Farmland: A Seller's Market?

August 7, 2017 06:19 AM
 
How Land Will Change Hands

The contiguous 48 states encompass about 911 million acres of farmland, and about 10.2%—or 93 million acres—is expected to be transferred between 2015 and 2019, according to USDA’s Economic Research Service.

Farmland sales in 2017 are happening in a definite seller’s market, according to Jim Rothermich, an Iowa real estate appraiser who diligently tracks all farmland sales in the Hawkeye State.

“There have not been any no-sales at auction for some time,” he says. “As I visit with realtors across the state, most of the prices exceeded expectations.”

Farmland Market Trends

A combination of factors are at play, Rothermich says. First is a pretty basic story of supply versus demand. The amount of farmland for sale is not just relatively low—it’s historically low and there’s a strong demand to buy.

“Several of the realtors I’ve talked to said this is the lowest amount of farmland for sale they’ve seen in their whole careers,” he says.

Could politics also be at play? Rothermich says that’s a distinct possibility. Rural America voted overwhelmingly for President Donald Trump (and polling from Farm Journal Media showed farmers preferred Trump by about 5-to-1 over Hillary Clinton).

“Optimism really went up after the election when it comes to buying land,” Rothermich says.

Trump has a chance to positively affect the agricultural industry in a number of ways, including reducing regulations, lowering taxes or even repealing the so-called death tax. These issues reflect promises he made on the campaign trail.

Additional optimism is fueled by relatively low interest rates, Rothermich adds. Changes, though, could lead to “softer” farmland markets.

“Investment land buyers could potentially exit the land market, as alternative investments will become more attractive,” he says. “Investor buyers have supported land markets because of the stability and security of owning land, and have been satisfied with the minimal yields on their money.”

Time to Sell?

If these positive market signals are causing you to consider selling a parcel of farmland, remember you can influence the price. Mark Gannon, owner of Gannon Real Estate & Consulting in Ames, Iowa, has developed a checklist of red flags that could potentially limit sales price and buyer interest if not addressed. He suggests starting with well-documented records.

“Lack of verifiable yield and fertility data to prove the productive ability and maintenance of the land is problematic,” he notes. “No tile maps are equivalent to not having tile, or they are assumed to be old tile that needs to be replaced.”

Also, make sure non-crop areas are clean from brush, old machinery and debris, Gannon recommends. Plug and remove wells no longer in use. Watch for obvious erosion or other factors that buyers might factor into their purchase considerations.

“Pride of ownership is obvious, and most people don’t like buying projects,” he says. “Farm buyers will discount any property they feel needs immediate attention. It’s usually an accurate assumption that appearance of the property reflects the land’s fertility and productivity.”

Additionally, with the advent of Google Earth, “there is no hiding anymore,” Gannon says. Prospective buyers can access aerial photos of farmland as far back as 1994. Buyers also have access to aerial maps showing crop stress throughout the year.

“Some buyers will walk away looking for a farm that is better maintained,” he says.

 

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