Steps to Take Before Selling Farmland
Your farm might be a legacy property – a way of life that has been passed down from one generation to the next for centuries. It might be something you ventured into more recently. Either way, if it’s come time to sell your vast expanse of workable land, there are some key things you should consider before you do. Hayden Outdoors Director of Sales John Herrity has some tips on the important steps to take before selling your farmland.
As a farm boy himself – John was raised on his family’s homesteaded farm in Elk Point, South Dakota before pursuing a career as a row crop farm appraiser, construction manager, fishing boat captain and real estate professional – his insight is particularly valuable.
“Farmland sales can be complex. There are so many considerations that go into properly valuing farmland, including soil type and rating, percent tillable, the current ownership model and accurately mapping the property. It’s important that sellers and their real estate team be very diligent in doing the work up front before listing the land.”
1. Determine the Ownership Model
Establishing how many people or entities currently own the land is a great place to start when it comes time to sell. Is this a family farm property with one name on the title, or do multiple people have a stake in the land? If there are multiple owners, is everyone on the same page in wanting to sell? Is there a power of attorney for the owner or ownership group? The ownership model will determine how easy or more complicated the sale will be, including how sale profits will be divided.
2. List all Debt, Liens, Easements & Encroachments
Owning the land free and clear is obviously the most straightforward way to sell it, however, farms are large, working entities that often require equipment loans and easements to keep them running. Talk with your real estate professional about any debt currently associated with the property, including liens on outbuildings or farm equipment. Easements are another important thing to consider. Because farms tend to be multiple acres in size, they often come with one or more easements to adjacent land that permit access for one property owner or another. Buyers will want a complete understanding of these easements before purchasing. Encroachments (features that wrongly extend onto your farm from a neighboring property, e.g. an old fence) can be another obstacle to selling farmland and, ideally, should be rectified before listing your property.
3. Map It Out
Let the Hayden Outdoors team create a land map that accurately shows every aspect of your property. Our agents and brokers are experts at MapRight, a dynamic land mapping software. These maps show property boundaries and easements, soil surveys, parcel data, GIS layers, buildings, fence lines, and more. A proper map is elemental for prospective buyers, and can also tell a farm’s history and story in a very visual way.
4. Establish the Soil Type Classification & Land Survey Comparables
While soil type and productivity is a pretty big and important piece of the farmland sale puzzle, it’s one that can also change from one producer to the next. This is the palette with which any future buyer will work to produce their own yield and establish their own style of farmland management. That’s why it’s important for your real estate professional to carefully consider your soil type. There are a variety of agencies, agriculture-based Universities, and websites that can help determine the value of your soil type by region. Once you and your real estate agent have established the value of your soil, they will help research comparables to give you a look at similar sales in the area. Pricing the property based on price per soils ratings relative to nearby farms is a good starting point to valuation. If you have recent appraisals that were done by a certified appraisal, these also can help determine a listing price and marketable value for your farm.
5. Understand the Tax Implications or Penalties of Selling Your Farmland
When it comes time to sell your farmland, John suggests talking with a CPA to discuss options with 1031 exchanges to see if this is a possibility for their sale.
“I coach clients to get good advice from their accountant. Establish what the basis of the land is. If you inherited the farm and it’s been in the family forever, it will have a much different basis and tax implications than a farm that was bought in the last ten or twenty years.”
Selling your farmland might seem like a daunting task, logistically, legally and emotionally. But with the right guidance and proper resources, it can be a very freeing and lucrative endeavor. The real estate professionals at Hayden Outdoors know the ins and outs of selling farmland in a way that benefits the seller, the buyer and the land itself. The team has been doing it for 45 years, and like John, many of Hayden Outdoors’ team members are also farmers and ranchers themselves. They’re happy to help you navigate the complexities of selling your farm. Give them a call today to learn more.
866-741-8323
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