Methods of selling farm land!
There certainly are numerous methods used today to sell farm land in Iowa. I’m often asked which is best as we’ve used them all. “Best”, to me, is defined as the method that will put the most money in the pocket of the seller when the entire transaction is complete….net dollars.
The methods one commonly hears about are full cry farm and land auctions, farm and land listing agreements, private auctions, and private sales. I’ll go into some detail on each including some pro’s and cons with each. My comments are based on the results of annual surveys we do of various counties that show what farms sell for by the various farm selling methods described below.
The full cry auction method is the auction that the general public can attend, where the auctioneer obtains bids as he “cry’s” the event. It has been the most common method used for the last number of years. The better the quality of the farm, the better this method works. Appreciating land values also makes this method work well. Contrarily, if land values are depreciating, and/or the land is not of good quality, the method does not work as well. In today’s agricultural sales climate, with land values seeming to have stabilized, the full cry auction method and the listing method seem to be the “best” methods used for land sales.
The farm and land listing agreement method is where the seller and real estate company enter into an agreement where the real estate company deals with prospective buyers on an individual basis versus in a public setting. These meetings between land buyer and real estate company might take place on the property, at the prospects place, in the real estate office, or most often, in a combination of these. As mentioned above, this method is becoming the method of choice today. However, this method is still secondary to the auction method on the best quality of land where demand is terrific. One of the advantages to the listing method is that a sale can take place quicker than by the auction method. Upon completion of the listing paperwork, the property can be sold the next day! An auction generally needs 30 to 45 days for advertising before the sale can take place.
Private auctions, sometimes referred to as “attorneys auctions”, have never in our studies shown to be the method that returns the most to the owner no matter what quality of land or the demand. This method generally involves interested parties submitting bids, then the highest few bidders are called in at a later date to bid again. They’re popular in some areas of the state due mostly, I believe, to the lack of information on what type of sales put the most money in the sellers pockets. It’s my opinion that they don’t do nearly as well because of the small amount of advertising usually done in comparison to the other methods of land sales mentioned above.
Private sales are generally found where a seller wishes to sell to a neighbor, long term tenant, or friend. They generally suffer greatly in regards to returns to the seller. I believe this is mostly due to the two parties not being fully aware of what the value of the property is. Sometimes, parties are fully aware, but simply chose to give a discount.
Hopefully, this will give you some information on the current methods of selling farm land. If you’d like to discuss how these thoughts relate to a specific farm, just contact us and we’ll be happy to give you additional information.