What you should know about farmland auctions
December 27, 2019

What you should know about farmland auctions

Land auctions are a very popular method of selling farmland. But for those who may not know much about the details of farming or owning land - such as heirs, new investors and new farmers - trying to understand how land auctions work can take a little bit of research and information from the right sources.

For those who find themselves owning high-quality farmland, though, public auctions are definitely a go-to option when looking to sell. Public auctions generally are a great fit for high-quality farmland because auctions allow for the possibility of high exposure - and a high price.

However, there are many other details about selling farmland at auctions that should be covered. Let's take a look at what you should know about farmland auctions.

Who is selling farmland?

Before jumping into how farmland auctions work, it's important to understand why auctions may be a good way for you to sell your farmland, that includes why someone may sell their land.

There are many reasons why someone may sell their farmland. In most cases, sellers can be divided up into groups based on several circumstances. Those groups of potential land sellers are active farmers, retired farmers, estate sales and investors. There are some exceptions to this, but most of the people you encounter who are trying to sell farmland typically will land in one of those categories.

Those groups of people were also the most common found to be selling land in 2019, according to the this year's Farmland Value Survey from Iowa State University Extension and Outreach. The survey found that most farmland sales (52%) were from estate sales. From there, retired farmers were the group with the second-most percentage of sales (24%), while active farmers (16%) and investors (7%) followed.

Why are these groups selling farmland?

According to ISU's survey, there are a couple of common reasons for why some landowners are putting their land up for sale. With the current downturn that the agriculture economy is facing in general, there are current landowners who may be thinking about retirement and looking to sell their land. For others, that financial stress could be forcing some farmers and investors to make decisions about liquidating some of their assets by placing parcels of land on the market.

Keep an eye on how land values trend. That, the survey's authors write, could lead to more people looking to place their land on the market. The other factor to consider is whether farm incomes improve, which could push land values up and increase farmland sales down the road. Not all land sales are due to financial stress.

Do your research before selling land at an auction

The first step anyone who may be considering putting their land up for sale at a public auction is to make sure they have all the necessary information about the land available. This will include information that auctioneers and potential bidders will want to have so they can make informed decisions, such as ownership per the deed to the land, total acreage, how the land is being used or could be used, property accessibility, number of buildings on the land, recreational value and more.

The list of information and other details about the land that others might find valuable can go on for quite a while. So, if you're new to land ownership, then it would likely be a wise decision to seek out a professional.

How the auction process works

Once you have decided to go with the land auction process, you will need to get the land appraised. The appraiser can also help nail down details on some of that information that should be collected before going to auction, too. More importantly, though, the appraiser will work with the owner to determine what the land is worth and what the owner could expect to see in return at the auction if it sells.

After the appraisal, an auctioneer company will begin advertising that the land is for sale. The goal here is to get information about the land out to as many potential buyers as possible.

Once the auction date arrives, bidders will gather at the auction site (often the land itself) and register. From here, the land auction will look like any other, with an auctioneer calling out prices and bidders signaling their willingness to purchase at a given price. The last person still bidding is the winner and purchases the land.

At that point, the winner must make the payment. The auctioneer company will have its own process that could differ from company to company, but in general, some percentage of the purchase price is needed at the auction and the rest can be paid in a given timeframe.

The last step is the transfer of ownership. There will be a new deed created and fees and back taxes will need to be paid. Usually, this comes out of the proceeds of the sale. Closing costs also need to be handled.

Listing is also an option for sellers

If you are looking to sell farmland, then you should know that auctions are not your only option. You can also list the land. Which option is better? That depends on three factors, according to David Klein in a column he wrote for WallacesFarmer.

The first factor Klein mentions is timing. Auctions allow sellers to set a sale and close date, which work well for trusts and estates that have to be liquidated by a certain date. With auctions, buyers have to decide right away whether to purchase or take a pass on the land. Listed farmland allows buyers to shop around without much pressure to buy.

The second factor is how many parties are involved in the decision. By auctioning farmland, certain details that may be open to negotiation under a listing are much less flexible, making the decision-making involved more straightforward if a large number of people are involved on the current land ownership side.

The third and final factor Klein writes about is the local land market. How farmland sells at auction depends on how many potential motivated buyers are in the area. However, the best buyer in the area may also prefer not to purchase land at auctions. So, you have to know the local market.

Contact Cotton Grave to learn more

There's a whole lot more to the farmland auction process than we could get into in this brief overview. If you need assistance in selling land, or are looking for land to buy, then contact Cotton Grave Farm Management today.

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