.

Corral panels

Corral panels are ideal if you are just seeking to put some no-nonsense fencing around your land. The panels are easy to put up and connect, and often don’t even require you to dig any postholes. However, they can be quite costly — an average price for a 12-foot panel is $100. Using corral panels to fence a small area is more feasible in cost, but not very practical for larger areas,

Flex rail

Flex rail is often chosen as an alternative to solid vinyl rails. They are pretty solid when attached to fence posts but have just enough flexibility enough to make them a practical choice for horse owners. They are also pretty maintenance free and some styles look like real wood fencing.

Stock panels

Simple and practical, stock panels are a low-cost option for those just seeking to land fencing without worrying about how nice it looks.

Vinyl rail

Typically chosen more for looks, this is a decent option if you just want to make the fencing around your land look nice, but they aren’t a practical choice for horse owners, since rails can easily be knocked out of place. Other than that, they are easy to insert into posts, and don’t need staining or painting.

Continuous steel rail

A good choice for putting land fencing around larger areas, continuous steel rail is connected to wooden posts, making a seamless fence line. The one drawback to these sturdy panels is that they can be costly, even more than corral panels.

Horse fence

Obviously a good choice for those with horses on the property, horse fencing is comprised of woven wire integrated with a tight mesh. It enables a horse to walk near the fence without the risk of the horse’s hooves getting caught in traditional fencing or rails. It is also affordable, and can be attached to fenceposts to improve the sturdiness. As an added bonus, this type of fencing can look attractive, increasing land value. It is best installed by a professional though, since it takes some skill and experience to stretch the woven wire fencing properly from post to post.

Coated wire 

Coated wire fencing is often chosen as an alternative to cable fencing, and is constructed from electric fence wire that has been wrapped in a polymer coating. It’s a rather simple type of fence, ideal for those who simply want some sort of land fencing. It is stronger than a traditional wire fence and the polymer coating offers more visibility as well. Some varieties of coated wire can also be electrified.

Barbed wire 

Not very attractive but definitely low-cost, barbed wire fencing is suitable for people with livestock, but not necessarily horses, as they can be injured by the fencing. Handling barbed wire fencing is obviously not without difficulty and requires careful patience and lots of durable gloves. Barbed wire fencing usually requires some maintenance as the wire strands tend to loosen over time and will need to be re-tightened.

Electric wire 

Electric fencing is easy to construct around a a large piece of land and is relatively low-cost as well. However, many people usually use electric fencing as a temporary solution to other types of land fencing, unless there is livestock on the land, in which case it is more practical. Otherwise, the fencing can often be quite fragile, and the low visibility makes it an issue for some. Overall, it’s a convenient solution for temporary fencing but requires constant maintenance to ensure the strands don’t become loose and remain functional.

fence-and-fields-pasture-and-farmland

Natural fence

Natural fence always looks rather attractive and there are certainly a wide range of styles to choose from. Any one of them can help to increase land value, but prices can vary based on style, height, and of course, how much land fencing is required. For large areas of land, natural wood fencing can be very costly depending upon the style. Additionally, natural fencing often requires postholes, as well as regular painting or treated every so often. Large amounts of natural fence can become quite labor-intensive, so many land owners shy away from this type of fencing option based on that factor alone.

When considering your fencing options, it might be best to talk to a fencing expert. He or she will take into consideration what your land is used for and how large a parcel it is, and make the best recommendation based on your needs and budget.

How Social Media Management Can Benefit Your Business

We’re living in the digital age where more and more people are turning to technology for solutions. In the last ten years, social media has grown into so much more than a way to stay connected with friends and family. It’s quickly become a medium for brands to connect with and promote services to their audience.

However, as new platforms and features have developed over the last few years, many organizations can’t keep up with what all there is to offer.

What is Social Media Management?

The overarching idea of social media management is exactly as it sounds— it’s the process of managing your presence on social media platforms like Facebook, Instagram, Twitter, LinkedIn, YouTube, Vimeo, Pinterest, TikTok, Snapchat, and more.

Depending on your industry and business goals, your social media manager may only use certain platforms. Apart from monitoring your online presence and reputation, your social media manager will set up and optimize your social media accounts, create and analyze content and audience reactions, increase followers, manage advertising, and put forth content that’s tailored to connect you with your target audience. Most firms will also provide monthly progress reports showing the results of their efforts to interact or engage with customers on your various social pages.

How Social Media Management Can Help Your Business

Social media is an ever-evolving force that is relevant to business growth, and if you don’t currently have someone managing your business’ social media, you could be missing out on tons of opportunities.

Regardless of business size and budget, social media is an effective tool to achieve business goals. Here are some of the ways that social media management can benefit your business.

  1. Drive Traffic to Your Site: Social media allows you an opportunity to post content and ads that drive traffic to your website. For example, if your website already has a blog section, then sharing those posts to your social channels could draw in new followers and traffic. Additionally, they can generate leads through advertising that direct users to a specific landing page on your website.
  2. Increase Sales: Social media is an important part of your sales funnel and provides an outlet for product search and e-commerce to thrive. Nearly 4 billion people are on social media as of January 2020, with numbers only expected to increase due to Covid-19. With the right strategy in place, you could reach tons of potential new customers.
  3. Build Brand Recognition: Your target audience is likely already using social media, so use these platforms as a way to humanize your brand and build brand awareness. Engage directly with your customers and followers and post content that is likely to be shared to reach potential new customers.
  4. Learn About Your Audience: Social media offers a unique chance to learn more about your customers, what they think, and what they want. Most social media networks offer analytics that can give you insights into the people interacting with your account, allowing you to better connect with customers.
  5. Advertising on Social Media: If you’ve ever used Google Ads you already know how costly that can be.  Social media platforms like LinkedIn, Facebook and Instagram, which is owned by Facebook, can drive traffic to your website for a fraction of the cost.  You can also use Facebook Pixel to track conversion or remarket to people that have already taken some action on your website.  Almost all platforms offer very powerful targeting and advertising programs.

Social media management is a useful and timely resource that can help businesses of every size reach their audience and make lasting connections that convert.  We’ve found that Real Estate Agents can benefit most by using Facebook, Instagram, LinkedIn and YouTube, but new platforms are constantly emerging like TikTok, which has been in the news lately.

About the Author

Kevin May is the President of LandHub.com, a national land listing firm that has embraced social media since their inception.  LandHub is an education partner of RLI and is currently offering discounted social media management services to their members. Kevin was recently featured on the RLI Voices of Land Podcast in a show titled How Agents Can Best Market Properties in the Digital Space. Kevin can be reached at KMay@LandHub.com.

rural home

What to Look for When Buying Land in the Age of COVID-19

COVID-19 real estate trends show an increased interest in owning land away from crowded cities. The pandemic’s effects on housing, work, and the economy have forced many people to reconsider their urban-centered lifestyles.

Suddenly, moving to a rural area looks very attractive from financial and health perspectives. Before investing in land, take time to consider the reasons for buying property, the type of property you would prefer, and how you plan to find the right location.

Types of Rural Land That Appeal to Today’s Buyers

Potential property owners have plenty of options when buying open space. Some rural land can even help people earn money. Consider some of these popular options before committing to land ownership.

Hobby Farm

Hobby Farm Land

Hobby farms give you acres of privacy. They can also give you opportunities to live off the land. An 800-square foot garden can provide nearly enough food for four people. You will still have to buy staples like flour and sugar, but you can get your main ingredients directly from your hobby farm.

If you discover that you like raising crops and animals, you can earn extra money from your hobby farm by selling items at local or regional farmers’ markets. Once you gain experience growing crops for your family, it might make sense to expand your garden to produce extra food that you can sell to people in nearby communities.

Timberland

Timberland can offset the cost of buying property. Shortly after purchasing the land, you can sell the timber rights to a company. The process will interfere with your enjoyment of the open space for a while, but you can use that time to transition from the city to your new community.

Make sure you consult an expert before signing over the rights to your timber. You should have a contract that clearly outlines the rights and responsibilities of everyone involved.

Recreational Land

Recreational land has features for activities like skiing, hunting, fishing, camping, and riding ATVs. You can improve your recreational property’s value by adding features like cabins, barns, ponds, trails, and docks.

Telecommuting as a result of COVID-19 may let you continue working your usual job to earn money. Your recreational land then because an additional source of revenue that you can use to improve the property, pay taxes, save for the future or purchase other properties in the area.

ranch real estate

Ranchette

You may have a stereotypical image in your mind when you think of ranches. When you explore your options, you will discover a wide range of ranch land. For example, you could choose a ranchette where you keep cattle in a confined area. Then again, you could buy a ranchette with enough room for cattle to wander the fields all day.

Ranchettes give you opportunities to earn extra money. You can charge local horse owners to use your barn stalls. You can sell the cattle to butchers. You could even open the ranchette on the weekends to let people meet the animals up close.

Rural Residential

A rural residential home can serve as your main or secondary house. Some people choose to live in cities for part of the year. Then, they move to their rural homes to escape the pressures of city life.

You probably won’t try to earn money from your rural home, but you can add features to make it more enjoyable. Consider getting animals and planting beautiful flowers. If you want to improve the property’s value, identify some features that need improvement. You could add thousands to the home’s value over one summer.

Keep in mind that rural homes require a lot of work. Avoid overly large places that you will struggle to maintain.

Contact a Land Consultant for Help Exploring Rural Land Ownership

As COVID-19 real estate trends encourage more people to leave urban spaces, rural land could become harder to find and more expensive. If you’re interested in buying rural land, start thinking about your wants and needs now. It will take time to find the perfect property. You will also need to spend time getting financing for the property, comparing insurance policies, and other necessary steps.

You can make the process much easier by getting help from an Accredited Land Consultant (ALC). Regional ALCs may already know a few properties that sound like good matches for you. They can also help you understand your financing, insurance, and development options. You don’t have to figure everything out on your own. You can get assistance from an experienced professional who has arranged hundreds of property transactions. For more information on recent COVID-19 land real estate trends, see our recent round table discussion.

Why the 1031 Exchange Should Not Be Eliminated

Internal Revenue Code Section 1031, which allows taxpayers to defer, not eliminate, payment of capital gains and recapture tax on the sale of property, has been in the Federal tax code for the past 100 years.  Despite this longevity, there have been numerous proposals from elected officials to remove Sec. 1031 in order to allegedly “close a tax loophole” or pay for another government program.  So far, in each of these instances, this battle-tested provision of the tax code has passed the challenge of scrutiny but only after lawmakers took the time to understand its full economic impacts. Section 1031 impacts liquidity throughout the real estate market, has revenue implications to the Treasury as a result of a slowdown in transaction volume, and has a general positive impact on the US economy as a whole.

New Studies Show Potential Detriment of Eliminating 1031 Exchange

In response to past attempts to eliminate the Section 1031, a coalition was formed by industry giants to educate Congress on the full Section 1031 impact.  Two separate impact studies were conducted: one by Ling & Petrova and one by Ernst & Young LLP.  As each study delineated the financial effect of limiting or eliminating of Section 1031, the numbers articulated what pages of political soundbites might not have.  Elected officials quickly came to the realization that not only was the cost of like-kind exchanges to the Treasury grossly overstated, but that an outright repeal would devastate several important industries, harm the economy as a whole, and in the end cost the government in the long run.

Both the Ling & Petrova and Ernst and Young studies address how Section 1031 creates liquidity throughout the real estate investment market, which provides incentives and support for real estate to achieve its highest and best use.  The transactional activity from trading out of yesterday’s real estate to a new piece of real estate to meet tomorrow’s needs is a catalyst for a stream of economic activity, creating jobs and taxable revenue for realtors, qualified intermediaries, title companies, escrow, insurers, lenders, contractors, inspectors, appraisers, building supply vendors, etc. and generates revenue for local and state governments through transfer taxes, permitting fees, and increased tax basis from upgraded buildings and improved communities.

The 1031 Exchange Stimulates Agriculture

In addition to these studies, it is well known that Sec. 1031 stimulates America’s vital agricultural sector.  Farmers and ranchers use Section 1031 to combine acreage or acquire higher grade land or otherwise improve the quality of their operations.  Retiring farmers can exchange their most valuable asset, their farm or ranch, for other real estate without diminishing the value of their life savings.

Section 1031 is also used to promote conservation and environmental policies.  Grants of conservation easements can be structured as tax-deferred exchanges, facilitating government and privately funded programs designed to improve water quality, reduce soil erosion, maintain wetlands and sustain critical wildlife habitat.  These exchanges also enable landowners to acquire replacement farm or ranchland in less environmentally sensitive locations.

Section 1031 is an important tool in the agricultural and commercial real estate market and must be retained.  It creates and preserves jobs and is used by a broad spectrum of taxpayers, from middle-class Americans, to small businesses and even large enterprises, to synergistically spur on our economy.

Key Findings from Ling & Petrova Study

  • Like-Kind Exchanges Encourage Investment: On average, taxpayers using a like-kind exchange invest approximately 33% more capital than non-like-exchange investors.
  • Like-Kind exchanges provide only temporary tax deferral: The overwhelming majority- 88 percent of real estate replacement properties acquired through a like-kind exchange are disposed through taxable sales, not subsequent like-kind exchanges.
  • Like-Kind Exchanges lead to job creation:  Real Estate acquired through a like-kind exchange is associated with greater investment in capital expenditures (i.e., job-creating property upgrades and improvements) than real estate acquired without the use of like-kind exchanges.

Key Findings from Ernst and Young Study

  • Repeal of 1031 would subject businesses to a higher tax burden on their transactions, resulting in a longer holding periods (the “lock-in” effect).
  • Repealing 1031 rules would slow economic growth, shrink investment and ultimately reduce gross domestic product.
  • The study concludes that repeal of the 1031 would adversely impact the U.S. economy by discouraging investment, causing a reduction in GDP, a contraction in the economy, and would unfairly burden certain industries and taxpayers.

About the Author

Daniel Wagner

Daniel Wagner is senior vice president of government relations for The Inland Real Estate Group of Companies, Inc.  He has been a licensed real estate broker since 2004 and holds Series 7 and 63 security licenses.

Wagner serves on numerous real estate industry, and governmental boards and committees.  He is a proud member of the REALTORS® Land Institute.

farmland for sale

COVID-19 Land Real Estate Trends: Update

A panel of Accredited Land Consultants and seasoned land professionals of the REALTORS® Land Institute (RLI) shed light on the impacts of the Coronavirus (COVID-19) outbreak on land values and land market trends across the country in a recent Virtual Round Table session. The panel, which consisted of expert land agents from across the country, mostly pointed towards a positive outlook for the land market despite volatility in other areas. 

COVID-19 land real estate trends are continually evolving. For the most up-to-date information on the land market in your area, contact a land agent near you. Opinions and advice expressed in this session are not necessarily endorsed by the REALTORS® Land Institute and information should not be construed as recommendations for any course of action regarding financial, legal, investment, real estate, or accounting matters without further consultation about your unique circumstances by a land expert in your market.

Rural & Suburban Residential Trends

Demand has been strong for housing in both the suburban and rural markets, which is impacting the vacant residential land currently on the market. Small-acreage parcels are being absorbed quickly across the country for custom homes, and large-acreage parcels being bought by builders and developers.

“With home builders still ramping back up after hitting the brakes earlier in the pandemic, and existing home inventory at just three months of supply, demand is far outpacing supply, putting upward pressure on pricing across the board.” -Matt Davis, ALC

Buyers are purchasing properties with record-low lending packages thanks to extremely low interest rates, and many banks are now offering excellent financing terms on vacant land. These conditions are creating a strong seller’s market on most land purchases priced under $1 million.

Regional Market Trends

The recreational market in the Rocky Mountains is the strongest it’s been in years.  Warm-weather states such as Texas, Arizona, Nevada, and California are huge feeder markets for high-country mountain properties. Since the majority of the occupants in these warm-weather states can now work from home, they’re choosing to leave these states and move to cooler climates.

COVID-19 land real estate trends show buyers in warm-weather climates seeking real estate in cooler-weather climates such as the Rocky Mountains.

COVID-19 land real estate trends show buyers in warm-weather climates seeking real estate in cooler-weather climates such as the Rocky Mountains.

In general, buyers are looking to relocate from the more populated cities across the U.S. into more rural areas of the country, such as Oklahoma. RLI agents in Oklahoma are currently experiencing delays in closings due to the appraisal industry being in high demand for new purchases across the state.

“The greatest impact in Montana has been on the high-end residential market in listings with more space and privacy.” -Trent Lister

The high-end real estate market ($2 million+) is in high demand in rural mountain towns such as Bozeman, MT. Buyers are looking to purchase quality homes on large-acreage parcels in search of the elbow room and privacy less often afforded by an urban lifestyle.

Navigate COVID-19 Land Real Estate Trends with an Accredited Land Consultant

If you are planning to buy or sell land, make sure to find an Accredited Land Consultant (ALC) to ensure you are working with an agent that has the expertise and experience to best handle your transaction. ALCs aren’t just land sales professionals: they are the most prestigious, the most experienced, and the highest performing land sales experts in their area. Achieving the ALC designation is not an easy feat. It can take years to complete the rigorous education program and establish a proven track record of transaction performance in land before an agent can qualify. It also requires a commitment to professional growth and conducting business with integrity.

Thank you to our panelists for offering their expertise in identifying COVID-19 land real estate trends:

Moderator | Eric Zellers, Ary Land Co | KW Advantage Land | Tulsa, OK
Development/Commercial Land | Matt Davis, ALC | Cushman & Wakefield | San Diego, CA
Agricultural Ranch Land | Clayton Pilgrim, ALC | Century 21 Harvey Properties | Paris, TX
Agricultural (Tillable) Farmland | Kyle Hansen, ALC, RLI 2020 National President | with Hertz Real Estate Services | Nevada, IA
Recreational Land | Justin Osborn, ALC, 2020 Future Leaders Committee Chair | The Wells Group Real Estate Brokerage | Durango, Colorado
Rural Residential Hobby Farm Land | Drew Ary, ALC | Ary Land Co / KW Advantage Land | Coweta, OK
Ranch and Rural Residential Land | Trent Lister | PureWest Real Estate | Bozeman, MT