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Gathering and Verifying Comparable Sales for Rural Land

As a rural land appraiser, comparable sales are the “life blood” of my business. Of the three common methods for appraising – cost, income, and market data – I tend to use the market data approach the most often both as an appraiser and as a real estate broker. This method allows me to gather reliable and verified comparable sales which are both vital for pricing and appraising properties.  Here are a few ideas on how to do this in your rural land markets:

Sources for Comparable Sales

Networking with Market Participants

Talking with local market participants has proven to be the best way I have found to locate sales. Whether you are at the local restaurant eating lunch or at an agricultural trade show, you should always keep your “ears to the ground” for recent land sales. You may hear these sales in conversations with farmers, foresters, buyers, sellers, bankers or other individuals.  When you hear mention of a sale that you do not have in your database, be sure to listen closely and ask questions if the timing is right always being courteous of others’ time and privacy. If someone seems as if they don’t want to talk about the sale, respect that and try to do further research elsewhere such as utilizing probate records or having conversations with other brokers or appraisers involved.

Company Sales

My best sales are by far the ones where one of our company’s representatives (myself or another broker) is involved.  These internal transactions can almost always ensure that great data will be gathered to verify a sale considering that we should have all of the maps, closing statements, contact information and other necessary data readily available.

Multiple Listing System (MLS)

MLS is a great tool to utilize in your search for comparable sales in more populated areas (considering I appraise and sell land in rural south Alabama, I do not have the opportunity to utilize it often).  Further detail verification of the transaction and property will be necessary since MLS’s are geared towards Residential Real Estate but it’s an excellent “starting point,” if available.

Other Appraisers and Brokers

It is imperative to keep a good working relationship with appraisers and brokers in your market area if you want good data on comparable sales. I have made many great friendships by sharing and receiving comparable sales with other appraisers. I met several of these appraisers at various American Society of Farm Managers and Rural Appraisers (ASFMRA) events. After meeting other appraisers in my area, I always try to follow up by phone call or email to remind them to let me know if I can ever help them with comparable sales in my area. Many of these appraisers have sent work to me when they were either too busy or had a conflict of interest. “Friendly Competition” in the appraisal world is something that we must continue to work towards.

Verifying Comparable Sales

It is always best to speak with someone directly related to the transaction to verify a comparable sale. Of course, if you live in a “disclosure state” you can find items like: purchaser, seller, closing date, legal description and purchase price on the deed at the local probate office. However, in most cases there are other items that make up the purchase price that must be researched further. When verifying comparable sales, I almost always start at the probate office to verify that the sale actually closed, print a copy of the deed so that I have it for my records, and look up the property on the county tax map to verify its location. I will then try to contact someone directly involved with the transaction to determine items such as: improvements located on the sale and their contributory value, timber value, long term leases and their contributory value, equipment or livestock included with the purchase, just to name a few. I find it is most beneficial to speak with buyers, sellers, and agents involved with the transaction. More times than not there will be two sides to the story which you must reconcile to determine the true makeup of the items involved with the sale.

Comparable sales research is something that will make you a better real estate broker or appraiser. I believe you never can know “too much” about your local land market. Knowing your market will help you competitively price land which is ultimately helps it sell quicker, this “hands on” approach of digging through sales will likely introduce you to valuable market participants with great lead potential that you otherwise might not have met in your everyday professional life.

This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners. For more posts like this, click here.

About the author: Calvin Perryman, ALC, is an Associate Broker and Appraiser with Great Southern Land. Calvin is an active member of RLI, serving on the 2018 Future Leaders Committee and as the 2018 President of the RLI Alabama Chapter. He graduated from Auburn University with a Bachelor Degree in Agricultural Business and Economics in May of 2011. Shortly after graduating from Auburn he obtained his real estate license and has been in the real estate business since 2011.

Adding Recreational Value to your Property

The majority of the buyers in my market are typically looking for properties with two characteristics: timberland for an investment and hunting for recreation. However, there aren’t many properties that ideally fit both characteristics. Sometimes I scratch my head, wondering why there aren’t more people willing to play the role of a developer and convert timber tracts into recreational retreats for profit. While it’s rare for an established hunting retreat to hit the open market, the properties that do, usually justify their price premium and get purchased quickly.

Timber real estate investment trusts (REITs) and investors are realizing that recreational value on many properties is now exceeding the timber value, which in turn justifies selling the property for a substantial profit. While there are many different ways to add recreational value to a property, I’ve decided to focus on one particular property, as it’s a great example. The main goal behind the property is continuing to operate a pine plantation for investment purposes, however, have the means to hunt, fish, and enjoy the property recreationally year-round. Here are some ways this property was able to achieve this goal:

1. Created Food Plots

While it does take some time and money to prepare a food plot, the end result will benefit wildlife and keep them on your property.  This requires cutting timber, removing the stumps, liming and fertilizing the soil, and figuring out what and when to plant. The majority of these food plots are on the edges of hardwoods. This one, in particular, has been low fenced to keep the hogs out.

2. Built A Dove Field

Having a great dove field is a great way to host guests, family, and friends for entertainment. It’s a fun social event you can put on several times a year. This dove field has all the makings for being successful including a fake power line and trees for the birds to roost, water to drink, sand/gravel, and approximately 12 acres to plant.

3. Created A Duck Impoundment

Since this property sits along the eastern flyway, this duck impoundment is ideal to attract passing ducks. This impoundment is planted in June and the water level is manually controlled through a flashboard riser. The owners are able to enjoy it from early teal season in September, all the way to the end of the season in February.

4. Created Quail Habitat

This required thinning the trees back to 35-50 trees per acre. A skid steer with a grinder ate up a lot of the long-abandoned understory before Garlon (Triclopyr) was sprayed to prevent hardwood growth. These fields were burned using prescriptive fire in late February. Continuing to burn every one or two years will keep this stand clean and provide great habitat for all wildlife.

5. Building A Fishing Pond

This pond was started almost a year ago. The owners were able to reach a mutual agreement with a local contractor and the Department of Transportation. The agreement allows the two parties to have free rights to the dirt in order to finish converting a nearby roadway from two lanes into four. Once completed the landowners will have a 17.5 acre stocked pond to enjoy year-round fishing.

6. Starting A Garden

Establishing a garden requires a lot of work. However, it is very enjoyable to be able to eat what you have grown. This garden contains a mixture of fruit trees including blueberries, blackberries, peaches, limes, nectarines, oranges, apples, pears, and grapes. It also has a seasonal section that is currently planted in corn, squash, cucumbers, peppers, okra, bush beans, cantaloupes and watermelons.

While there are certainly several other recreational aspects to add to a property, I thought this property did a great job of highlighting many of them and a great example of maintaining a timber investment and year-round recreational enjoyment.

This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners. For more posts like this, click here.

About the Author: Tommy Stroud Jr., ALC, is a broker with National Land Realty Tommy has served on the REALTORS© Land Institute Future Leaders Committee since 2016. He holds the esteemed Accredited Land Consultant Designation (ALC) and has an active real estate license in the states of Georgia, Florida, and South Carolina. Tommy lives in St. Simons Island, GA with his wife and two children.

Hidden Talent: Property Value from Untapped Sources

Everyone has a hidden talent. For some, it is a performance skill such as singing or playing an instrument. For others, it’s a marketable skill like welding, baking, or artistry. And for many, it’s something simple but impressive – magic tricks, stunts, or the ability to cram 23 marshmallows into your mouth without choking. Whatever your particular talent, those who are meeting you for the first time can’t see that talent on the surface. You must spend time with someone and get to know them before unlocking what’s inside (People don’t cram marshmallows in their mouth for strangers). But these talents make people fun far beyond simple socialization. They make people unique and interesting.

Land is no different. And while I have never seen land sing or bake, I have seen many pieces of land with their own hidden talents, that is, attributes that make for hidden value sources for owners and sellers. Finding and taking advantage of these hidden talents can provide higher cash flow, a higher selling price, or even intrinsic benefits to landowners and sellers alike. Here are just a few examples of places to look for, and hopefully find, hidden value in you or your client’s property.

1. Mineral Rights

Oftentimes, people can’t see beyond, well, what they can see. What is contained below the surface is sometimes the most valuable part of the property. Mineral rights can be very lucrative depending on location or resource to be mined. This may be a value a buyer wants to tap right away or at some point in the future after an alternative use. For example, here in Florida there are pieces of land that are used for cattle grazing and then later for mining of phosphate. Still later, some of the phosphate land is reclaimed for reservoirs or even single-family homes. In a unique case, there is even a luxury golf course build on an old phosphate mine near Tampa (checkout streamsongresort.com. This may be one of the best examples of hidden value I’ve ever seen.) Mineral rights are tricky and investing in them somewhat speculative. But properly considered, their value is not to be dismissed. For a better understanding of mineral rights, try the RLI course on the subject.

2. Conservation Easements

This one gets a lot of debate. Some people would argue that this isn’t hidden value, as putting a conservation on your land restricts the use, therefore devaluing it. And while I don’t disagree that selling prices for encumbered land are necessarily lower than their unencumbered counterparts, the real question lies in property use. I’ve seen cattleman pursue easements that remove their development rights – but only on land their family has been running cattle on for 100 years that they would never think of selling. These easements include what are called “compatible use agreements” which allow them to continue running cattle at a reasonable volume. Money in their pockets, they continue to operate as they always have. It is important to understand not only your rights but also your obligations as the owner of easement land. But if those line up, the opportunity could be an attractive one.

3. Mulch

This is definitely a much smaller scale example but still worth mentioning. Do you have an area of trees on your property that you think is worthless? Hire someone to clear those trees and turn them into mulch. I have personally had clients who have collected thousands of dollars from just few acres of pine or cypress. You don’t have to have a section full of 15-year-old pines to realize value from trees. This is certainly not a good retirement plan. But for smaller areas with no real merchantable timber, mulching is an excellent option that will provide some income.

4. Leasing – Hunting, fishing, camping, ATV riding

Again, not a lottery ticket here, but you don’t always need thousands of acres to provide a recreational area for someone. I’ve seen people lease as little as 10 acres for people to ride ATVs or dirt bikes on and as little as 100 acres for people to hunt on. Usually, these are vacant land pieces within 30 min or so of a city for people to just enjoy the outdoors. Sometimes referred to as “play land”, pieces like these provide the city-dwellers an opportunity to get away, get dirty, and enjoy some fresh air. Some landowners even provide limited use of their land free of charge to non-profit organizations. Not only is this great community involvement, but could also provide an opportunity to deduct the fair market value of that use for tax purposes (Not offering tax advice. Consult your CPA J).

Whether your property can swish an over-the-shoulder 3-pointer or do a double back flip off the diving board, it’s got something valuable that isn’t obvious. Take some time to find that value for yourself or your client for maximum property benefit.

What? Oh, me?? I play the piano. Happy to bang out Don’t Stop Believin’ for you anytime.

This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners. For more posts like this, click here.

mcdow, calebAbout the author: Caleb McDow is a land specialist and vice president with Crosby & Associates, Inc. in Winter Haven, FL, with a Master of Science in Real Estate (MSRE) and is a licensed private pilot and drone operator. McDow joined the institute in 2014 as a Military Transition Program (MTP) member.  He serves on the Institute’s Future Leaders Committee and regularly blogs on real estate issues. Caleb McDow can be reached at 352-665-6648 or caleb@crosbydirt.com

Conservation and Land Real Estate

Conservation is by no means a new concept, but in the last several decades it has increased substantially as farmers have become more conscious of their impact on the environment. There are many different conservation practices being utilized today, and they work in different ways to control different potential problems such as erosion, chemical runoff, and retaining excess soil nutrients.  These practices increase sustainability, overall soil health, and improve water quality in local watersheds. Some of the most common practices associated with commodity crops are grass waterways, buffer strips, cover crops and land enrolled in the Conservation Reserve Program (CRP).

Grass Waterways

Grass waterways are a site-specific control measure implemented throughout a field, primarily on steeper parts of the field where water flow concentrates. These waterways are seeded to perennial grasses and farmed around, providing water a place to flow with continuous vegetation to hold the soil in place eliminating erosion on sensitive areas of the field. Waterways can vary in length, width, and are typically placed in between two hills or areas in a field with a high concentration of water flow during rain events.

Buffer Strips

Buffer strips are vegetative swaths placed along the edge of a field or surrounding a ditch or body of water. Buffer strips provide a “catch strip” for nutrients and soil particles as water runs off the field and before it enters a body of water. The vegetation slows the runoff, allowing time for soil and nutrients to settle in the ground where they can then be utilized by the plants inhabiting the buffer strip instead of running off into a neighboring water source.

Cover Crops

Cover crops are typically a hardy winter small grain crop that is seeded into a standing crop or seeded after harvest to provide vegetative cover over the winter months. Cover crops also uptake and hold excess nitrogen further preventing them from exiting the soil and entering a body of water. The benefits of cover crops include reduced erosion, increased organic matter, and reduced nitrates/excess nutrients from exiting the soil. Cover crops also increase soil tilth with their extensive root systems that move throughout the soil, creating pores for water and carbon dioxide to move freely. Common cover crops include oats, wheat, barley, and tillage radishes. Cover crops that are not killed by the cold will be planted into and then sprayed in the spring, blanketing the soil and increasing water retention.

Conservation Reserve Program (CRP)

CRP is an incentive-based government program administered by the United States Farm Service Agency. This program establishes a rental rate based off region and soil types and pays farmers for taking environmentally sensitive acres out of production while still generating revenue on those acres via government compensation. The acres are taken out of crop production and enrolled in a pre-approved program that locks the land in a contract and ensures it will stay seeded for a number of years. There are many different options for implemented practices such as seeding switch grass, prairie strips, and native grasses that protect soil and filter pollutants by plant absorption. In addition to their stewardship characteristics, they also provide excellent habitat for upland game, pollinators, and other forms of wildlife.

Conservation continues to grow in popularity throughout the agricultural community and more advanced programs continue to be developed to reduce our impact. Conservation improves our local and national ecosystems, supports premium appreciation, and is our responsibility as farmers and stewards to protect the land for the next generation to prosper.

This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners. For more posts like this, click here.

About the Author: Molly Zaver is the Vice President for the Peoples Company. She is a member of RLI’s Future Leaders Committee as well as the American Society of Farm Managers and Rural Appraisers.

The Characteristics & Attributes of Land

Unlike homes in certain residential developments across the country, no two parcels of land are the same in my mind.  Sure they may have similar views or produce a similar crop, but there are likely many different attributes that each property might have that are not visible from just a site visit online or from studying a map of the property.  In order to completely grasp these attributes to their fullest extent, there are a number of important questions that must be asked prior to making an investment in land.

Conservation Easements

Is the land encumbered with a conservation easement?  This should be one of the first questions asked when looking at land in my mind.  While some landowners may be looking to permanently conserve the land while getting a healthy tax benefit, others may want to have the opportunity to develop it at some point down the road.  I’ve seen lots of common sense conservation easements over the years that do not hinder the use of the land in a significant way, but I’ve also seen some bizarre conservation easements that can greatly affect the overall market value of a property.  Consider the long-term effects of a conservation easement and if they’re right for you and your heirs.

While most parcels of land do not have conservation easements, some might have rules, restrictions, or covenants that the owners must abide by.  It’s imperative that this be investigated so that you know what can actually be done on the property.

Hunting Properties

Buyers of hunting properties, especially in the West, often look at proximity to public land.  While many landowners consider it a luxury to border National Forest, a lot of recreational buyers consider it a negative if there is a public trailhead nearby.  The last thing any outdoorsman wants is to purchase a gorgeous high-country elk hunting property bordering the National Forest, just to the have the public legally walking on the other side of the fence in blaze orange come hunting season.

In states where public land is more rare, it’s quite common for a hunting buyer to look at smaller properties that are adjacent to large cattle ranches or large farms full of crops, as these will typically hold and attract a significant amount of wildlife.  If the neighboring properties are all 80 – 160 acre parcels with homes, then there is a very good chance the hunting opportunities will be very limited compared to if the neighboring properties are a peanut field on one side and a cattle ranch on the other.

Waterfront Properties

Avid fly fisherman will often look for two types of properties.  Those with deep enough pockets strive for acquiring a long stretch of river, often at least half a mile, to hold enough holes where they can fish without feeling pressured from neighbors both upstream and downstream.  Those looking for more affordable options will often look in ranch communities or platted subdivisions that offer fishing easements for its members or property owners.  These fishing easements can range from 1 – 6 miles of premium fishing habitat with very little pressure, as most property owners in these types of communities are typically absentee owners who have a primary residence is another state.

When purchasing waterfront land it’s important to obtain a floodplain map.  These can often be found through FEMA, but I encourage you to have the land surveyed so that you have the most up to date accurate elevations.  If you’re ever planning on building, be sure to do your proper due diligence and investigate insurance options prior to your purchase.  Flood insurance certainly isn’t cheap and it must be considered prior to purchasing land in low-lying valleys or along waterways.

Farmland

If farming is the primary purpose for a land purchase, knowing the soil type and the annual precipitation is going to be imperative.  If water rights are applicable, details of the water rights and the method of delivery for those water rights will be imperative to understand.  The length of the growing season and cuttings per year must be considered as well with farm ground.

Access

Access is another key component when comparing different parcels of land on the market.  While most properties around the United States have decent year round access, it is not unheard of for there to be no year-round access.  I’ve seen properties that can’t be accessed in the winter unless it’s via snowmobile, and I’ve seen properties that can’t be accessed after a heavy rain due to all the clay.  Vegetation and soil type can vary from region to region, and it’s important to know how those can affect the access during the different seasons of the year.  Along with access must come the conversation of access easements.  It’s certainly not ideal to cross a neighbor’s property to get to yours, so this also must be investigated if it does not appear that the property has direct access off of a road.

Utilities

Location of utilities and infrastructure should be a given when it comes to looking at land, especially residential home sites, but I’ve seen several buyers purchase land over the years because of a fabulous view it offered and didn’t give any consideration to the costs of pulling utilities to the property.  While solar has certainly gotten much more popular over the past few years, the majority of the public still desires to be tied into the electric grid.

Domestic water should certainly be another characteristic that buyers consider if they plan on living on the land.  If purchasing land in a rural area, it’s wise to talk to the neighboring landowners with improvements and see what the depth, yield, and quality of their water wells are.  (Some states have this information posted online on their Division of Water Resources website).  If you see a water trailer or a pickup truck parked next to their house with a portable cistern, this should be a red flag as it likely means they are literally hauling water for domestic use.

Residential

When dealing with residential homesites it’s important to consider the direction in which the land lays.  For example, a prime home site in the Rocky Mountains will often have good southern exposure for generating great natural light in the cold winter months.  On the other hand, a home site in the Texas Hill Country would ideally be more east facing and have a lot of mature trees on its western boundary, providing a good amount of afternoon shade over the home in the hot summer months.

Another question one should consider when looking at land is the long-term potential of that land generating an income.  There are a variety of ways to generate income from vacant land.  A few examples include the following:

  • Income from leasing the mineral rights
  • Income from leasing the pasture for grazing
  • Income from leasing the land for crop production
  • Income from leasing the water rights
  • Income from leasing the land for storage (RV’s, boats, etc…)
  • Income from leasing RV or tiny home sites
  • Income from leasing the land for wind turbines
  • Income from a hunting or fishing lease
  • Income from recreational activities (mountain biking, ATV-ing, etc…)
  • Income from harvesting timber

Wildfires

With the wildfires that unfortunately spread across many states this year, another important factor to consider when purchasing land is the likelihood of the land burning and the long-term effect it could have on the property.  Is the land a healthy forest with little undergrowth vegetation, or is it full of dead timber that is likely to go up in flames?  What are the neighboring properties like that border it?

Despite what many folks might think, selling and purchasing land is not an easy task.  I encourage you to do your proper due diligence and think about one of the most important attributes of all, and that is the family memories that land can offer for generations to come.  Whether it’s eating a meal from the family garden, watching a child harvest their first Thanksgiving turkey, or building a cabin next to the river, the right parcel of land can offer the opportunity to bring families together in a way that unfortunately far too few of people are truly experiencing these days.

This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners. For more posts like this, click here.

Justin Osborn is a licensed associate real estate broker with The Wells Group. He is a member of RLI’s Future Leaders Committee.

 

Handling Access Easements

So you get a call from Mr. Jones asking if you want to list his 500 acres. He tells you the property has a fully stocked 50 – acre lake that has been intensively managed for trophy bass; the property is dominated by beautiful mature hardwoods that have never been cut; there are over 75 acres of planted food plots for wildlife, also intensively managed; and the road system is extensive and   can be driven in a car. He goes on to say he wants to price it to sell fast, as he and his wife are getting too old to look after the property and are ready to move closer to their grandchildren.  You make an appointment to meet him tomorrow, to visit the tract, gather information, and do your due diligence. This potential dream listing in a great location that you know will sell quickly has you giddy with excitement!

Well, you meet Mr. Jones at the coffee shop. He jumps into your truck to ride with you to his property. After a short drive you pull up to the first gate and enter, then you go a little further and through another gate that is the entrance to his property. You enjoy your tour. The property is actually even better than he previously described. You know this will be an easy property to sell.

Then you ask him “Do you have deeded access from the paved county road to your gate?” and he answers “Well, no I don’t. Mr. Smith has always just allowed me to cross his property and we get along just fine.”

You now see your dream listing in a whole different light and it is not so good! Well, what do you do now?

Basically. you have four options.

OPTION 1- Accept the fact that you have a prescriptive easement to access the property and factor the price accordingly.

This option will pretty much limit your market to cash buyers only, as most lenders will not lend money to purchase property without deeded access. Another problem with this option is the unknown of what will happen when Mr. Smith is no longer the owner of the adjoining property being used for access. The new owner may not want you driving across his property.

OPTION 2 – Although in Alabama you cannot be landlocked, you still may have to go to court to gain some sort of access.

This will mean legal fees and other possible expenses, as well as, the court may only grant you an easement for ingress and egress (coming and going). The easement may be limited in width and not include utilities. This is a legal easement that the lenders will now finance, but the buyer may not be able to get power and public water to a home/cabin site.

OPTION 3 – Mr. Jones asks Mr. Smith to give him deeded access.

Mr. Jones can offer to pay for the survey and any other costs associated with having this agreement drawn up. This obviously is the best case scenario.

OPTION 4 – Mr. Jones offers to purchase deeded access to his property from Mr. Smith.

If you choose this option or option 3 be sure that the easement is wide enough (typically 45’-60’should suffice) and allows utilities. We recently helped a client purchase a 45’ easement for ingress, egress, and utilities that was ½ mile long, at a cost of $4,000.00. The value added to the property was far greater than the cost to purchase the easement.

So, there you have it, a quick summary on how to handle a fairly common easement issue. In closing, I have found that when you encounter potential problems like this, it is best to sit down face to face with the landowner that you are requesting the access easement from. Calmly go over the process, and explain why it is needed. Most people will respond much more positively to this type of meeting over a cup of coffee rather than getting a letter or email. You might be pleasantly surprised at the end result.

This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners. For more posts like this, click here.

About the Author: Eric Leisy, ALC, is an avid outdoors-man, freelance outdoor writer, REALTOR® & Land Specialist for Great Southern Land Co.

What Investors Want

Often times, investors looking to purchase farmland are looking for large, contiguous tracts with significant scale. Investors are not emotional and don’t have to buy the piece next door. They aren’t driving by the showplace farm their entire lives on the way to the co-op knowing they will do whatever it takes to buy that piece if it comes to the market. Investors typically are focused solely on the financial returns of the investment. Therefore, they are naturally more conservative than the farmer buyer, who may look at a potential transaction as a once-in-a-lifetime opportunity.

It’s important to know the various types of investors. A public REIT (real estate investment trust), family office (family-controlled investment group), intuitional investor, or land fund all bring different things to the table. Depending on where you are located, laws may not allow for corporate ownership of land. Understanding the investor’s structure and long-term goals are important.

Farmers looking to sell their land to an investor buyer are likely looking for a leaseback provision and, sometimes, a buyback provision as part of the sale agreement.  It can be tough for everyone to get what they want in this type of negotiation. Recognizing that the investor has the ability to look at land anywhere in the country is critically important.

You aren’t in the same negotiating position selling to an investor as you are selling to the neighboring farmer. It’s wise to help the investor structure the deal so it works for them, as well. This often means the purchase price and rent need to meet their return thresholds. If a seller wants to include things like a buyback provision, the investor generally will want some upside for including that provision.

In an ideal world, we would only sell farms to other farmers and we wouldn’t need investors. The current environment may make investors a key component to allow farmers to keep farming, and they can make great long-term partners for farmers wanting to expand acres and operation.

While a few investors make uninformed buying decisions, most are shrewd and sophisticated. They want to put together a fair arrangement with the farm operator. Being incredibly transparent is the key. Investors generally want a sustainable cash rent figure and can quickly see through inflated rents.

Negotiating these deals can be tough. Attempt to understand both the farmer and the investor’s point of view. If they can agree on a fair rent number that meets the investor’s return thresholds, you can usually put a deal together. This often translates into a lower sales price than the public auction might bring. Ultimately, the question farmer’s must ask themselves is, “Do I want to maximize the sales price or continue to rent the land back?”

This post is part of the 2018 Future Leaders Committee content generation initiative. The initiative is directed at further establishing RLI as “The Voice of Land” in the land real estate industry for land professionals and landowners. For more posts like this, click here.

About The Author

Steve Bruere, RLI Member, is the president of Peoples Company, an Iowa-based land brokerage with a diversified offering of land management, land appraisal, and land investment services in 20 states. He is also a member of RLI’s Future Leaders Committee