Considerations for the New Land Sales Year
Today is the first day of the year. ...At least the first day of the land sales year. Its not an official holiday, maybe not even recognized by many people, but at DreamDirt September 1st is a significant date.
September 1st is the tenancy termination notification deadline (for Iowa). Those committed to selling farmland in the Fall/Winter of 2020-2021 have most likely served a termination expiration notice to their tenants to begin to prepare for a sale. Some that intend to sell didn’t realize they had to serve a notice and felt that since they had an expiring rental contract nothing else was necessary. DreamDirt has exhausted every resource over the last 6 weeks getting the word out about the tenant termination notice deadline and hopefully we did a good job. Still others will end up in the situation to sell and don’t know it at this point. It will be dictated by a death, debt issues, change of heart, or bankers wanting clients to free up operating capital.
What are some of the aspects land owners need to think of during this new Land Sales Year? We've outlined the considerations we think are important!
Farm Tenant Considerations
Regardless of whether you have freed up the tenancy on your farm or not, you can still move forward with a sale. One sale will be different than the other in terms and conditions, and the bidders may have a slightly different farmer to investor ratio, but both kinds of farms will sell just fine.
Another aspect of the New Land Sales Year you should know is that while you may have prepared early with your tenancy notice, it doesn’t make sense to wait to contact us about marketing the farm. I say this mostly because we always prefer to get footage of farms in the late Summer or Fall with mature crops on them. The visuals captured are able to be much more desirable to buyers when the crops are still standing and we are able to present the farm in all its glory!
There is a lot of information floating around about the demand for farmland right now. Demand has been good, but there are some warning signs in demand for farmland. I’ve noticed that while we are still getting very good prices in the market, it takes a real dedicated effort from the real estate professional and a strong team to ensure farms are reaching the top of the market right now. Certainly low interest rates are helping but low commodity rates are putting pressure on demand for tillable farmland.
Could demand change? It sure could - and probably has been changing. I think with each sale of a farm, less money exists in the system to continue to sustain the higher prices absent some change in influence. However, it won’t change overnight and never does. Values of real estate tend to be a slow trend unless you look at very specific time periods like 2010-2013. Compare growth in the 1974-1980 period and what followed for the next decade. It took until 1999 to get back to where we were at in 1983 in land values. Ignoring this now could be dangerous financially. We are now 7 years into persistent low commodity prices but in a completely different financial and interest environment. Should this scare you as a seller? No, I don’t think so because we know where we are at today. We know the pattern.
The Two Things That Should Scare Land Sellers
#1: Choosing the right auctioneer. And #2: that we don’t have a crystal ball and can’t say exactly what will happen in the future.
Farm Auctioneer Considerations
Choosing the right auctioneer will make not just a difference but a significant difference. One thing 2020 brought about was online land auctions. We do both in-person and online auctions. We have been doing the online land actions for a decade now! Just a year ago, many of our peers were lashing out at us telling us online auctions were “foolish” or “killing the market” or “they will never catch on”. There were even time when these peers were writing blogs or doing Facebook Live’s about the dangers of moving farmland auctions online! We never understood because we were always exceeding the average land prices auction-after-online auction! When our online auctions were bringing more money and more dollars per CSR point and our sellers were over the moon happy, these statements proved to be just a touch of competition and perhaps a strong lack of knowledge.
Fast forward to the fall of 2020 in the COVID environment and all of a sudden auctioneers with no experience are offering online land auctions as an answer to limited gatherings. Quite frankly, most of them have zero experience with it and there have been some very notable failures and blunders. Online land auctions are run much differently than a live auction and auctioneers just don’t realize that until they get a few years experience conducting them this way. While what the public sees in our online auctions is virtually identical to possibly how others are running theirs, how its achieved is the difference of night and day. DreamDirt has sold hundreds of farms this way and was the first to the market with this method by a decade. If you don’t want to take chances with your money and the outcome contact one of our staff members who has the knowledge and experience to keep you safe and bring you an outcome that doesn’t ruin your financial life.
When its the new land sales year, how will you time your sale? Will timing even matter? This is a difficult question to answer without feeling like you are “fluffing” the issue because your farm is a valuable asset that will have many people that want to buy it. I have one recurring experience that I can speak to that I feel could be a part of your consideration on timing.
First let me say that farms sell every month of the year. There is no better time than the other, the timing just dictates your terms and conditions. That said, when you consider selling during the traditional “off crop season” I believe the best insurance is to go early. Notice I said “insurance” and not price. Its most likely that your farm will bring good money whenever its sold, but I think you can offer yourself some insurance against a poorer result by going sooner in that season.
Lets make up a number: say 500 farms will sell this off-crop season. Lets make up another number and say there are 1,500 bidders available. That said, supply and demand are ever changing and in this scenario you can see that as the first farm sells there are only 499 farms left and 1,499 bidders left in the market. At what point in that scenario do you want your farm to sell? Do you want to be in the front when there are more farms to come and more bidders available, or do you want be be toward the end when there are fewer farms and fewer bidders in that season? Does any of it matter? My answer is, "maybe" and "maybe not". I’ve heard too many people say to me, “Oh I just bought a farm and saw this farm come up for auction and I’d rather have bought this one.” Buyers can’t see into the future, therefore that is why I stand by my recommendation of selling as early as possible. I think you’d rather be the farm they bought! For what its worth, I think timing is a consideration in-season just from a supply and demand perspective.
Marketing Method Considerations
I talk a lot about auctions above but not every property or seller is right for an auction. That will need to be one of your first considerations as a land seller. How do you intend to offer the property? Our products and offerings are vastly different for each method and we do offer a wide array of choices.
Live in-person bidding usually accompanied by online bidding at the same time.
Online Simulcast Auctions
Live auctioneer but bidders are all bidding by computer.
Timed Online Auctions
Online only bidding with a countdown to when the bidding ends. This method has provided the best results for many property types.
Real Estate Listings
Conventional 'stick a sign in the ditch' and put a price on it.
Fast Cash Offers
A private method where we invite only known investors to make an offer on your property without any advertising or public knowledge.
Your circumstances will dictate which auction marketing method you use. If an auction is too scary for you, one of the other choices will be a better fit. I rarely recommend live in-person auctions anymore - not because they are not effective, but because our Timed Online Auctions are so effective and so much more efficient that sellers end up getting more money in the end if not from a better result than from savings on fees and commissions.
So Happy New Land Sales Year to all of you out there, whether you are buying or selling this season. We look forward to serving both of you with fair and honest land transactions. We are passionate about protecting our sellers' best interest and ensuring they have smart, experienced, and well-equipped agents on their side to guide them through the decision making process. At the same time, we are dedicated to bringing farms to the open market where everybody gets a chance to buy them and ensuring buyers participate in a fair and honest process that's easy to navigate.
Let's talk - we'd love to connect with you!