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.

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  1. […] This post is part two of a two-part article from LandGate. It originally appeared in the Winter 2021 issue of Terra Firma magazine. Click here to read part one. […]

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