The politics of farmland sales

By Vern McClelland

December 8, 2016 12:00 AM

It’s the time of year that farmland traditionally comes on the market in the midwest.
Why?
There can be several reasons for the season starting with harvest is usually over and farmers have time to think about the results of the year behind, and to start working on plans for the months ahead.
This may include reducing the size of the operation to prepare for retirement.
Non-farming land owners may be tired of dealing with tenants and look to liquidate their holdings for something more user-friendly, like a second home in a sunshine state or to assist an adult child with a home purchase.
Investor owners may simply want to take their capital out and reinvest it in something else.
Whatever the reason, Realtors who are known for their experience in rural property will often get invited for coffee at the kitchen or board room table.
I prefer to start with developing an opinion of value on the subject property as all land is not created equal.
This includes a site visit, research of municipal or provincial reports on the attributes of the soil at the location, satellite imagery to determine topographic features, and any other information that will provide insight on the utility of the land for what type of agricultural purpose.
Fundamentally the same approach we use with any property; what it’s highest and best use, as opposed to current use?
The farm may currently be seeded down to tame forage, but would it provide a better return as cropland or vice versa?
What improvements are in place, if any, that would contribute to its value in the eyes of a potential buyer?
Are there aspects that would be annoying when using today’s large equipment—stones, sloughs, trees, power poles?
Is there any revenue from petroleum or natural gas surface leases?
What about restrictions on use due to pipelines, water agency controls, and conservation agreements?
How good is the access to the property?
What’s the distance to the nearest grain terminal, machinery dealer, or similar service center?
And of course, what has land with similar attributes sold for in the area?
You need to compare apples to apples as there can be substantial variation in soil quality from one parcel to another.
All of this is why I hate being asked “What is an acre of farmland worth?”
This then takes us to the next question: what would be the best way to go to market with it?
There are four distinct methods in use with the first of course is private treaty.
The owner makes it known they want to sell and waits for the world to beat a path to their door.
The second is a live and/or online auction that requires potential bidders to make quick decisions that can cost them thousands of dollars.
This approach is often used in conjunction with the dispersal of the farm’s equipment or livestock to capture an appropriate audience.
Third is the sealed tender or closed bid process.
This method allows buyers to state what the land is worth to them.
It also provides an open opportunity for anyone to participate, but a buyer may only get one shot at the prize.
They also prefer there is some assurance of fair play so Realtors or lawyers are often used as facilitators instead of the owners receiving bids directly.
Sellers like the tender system for the privacy and flexibility it provides
More than once in my experience the highest bidder has not been successful due to personal relationships determined over decades of sharing a neighbourhood.
Fourth is to utilize the Multiple Listing Service or an Exclusive Brokerage contract.
This requires the seller to publicly state their asking price through a Realtor, then wait to see if someone will step up with an offer on which negotiations can occur.
Buyers like to know the seller’s expectations up front but if it’s seen as too high they are unlikely to even make an offer in order not to offend.
“Value it right and price it tight” is still a valid rule of thumb.
Too many times I have seen buyers wait too long to express their interest in a listed property and miss out.
One recent negotiation saw the seller come down 20 per cent, which is substantial in anybody’s book.
The converse can be true too.
If you know it’s a good deal and you have the wherewithal to get it done, then don’t hesitate.
As the old saying goes: The early bird gets the worm!
Vern McClelland is an associate broker with RE/MAX of Lloydminster. He can be reached at (780) 808-2700, through www.vernmcclelland.com or by following the Midwest Group Lloydminster on Facebook.

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