Selling Farm Land

This may seem like a hypocritical blog posting coming from a REALTOR(R); however, I am also a farmer and I am often asked how much of my real estate business is composed of selling agricultural farm land. The answer to this question, in all honesty, is it is very little. In fact, less than five per cent of my business income is "farm land.”  There are several reasons for this, and that is what I am discussing today.

Just for a minute, let’s look at how an agricultural transaction happens without a licensed REALTOR(R) involved. For as long as I can remember, if you wanted to expand your land holding on the farm, you approached your neighbours first. You let them know your intention to expand your operation, and if they agreed to sell some land you negotiated a fair price directly, shook hands and took the details to your lawyer to write up. If they did not agree to sell, you only asked of them that they contact you in the future if they changed their mind and closed that informal agreement again with a hand shake.  Sure enough, five to 10 years later they would give you a call as per that conversation and you would be given a first right (assuming that is what they had promised to you) and would work at negotiating a price to take to your lawyer.

Is this an oversimplification? Not really. Farmers know what land is selling for in their area; probably more than REALTORS. It is in their nature to know exactly what everybody in the county sold their land for and have had several coffee shop debates around if the quality of the land was worth the purchase price, so who better would understand land values, soil characteristics, drainage, than a local farmer. So what do they need me as a REALTOR(R) for? To write it up. The lawyers will do that as there are no chattels. And let’s face it, if there are no gas/oil wells or yard sites, the chance of environmental issues (which, by the way, would also have been extensively discussed at the local coffee shop) and risks are minimal. Not to mention that you are selling land to a neighbour, so your word and reputation are guiding the transaction.

Farm land is geographic, so although there is a chance you may find a buyer online as an investor, however, it is not as likely as it would be marketing a house or commercial property. From an investment perspective, farmland does not really make sense if you run the numbers against the potential return on investment for equal cash investments in rental houses or commercial real estate. This again supports the fact that often land values paid by the purchaser are made based on how it fits into the puzzle of their individual operation and fixed expense structure.

I want to be perfectly clear that, for those of you in organized real estate who have made a living selling farm land, you should be commended on the value proposition you provide to your clients.  You have created a niche market that is one of the most challenging in the business and deserve proper recognition. I do see a role for organized real estate in agricultural transactions, and as the business of farming becomes more of a business and less of an emotional transaction, that role will grow. I also see the role of a REALTOR(R) in selling yard sites/acreages and land with oil and/or gas leases, etc. will also grow in risk management. A business in strictly agricultural land transactions takes a more clearly defined sales process than any other in real estate sales if you want to come out with "win-win" transactions.

The key to "win-win" transactions starts with clearly defined expectations of who potential buyers could be and how the seller feels about those buyers, which are conversations you must have with sellers during the listing. If it is just cold hard cash clients are looking for, discussions on how to maximize that in the marketing plan must be discussed and the potential repercussions with neighbours and surrounding farm operations.

If the goal is to find a buyer that may even be someone they had a "hand shake" in the past, however, you must carry out those wishes of the client prior to opening up the listing on MLS. This may require signing an exclusive listing for an initial listing time frame, then an MLS Agricultural Listing agreement after that time frame.

Why would someone with as much firsthand farming experience as me not deal more in agricultural transactions?  At this time I still feel that the simplicity of hand shake agreements is something so pure at the root of farming that I do not care to build my business in the middle of it.  As the complexity surrounding the business of farming increases along with the demand for land, I may take a neutral facilitator role or as an advisor in these transactions rather than as a direct hard sales person. The way I see it, most farmers know who is interested in their land and just want a buffer for the negotiations and a professional to handle the potential of multiple offers professionally while maximizing profits. This is a role that I am happy to fill.