Ask The Expert - Farmland Auctions vs. Listings?

by Farmland Network on 07-16-2012 04:51PM in

Welcome to Ask the Experts! We are excited to bring this new feature to the Farmland Network site and look forward to the sharing of information it will create. If you have a question for our panelist, send us an email.

 

Question #2 (July 2012)  How do know when it is best to put a farm out for sale as a listing or have an auction?  From Pat in IN

This is a terrific question, and is something that many potential farmland owners wrestle with when considering a farm sale.  There are many issues to consider when deciding the timing for the auction vs. listing question, and the answer is not always obvious.

As we all know, many factors that play in to determining the value of land including farm specific issues like location, the qualities of its soil types, drainage, and fertility – not to mention larger macro factors like market interest rates, regional crop success in any particular growing season, and of course underlying commodity prices.  But folks often overlook 2 other primary factors – the timing of a sale and the method of a sale (auction vs. listing). 

From a timing perspective, the majority of Midwestern land sales (listings and auctions) occur during the “off-season”… that is, September through March, when the issues of an existing lease and a growing crop are not in play.  Farmers are generally most “cash-flush” following each fall harvest – they know what they have in the bins, and they also know what underlying commodity prices are – so they are generally able to make intelligent land buying decisions during the “off-season”.  Non-farm investors, on the other hand, regularly seek quality land whenever it is available – and for an investor, being able to see a farm without a growing crop is important in making a buying decision.  That said, we have seen an increase in recent years in the number of farms that are selling during the growing season, and arrangements can be made to accommodate for selling during a growing season if an owner desires to sell a parcel during a mid-year timeframe. 

The wisdom in offering a farm with growing crops is always best made on a case-by-case basis, dependent on the particulars of the farm and local area.  In Illinois, we’ve seen an increase in mid-summer sales, which I believe can be attributed to demand outpacing  supply.  Why?  Over the past 3-5 years, we’ve simply seen fewer quality farms available for purchase… and when a tract of quality land does become available, potentially interested parties know that if they don’t participate in pursuing a tract, they often won’t have another opportunity for many years, or even another generation.  So demand in recent years has outpaced supply, and has allowed for successful mid-summer sales that may not have occurred as regularly 10 years ago.  But without question, most farms sell during the off-season, and I believe this will most often hold true.

And this leads us to the root question – how do you know when it is best to put a farm for sale as a listing or an auction?  Put simply, there’s no cookie-cutter timing or approach that will work every time, and each case will need to be evaluated on its own merits.  In the “big picture”, auctions can work well in an up-trending market with many interested buyers.  This has been the case in the Midwest in recent years, as we’ve experienced dramatic increases in land values from one year to the next.  On the other hand, in a weak area or in down-trending market, having an auction can be a mistake, and listing a farm can be the best decision.  In each case, you must understand local and regional conditions.  When my firm evaluates a potential land sale for a prospective client, we most often look at 3 primary factors when determining the ideal method and timing of sale.  These 3 factors include the desires of the owner, the features of the property in question, and local market conditions.  As a landowner considering a sale, it will help you to work with an experienced professional who regularly sells land by both methods, and who can give you an unbiased opinion as to which sale method is best (auction vs. listing).  And be careful… a service provider who only lists property for sale will normally say the listing method is superior, while a service provider who only offers auction services will often say auction is the best… so get someone who offers both services to evaluate your property.  Further, when it comes to both the timing and method of sale, you should ask for specific rationale and recommendations from a service provider.  For the majority of clients I’ve worked with over the years, selling their land has typically been a milestone event.  And in our business, there are no “do-overs”, so getting it right the first time is critical to maximizing the value of a piece of land.  In each case, an experienced professional with local market knowledge, can work with you to understand how your particular property “fits” in the local market, and can help guide you through the process.  And don’t be afraid to ask lots of basic questions.  Anyone who you might trust to handle a land sale, regardless of the method, should be willing to answer all your questions to the point that you have confidence in both their abilities, and any recommendations they may offer to you in your specific case. 

 

Douglas L. Hensley

-President & Managing Broker

==================================

Gorsuch-Hensley Real Estate & Auction, Inc.

1050 N. Main Street

Canton, IL 61520

309.647.8811 – Office

309.338.7174 – Mobile

www.gorsuch-hensley.com

1 Comments

Jenita on 09-19-2012
Why do I bother calling up poeple when I can just read this!

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