As harvest concludes, some landowners start to consider selling their farmland. Some will try to sell their land independently. Others will work with a real estate professional specialized in farmland to help make a smooth transaction. The following are tips for sellers whether they hire a real estate professional or sell themselves.
1. Gathering information is critical in making informed decisions. The first and most important information is ownership. Who is listed on the deed as the owner? Can you legally sell the property? Many times, heirs try to sell land and the deed filed at the courthouse shows the parents as the owners. Generally, this can be easily corrected with the help of legal counsel. Other times, ownership issues are more expensive to correct and may bring up other issues.
2. Discussing the sale of your land with a CPA is often a wise choice. A CPA should be able to help you understand the tax implications of a sale. Sometimes, due to tax reasons, some individuals exchange one property for another and avoid capital gains tax from a sale. This is called a 1031 tax exchange. For example, a landowner sells 80 acres in an urban area and exchanges it for 160 acres in a rural agricultural area. In this case the landowner has deferred capital gains taxes and doubled acreage.
3. Knowing recent comparable sales prices will be important when deciding upon your asking price. Working with a real estate professional can help you set the asking price. A seller could also have an appraisal of the land. It is recommended that a seller use an Accredited Rural Appraiser through the American Society of Farm Managers and Rural Appraisers (ASFMRA). One issue with setting the asking price at the appraisal value is when markets are rapidly moving up or down. Under these conditions, the asking price based upon the appraised value would be more or less than current market prices.
4. Remember, land is not equal in physical characteristics and it is important to know your farm’s characteristics compared to recent sales. It is important to know total acres, cultivatable acres, timber acres, pasture acres, pond sizes, etc. Other important characteristics may include irrigation. Many potential buyers will want to know when a well was installed, depth, pump size, casing size, and pumping capacity. Other important issues may include knowing the type, quantity, and value of timber on the property. A professional forester can evaluate your timber and give you an estimate on the type, quantity, and value.
5. Other important issues when selling include leases, fertility, yield history, environmental factors, drainage, potential property uses, restrictions to use, recreational uses, mineral rights, air rights, easements, property taxes, and any improvements such as precision leveling or tiling. Doing due diligence will make for a smooth transaction. If you do not have the time or experience, hiring a real estate professional specializing in farmland can save you headaches, maximize your farm’s market exposure through local, national, and international resources, and ensure you receive the highest price possible for your farmland.