What is a Sale Leaseback?

By | General, Owning & Selling Farm Land

There are many reasons why ag land is sold, and there are many different methods it can be sold by. A rising trend among farm land sales in the recent past has been something commonly referred to as a Sale Leaseback. You may have heard the term before, but I still find some people aren’t all that familiar with how they work. Here is a good example of what they are and how they work:

  • For various reasons, fictional owner “Valley Dirt Farms” needs to sell some land but does not want to give up farming the acres.
  • For many years they have owned and farmed a quarter of land that is a solid producing parcel that they would prefer to keep farming, and they could justify paying a strong rent to do so.
  • They decide to sell this quarter but only on the condition they are able to lease it back from the new buyer (hence the “leaseback” portion of the sale). Valley Dirt Farms is willing to offer a multi-year rental agreement at a good cash rent price.
  • The land is marketed with this condition and a focus on the returns that a potential buyer could achieve. Naturally, this marketing focuses on the Investor category of buyers, not the owner/operators who still tend to dominate the land buying market.
  • Once a buyer/investor steps forward and final terms are negotiated, a long-term lease is usually signed at or near closing that provides A) the seller with the opportunity to continue to farm the land, and B) the buyer with the income and return they were interested in. Win-win!

We have handled multiple Sale Leasebacks here and have found great success in marketing to this category of buyers with our deep network of regional and national investors. If you have interest in exploring your own Sale Leaseback (on the buy OR sell side), please do not hesitate to contact us!

Until next time!

Andy

 

New Listing Alert! Cass County, Stanley Township Land

By | New Listings

The Ag Land Sales & Auction team at Goldmark Commercial Real Estate is proud to present two excellent tracts of contiguous farm land with GREAT future development potential for sale. The property is just off a future I-29 interchange and north of 76th Ave, putting this farm land squarely in the growth path of South Fargo. We’ve helped numerous people buy and sell land in this area recently. Existing leases on the land will ensure income before the land is eventually developed. This land will eventually include both commercial and residential zoning opportunities and is priced to sell!

You can read more about the land here. If you have any questions or interest, please do not hesitate to contact us!

Until next time!

Andy

SOLD! Recent transactions, June 2018

By | SOLD! Recent sales

Another “Closing Day” to report! Earlier this morning Goldmark’s Ag Land Sales & Auction team was proud to help clients close on two pieces of great farm land in Wilkin County, MN! One parcel was listed for sale while another in close proximity was a private sale, proving that multiple methods can be used to achieve the same result! More info about these great parcels can be found below. Contact us if you would like help in selling or buying land in the Southern Red River Valley as well!

Wolverton Township, Wilkin County
Deerhorn Township, Wilkin County

Until next time!

Andy Westby

What is a BPO?

By | Ag Land Values, General

The question of “how much is my land worth” is common for landowners who may not be in touch with the current market activity or those who perhaps live out of state and therefore get out of touch with what’s going on locally. Nearly everyone is familiar with using an appraisal to get an independent, expert opinion on the value of a property. However, most people are NOT as familiar with another method commonly referred to as a BPO, or “Broker’s Price Opinion.”

BPO’s have been around for a long time and banks have routinely used them for different purposes depending on the project or loan size, but yet many landowners I talk with are not familiar with them or the benefits they offer. So let me explain what a BPO is in general terms:

  • A BPO is usually a formal report that any qualified real estate agent or broker can do for you.
  • A good ag land BPO should provide a description and overview of the subject property, with things such as soil maps, aerial maps, and “boots on the ground” pictures.
  • The BPO should also identify a number of recent sales in close proximity and/or in similar characteristic to the subject property.
  • Based on these recent sales and the author’s experience in the market, the report should give you a strong opinion on the value (or value range) of the subject property.
  • They are generally much shorter than a full appraisal, which means two important things: 1) they can be completed within 1-2 weeks typically, and B) they are much less costly than a full appraisal.

BPO’s have been used in the past to help buyer’s and seller’s arrive at a fair price, to help families make an informed decision if now is a good time to sell or to hold, to help establish a basis for inheritance purposes, and much more. If you are interested in learning more about this or want a BPO done for your land in the Southern Red River Valley, please do not hesitate to contact us!

Until next time!

Andy

 

New Listing Alert! Wilkin County farmland with leaseback

By | New Listings

The Ag Land Sales & Auction team at Goldmark Commercial Real Estate is proud to present this excellent tract of farm land for sale. The current owner desires to lease back the property at a very strong rent for a multi-year period with strong returns. The property is just 1½ miles south of County Road 50 near Wolverton, MN and the Clay County/Wilkin County line. With a strong soil productivity index, excellent historical yields, and good drainage, this is a great opportunity to own quality Red River Valley farm land!

You can read more about the land here, but in summary this property can offer 4%+ returns which is hard to achieve in today’s environment. If you have any questions or interest, please do not hesitate to contact us!

 

How Farmer’s Can Pencil High Priced Land

By | Ag Land Values, General

In the past couple of years, it has been a question I have heard routinely from people not connected directly to Ag but who are familiar enough with what has happened in the farm economy the last few years. The question goes something like this: How in the WORLD are farmer’s still paying that kind of money for farmland! I always enjoy this question as it’s a great opportunity to educate people and dispel some myths about ag land and the farm economy. Well the good people over at www.agriculture.com recently posted a new article that tackles this same question. Have a read yourself here: https://www.agriculture.com/farm-management/farm-land/how-are-farmers-affording-high-land-prices

While this area of the Southern Red River Valley doesn’t see the same prices mentioned in the article from places like Iowa, we still see strong prices for good land that make some people scratch their head. To summarize the article, here are the key reasons we continue to see good prices for strong farm land:

  1. For many, buying farmland is hard to pencil they day you buy it, but buyers are typically buying it for multiple generations. Over time, land investments have usually paid off and been a huge source of a farmer’s net-worth and future income when the time comes to stop farming it and start renting it.
  2. Farmers can often-times dollar-cost-average their investment in new land. Many farmers have owned land that was purchased decades ago for a few hundred dollars an acre. Paying a strong price today is easier when you can dollar-cost-average your total land investments across low-basis land with higher-value land.
  3. We are seeing more investors interested in ag land with prices having fallen since the highs of 2012/2013. Investors can tend to push the market a bit which can lead to rising prices.
  4. I will add one more item the article didn’t address. While the farm economy has struggled along the past few years, the top 20% of producers out there are still incredibly well positioned to capitalize on the land market when the right parcels come up for sale. Strong land will always bring strong prices, and there are still excellent operators out there with dry powder just waiting for the right opportunities.

Until next time!

Andy

Recent 2018 Sales in the Red River Valley

By | Ag Land Values

Just a quick update on some of the recent activity here on the North Dakota side of the southern Red River Valley! January and February had quite a bit more sales volume in Cass County this year compared to last. By our count, almost 2000 acres have already traded hands in “arms-length” deals so far in Cass. I’m not sure this pace of volume will continue, but it certainly bodes well for hungry land buyers that more land seems to be moving compared to last year.

In Cass County, just over a dozen sales (some with the same sellers doing multiple deals) have been recorded with an average price per acre of around $4,200/acre. That’s lower than the average we saw county-wide in 2017, but the quality of the land that sold in January and February was also a bit lower than average (more Drift Prairie dirt on the western edge). There have still been some strong sales in the bunch for the Red River Valley soils though, so it seems the market is still pretty strong.

Richland County on the other hand has been pretty slow overall to start the year compared to Cass, but that isn’t abnormal for Richland where the volume of sales generally isn’t as high. Just 2 arms-length deals by our count, with prices right above their recent average in terms of $/acre.

If you want more details or to talk about buying or selling farm land in our area, feel free to contact us anytime! Until next time,

Andy

What Drives Ag Land Values? Part 4

By | Ag Land Values

There is a common saying in selling real estate (well, selling anything really) that goes something like this:

“Something is only worth what someone else is willing to pay for it at the time you wish to sell it.”

There is a lot of truth to that, but of course MANY factors will ultimately drive what that price will be that someone else is willing to pay. In this multi-part blog series, we’ll cover some of the largest drivers of ag land values. We’ll also provide some context to our local Southern Red River Valley land market and how it relates to these factors. Let’s continue!

Read Part 1: Soils
Read Part 2: Drainage
Read Part 3: Size & Shape

Part 4: Status of the Market

This one seems obvious but it is worth discussing. Like any market, the ag land market goes in swings. Land prices go up, and land prices go down.  The extent to which those swings occur can change gradually or quite rapidly. The changes in the market are generally driven by global (macro) and local (micro) forces. Some of these forces have a slower, lagging effect while others can lead to quicker turns in the land value market. It is important for sellers to understand what type of a market they are in when they are ready to sell, as it may have an impact in either how the land is sold or even in their decision to sell at all. First, let’s cover some of the primary macro and micro forces that impact ag land values:

GLOBAL/MACRO FORCES

  • Commodity prices: The price of the products we produce here in the Red River Valley of North Dakota and Minnesota can have a large impact on ag land prices. Commodity prices on their own have a HUGE number of factors that influence them of course, but it’s easy to understand why when times are good and prices are high, land values rise. When times are tougher, and there is no question that right now we are in one of those periods, land values will fall.
  • Interest rates: As rates go up (which is the recent trend), prices tend to go down because as the cost of capital to finance land increases, it becomes more expensive to buy land. To a smaller degree, it also causes investors to lose interest because higher interest rates tend to increase returns on other investments that make farm land less attractive to them.
  • National/Global Policy: Policy decisions or regulations at the national or even global stage can have impacts in agriculture that can lead to changes in ag land values. Global trade ties into this as well as the easier or harder it is to move product around the globe, you could see eventual changes to land values.
  • Demand & Consumption: If worldwide demand and consumption for the products we produce increases or decreases, those shifts will impact the entire ag sector. Naturally that will eventually have an impact on the value of the land raising those products.

LOCAL/MICRO FORCES:

  • Taxes: Are taxes for farm land high, are they low, are they increasing, or are they decreasing? Taxes can play a large part for some buyers in how much they will value the land (especially the investor buyer). For example, currently taxes on the Minnesota side of the Red River can be quite a bit higher than the North Dakota side. Investors may not be able to get a high enough rent to cover the difference in taxes, so they will likely value the Minnesota land lower than the same type of ground just across the river.
  • Weather/Water: If you are in an area with prolonged droughts or persistent flooding, the value of your land could be weighed down as a result. Weather can also be a MACRO force if there is widespread disasters in other countries or areas which may lead to crop shortages, although these isolated types of events do not have a big impact on farm land values.
  • Future development potential: Does your farm land sit in close proximity from a major city or growing community, and if so is the growth path headed your way? If so, your land value will be higher than farm land well outside the path of the city, sometimes by a factor of 2 to 5 times as much as traditional farm land.
  • Market Influencers: This one is a bit broad, but locally there are always some miscellaneous factors that can heavily influence the value of land. For example, there may be one or two VERY aggressive, well-heeled buyers in the local market trying to buy up land, and driving up prices. Or perhaps there is a buyer that others in the local market want to keep OUT so they will bid up land just to keep it out of their hands. Maybe your market has a higher than average number of investors or people with 1031 money, which puts more upward pressure on land prices as well.

Of course there are many other global and local factors that can impact the value of ag land, and some of them are changing rapidly. How quickly land values adjust to these influences can vary widely, but we know with time these forces and more will drive values higher or lower.

Commodity prices have been low for some time which has been a big reason for the decline in ag land values since their highs in 2012/2013. As farm land values have dropped, so too has the sales volume of land. It stands to reason that as land values go lower, owners tend to hang on longer hoping the prices rebound and they can capture a higher profit. While the supply of available farm land has been lower in recent years in the Red River Valley, demand still seems to be pretty strong which has helped prices from declining further it seems. In the local market TODAY, we see ag land values holding fairly steady and maybe even increasing in some areas, such as Cass County (read more about what land values did there in 2017).

Only time will tell if the current market forces will lead land higher or lower, but we still believe now is a good time for both buyers and sellers of farm land in the Valley. Feel free to contact us if you agree and could use some help!

Until next time,

Andy

Part 1: Soils
Part 2: Drainage
Part 3: Size & Shape

2017 Ag Land Values – Cass County

By | Ag Land Values

With 2017 now firmly in the rear-view mirror, I figured it was time to provide some commentary and concrete data on what ag land values did last year in the Southern Red River Valley of North Dakota and Minnesota. Many of you may have read recent articles in the Fargo Forum that provided some farmland values across ND (link here) and MN (link here). There is some good data and research here, but we are a bit biased to our own information! Here at Goldmark we also track ag land sales extremely closely and with great frequency. We work hard to eliminate transactions from our data that are not “arms length,” which means eliminating family deals or other transactions that had circumstances causing the price to be out of the market. This process gives us a very strong pulse on the market, and since we’ve been doing this for over 6 years now, we can easily identify trends and inform our clients about what is happening (or has happened) in the local land markets.

With all that said, here is Part 1 of our series on 2017 Ag Land values. In this post, we’ll start with some highlights for Cass County, North Dakota:

  • Since 2012 (when we started tracking detailed ag land sales data), 2017 was the lowest volume year in terms of total acres sold and number of transactions in Cass County. This isn’t too shocking because when land markets see yearly declines in value (which we have seen since 2012/2013), less land tends to sell as owners hang tighter waiting for prices to rebound. Will 2018 see the market loosen up a bit? Many think so.
  • So just how much did things tighten up? Well, when eliminating deals that were not “arms length”, we count 34 unique transactions in 2017 for a total 4,718 acres. This compares to 50 transactions and 8,022 acres sold in 2017. That’s a significant drop in the “supply” of acres sold on the market (which includes public and private sales). From 2013 to 2016, the average acres that sold per year (again, in arms length transactions) was around 8,250.
  • Not all trends were negative however. The average price per acre in 2017 across those 34 deals was a 12% increase from 2016’s average. This too isn’t terribly shocking. Even with continued low commodity prices, demand for land (especially GOOD land) has remained relatively stable here in the Valley. When demand is constant but supply drops as it did last year, that tends to correlate to higher prices (Yes apparently I was paying attention in Economics 101!). Some 1031 money also helped drive prices up, which it tends to do. Is it possible we’ve come off the bottom of ag land values? I believe there is reason to think so.
  • Of course land in Cass County isn’t all the same, so when one looks at Red River Valley land (approx. the eastern 2/3 of the county) vs. the Drift Prairie dirt (approx. the western 1/3 of the county), there are some noticeable differences:
    • Red River Valley land: 3,161 acres sold at an average of over $4,700/acre (which was a bit less acres sold than 2016 but at a higher price per acre)
    • Drift Prairie land: 1,557 acres sold at an average of over $3,400/acre (which was WAY less acres sold than 2016, but again at a higher price per acre)
  • Townships with the most land sales activity by total $ in 2017 were: Gardner, Addison, and Wiser
  • Townships with the highest average price per acre values (having more than 1 sale) in 2017 were: Gardner, Maple River, and Addison

There is a LOT more information we have compiled than what you see above, so please contact us anytime if you want to dive into this information in more detail. Until next time!

Andy

Owning and Selling Farm Land with Undivided Interests

By | Owning & Selling Farm Land

When it comes to owning ag land, many people tend to think about ownership in the singular form…one piece of land has one owner. However, it is quite common that a single piece of farm land has 2 or more owners. It might be a husband and wife, related or unrelated business partners, or quite commonly heirs of land that was passed down from a previous generation. There are two primary ways the legal title to property is held when 2 or more owners are involved: Tenants in Common and Joint Tenancy. In this post, we’ll cover what we see as the most common type with farm land owners generally: Tenants in Common.

The main thing to know about being Tenants in Common is that each owner has what is called an “undivided interest” in the parcel. Having an undivided interest means that no one owner has a specific piece of the land, but rather a share (or “interest”) in the entire property. So for example, if two people equally own 160 acres as Tenants in Common, each would have a 50% undivided interest in that land. They do not each own a specific 80 acres.

We see this method of ownership quite frequently in the Red River Valley of North Dakota and Minnesota (it’s common in many other places too), and usually it is because of 2 primary reasons:

  1. Partners came together to buy a piece of land to operate it or for an investment, or
  2. The land was divided to multiple heirs through an estate or trust

Owning land with other parties often works very well and there are many reasons why. However, there are times when being Tenants in Common with other owners can have its downsides. Consider the following two scenarios:

  • Three siblings own two quarters of land together as Tenants in Common. One of them farms the land, then pays a pro-rata share of rent to the other two siblings. The land is good but would be much improved with drain tiling, which typically comes at a cost of around $1,000 per acre. The sibling farming the land is pushing to get the land drain tiled at a cost of over $300,000 (or $100,000 to each owner).
  • Four cousins inherit a quarter of land when their uncle passes away. Shortly after the funeral, one of the cousins finds himself in financial trouble and wants to sell the land to pay off some debts. Meanwhile, the other 3 cousins are content to receive the rent income and have no desire at all to sell.

You can see the troubles ahead in each of those scenarios. Thankfully there are options for owners to consider specifically when it comes to the sale of land owned as Tenants in Common.

  • There is nothing to stop a Tenant in Common from selling their undivided interest to someone else. They can sell it to co-owner of the same land, or a completely different buyer unrelated to the current ownership group. There are some buyers out there who are open to buying undivided interests, but the downside here is that not ALL buyers are open to that arrangement. Many buyers of farm land often want to own sole title to the property, oftentimes to avoid the types of issues described in the scenarios above. When you reduce your potential buyer pool, you also reduce your chances of achieving the highest sale price for your land. However, there are cases where this works well and it is definitely something that can be done.
  • Another method is to “partition” the land through some legal agreements & documents whereby the undivided interests become DIVIDED interests into individual sole title owners. For example, if two partners own 320 acres as Tenants in Common, they could have a Partition Agreement and Quit Claim Deeds drawn up to split off 160 acres to one party and the remaining 160 acres to another party. This process can be very clean or it can be very messy. It all depends on the willingness of the partners to divide the land along with how easily the land can be divided so that all partners receive their equitable share.
    • If owners cannot agree to partition the land, then the courts can step in and help get the land partitioned. Not ideal of course, but it is an option. Seek good legal advice if you are in this situation.
    • In terms of the act of actually splitting up ownership of the land, this might be easy and it might be incredibly difficult. For example, splitting a quarter of land with consistent soils, drainage, and tillable acres across it would be quite simple. Each owner could feel good knowing the value of the land they received is an equitable share based on the percentage they owned under Tenants in Common. However, splitting a quarter that contained a mix of wetlands, pot holes, waste acres, varying soils of high and low quality, etc. could prove VERY difficult to divide and with some owners receiving higher value land and others receiving lower value land. Appraisers, realtors and auctioneers can be good sources of help with how to equitably split a piece of land with varying qualities (feel free to Contact Us if you would like!).

If you find yourself in a tough position as Tenants in Common, take heart as we have seen many times these situations can be resolved successfully. The road may be bumpy at times but there are many who have gotten through it just fine and you can too! And remember that as Realtors and Auctioneers, we are not Lawyers or Accountants so make sure you consult yours to get into the details.

Until next time!

Andy

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