An old friend, Jamie Jamison, from Dickerson, Maryland has a comment about the $55 million land sale in Illinois we talked about a few weeks ago.
“The price per is $6403.21 per ac. Is this a fair price, where in the state is this land, how much is tillable? If this land is in your great soil region of the state this sale is a big reduction from those $12000 highs. Where is the land, soil type etc. all come into play. Somehow the buyer has to pay for it. Can it be done farming? I hope so. But since I want to stay married, I won't be buying $55 million of land next to your farm.”
I can’t argue with your logic or priorities, Jamie. Please send me an address for your mug. Since the sale was an open auction, I think the price must be labeled as fair. A willing buyer and willing seller agreed to it in the presence of transparent alternatives. In fact, such a sale is the gold standard for fairness for appraisers and financial analysts. At that moment, for that property that price defined fairness in the land market.
Fair is a word laden with implications, most of which are non-economic. Moreover, like beauty, fairness is in the eye of the beholder. Does land have to pay for itself? Even that can be debated.
Some landowners use land as a store of value, a safe place to put wealth that can’t disappear in a corporate embezzlement, for example. For those buyers, return on investment is a lower priority than return of investment.
Jamie also brings up some of the many complications of determining fair land prices: location, soil types, local commodity markets and so on. How you value those attributes works into price expectations.
“Paying for itself” depends on what time period you assign. Maybe the price makes sense if you look at it over 50 years, instead of shorter term. What is fair is also affected by alternative investments. If other forms of wealth have tiny, or even negative returns, it wouldn’t take much farm income to say the price is fair.
My rule of thumb is none of us ever experiences a fair price for land. I have always paid an unfairly high price, while everybody else seems to get good deals at unfairly low prices.