Methods for selling farmland
In today’s technologically advanced world, there are so many options and opinions available that people believe selling a farm should be easy. With that being said, many also believe that its possible to avoid paying any commission to an agent or auctioneer by opting for the "Farmland For Sale By Owner" (FFSBO) method. More specifically, this is the process of the seller offering their farm directly to the public and advertising it for sale.
Now, I'm sure it It seems like an effortless process for the seller to create some social media posts, Craigslist ads, and maybe a few local newspaper ads to attract a buyer, receive an offer, close and pocket all of the money. I'll be honest, some people are successful in doing this; nonetheless, the vast majority are not. In fact, as an auctioneer or land broker, taking on a property that was previously FFSBO can be just a little scary for us depending on how it was conducted!
For example, several years ago DreamDirt was hired on for a pair of farms to sell by auction. These were nice farms in a rather competitive neighborhood. The seller had been offering them for sale for almost seven months without a successful transaction. As we jumped in, we quickly noticed the negative attitude toward the farms and the seller. We were told things like, “Tell them they can keep their farms” or, “Good luck getting what they want for them”. Some of the comments were even less pleasant than that. We soon learned that the sellers had already negotiated with everybody locally that was interested, and eventually upset every single one of them due to their lack of expertise in farm sale strategy. In turn, we had little response from our advertising, so we had to do what good salesmen do: start knocking on doors. Truthfully, we were impressed with the number of people they had already negotiated with. We learned the sellers had sent out a letter to a fairly large audience, run local newspaper ads, posted it to Facebook and even hung copies of the letter they mailed out in local establishments.
In the end, we were able to get things smoothed over with several of the best prospects before the auction and have a successful auction for the sellers. But was it as successful as it could have been? We’ll never know because you can’t do it both ways and compare.
A FFSBO can be successful, and could possibly be the best option for your farm. Our goal at DreamDirt is to be an honest resource for farmland owners. From our years of experience, we've compiled a handful of tips to help those who elect to utilize the "Farmland For Sale By Owner" method! Read on to learn how to conduct a successful FFSBO!
Tips for selling farmland by owner
1. Have a realistic price and don’t overprice the farm.
Overpricing your farm is the most dangerous thing you can do. If you don’t know the value of real estate, you are never going to get more than its worth. If you try to overprice, it can cause permanent damage that’s irreversible. Not only will will you lose buyers, but also time, effort and money. The best way to avoid this is by getting an appraisal that is supported by solid data.
It's important to realize the difference between an appraised price and market value. At DreamDirt, we often exceed the appraised value when selling with a cooperative seller at auction. We’ve also seen the situation when an appraisal was substantially higher than the sale price which is often caused by two issues: Either a seller that tries to micromanage the process or the appraiser was just wrong and/ or missed issues relating to value.
It is a fact that appraisers and brokers can not measure or anticipate some things that affect value of farm and land real estate. It’s actually easier for us to calculate the “bottom” or "minimum expected value" based on comparable sales than it is to calculate the “top” of the market. To learn more about our Market Analysis process, or even request a free valuation of your land, CLICK HERE.
2. Don’t play games in the process.
The tried and true “we have another buyer that offered $X" is tempting, but in the long run you’ll find it is ineffective. When your bluff is called, you’ll be standing there without any buyer. Unfortunately, this pressure tactic will turn off farmland buyers faster than anything. It's in your best interest to opt for an open, fair, and transparent process.
3. Create a process that has a defined timeline.
In real estate marketing, we call this “a campaign”. In a campaign we do things step by step. A logical process is:
- Research (Get solid information before Advertising)
- Advertising (Continuous)
- Exposure (Allow 2-3 weeks for this)
- Offers and Consideration
- Acceptance and Contract
- Closing and Settlement
4. Selling by owner has a lot of legal considerations.
If you are not going to use an agent or an auctioneer, you really should be getting good legal advice from an attorney. However, not all attorney’s understand selling farmland as well as they could. An attorney that specializes in real estate or farmland may serve you best.
The other option to consider is to hire a professional and licensed farm real estate agent. We have been trained and certified in the farm selling processes and laws. An agent can help navigate the negotiations, marketing, and legalities required to sell a farm successfully. Selling a farm can be one of life's biggest decisions - by hiring a professional, you can ensure it's sold right.
Farmland Buyers Can Eat You Alive
Being auctioneers, we don’t get too much of a front seat to the process of farmland being sold by owners. Given they have chosen not to use an agent, we often interact with those people almost only after they were not successful or created a mess they can’t fix. So, there are some things you should know about buyers that are most likely to get you and your sale in trouble.
1. Bait and Switch.
A "bait and switch" buyer starts with an offer that is higher in price to get you on the fast track towards a contract with them. This most often occurs when the potential buyer realizes you are not being represented, thus labeling you as an "amateur", comparatively. Once you have neared the end and its almost closing time, comes the news.
"My banker won’t give me that much money, I have to reduce my offer” or “I’ve come to find the farm actually needs more work than I anticipated, I have to reduce my offer to compensate for the necessary expenses”.
These statements are all from real-life examples we’ve seen before! This results in multiple difficult decisions for the seller. Some are trapped at that point and have no choice but to take the reduced amount. Some are plain worn out from the process and don’t have it in them to start over so they take the reduced price. Occasionally we end up with helping them with the sale when a strong-willed seller won’t give in.. although it's less often than you’d think.
2. Price of the farm.
It's easy for buyers to disguise their offer as higher than it really is, which stems from the number of acres offered. Actually, this is a fairly common issue that’s easily played off as a miscommunication. Acreage figures for farms can be expressed as net, taxable, gross or tillable. I’ve learned that most sellers will refer to their farm by gross acres, but a majority of buyers want to purchase based on tillable acres. The seller is using the total number of acres but the buyer is using the lowest number of acres. No matter what the offer comes in the form of a “per acre” offer.
Let’s say a buyer offers you $5,000 per acre. You find that to be an respectable offer, so you accept. You go through the process to get the paperwork going and all of a sudden the buyer says, “Well, I was offering based on the tillable acres”. Therefore, it’s always best to only consider offers in whole dollar amounts, and not on a per acre basis, when dealing with private offers. If you have 120 acres and you want $5,000 per acre, advertise the farm for $600,000 so there is no chance of confusion or miscommunication.
Contingencies can be a rathole that buyers use to protect themselves and ultimately relieve them from a contract. Financing contingencies are a simple way to back out of a purchase agreement and inspection contingencies create an opportunity for buyers to argue for price reduction. The more clean and contingent-free your agreement is, the smoother the process will be for you. One of the greatest benefits of an auction is they are contingency free thus we are able to ensure buyers are held to the contract with no escape route or wiggle room!
An experienced, or well-versed, buyer can work a seller into a position to pay unnecessary expenses. One of the biggest expenses is a survey, which is rarely ever a necessity for selling a farm; however, many people believe its a requirement and is almost always the seller’s expense. Other expenses sellers may incur are closing costs, repairs, or title insurance.
When faced with the prospect of paying expenses, you should question whether its necessary and if it should be the buyers, or sellers, expense. Anything that is required to sell the farm is typically the seller’s expense such as abstracting, deed preparation, settlement, property taxes and survey work when necessary. Expenses for buying the farm are the buyers' which can include mortgage expenses, any additional insurance they may choose and title examinations and opinions. In some cases, buyer and sellers split the cost of title insurance and closing agents in land transactions.
No conversation about selling real estate by the owner would be complete without the discussion of commissions. I'd like to preface this by saying I am not against you selling your own real estate, I am not anti-FFSBO. Nevertheless, I believe our team can provide a better outcome from our auction services. Bottom line, I believe we all should have the opportunity to represent ourselves and dispose of our assets as we see fit.
When the time comes to sell your farm
Move slowly! If the buyer is there today, they will still be there tomorrow - even if they threaten they will not be! Back up, get the right advice, do your research and consider your options. There are plenty of buyers, so don’t be afraid to let a low-ball buyer walk away. You might be subjected to pressure tactics with a statement like “I need you to make a decision today because there is an auction tomorrow. If I can’t buy your farm, I’m going to go bid on that farm”. That’s common, it’s a pressure tactic, and as a FFSBO you have to make a decision. Don’t be afraid to let them walk and call their bluff if you want to continue to negotiate!
Not sure FFSBO is the right option for you? Reach out! We're here to give you advice, no matter your decision. A phone call could answer your crucial questions and get you started on the right foot to a successful sale. Fill out the form below to request a FREE market analysis or consultation!