10 keys that affect land market strength
Humans and nature both play a role in the land market’s sometimes volatile nature, which can make it harder for auction professionals to gauge.
By NAA Staff
In real estate, one of the tallest hurdles for auction professionals is to have a handle on how strong the land market is at any given time.
Economic, social, and environmental factors all play a part in determining how well a parcel may perform at auction, and it is usually a combination of several that ultimately determine the final winning bid.
Thankfully, there are more than a handful of indicators in each area that can help auction professionals gauge overall land market strength. We have 10 of them here, including a major one at the bottom.
1) Soil types – “Probably the first question they ask when [prospective buyers] call, unless they read it online, at least in my area, is ‘What is the soil type on that farm?’” says Kristine Fladeboe-Duininck, BAS, of Spicer, Minnesota. “They’re all excited about that crop production index.” (The Crop Index is the number that expresses the relative yield of crops on a particular area with the average yield over an entire region being taken as 100.)
2) Interest rates – Typically, when interest rates are low, this can help make properties more attractive to buyers. Be sure to keep informed on current rates.
3) Commodity Prices – Being able to show what kind of return on investment a buyer can expect from the commodities produced on a piece of land is key. Commodity prices fluctuate, of course, which is why keeping tabs on them and using your pricing knowledge is an excellent way to identify and communicate the right time for a seller to act.
4) Tile/drainage – “A well-drained farm is worth $500-$1,000 more per acre if it is well drained. Sometimes a little less, and sometimes a lot more. Tile is so, so important in drainage,” Fladeboe-Duininck says. “One of the top three or four questions I get from a farmer or an investor: ‘What’s the tile situation? What’s the drainage like?’ If you can improve that farm with pattern tile or as best as possible, it is sure going to show in your selling numbers.”
5) Location and shape of the farm – Where is that farm located? Not only by state, but within in your state. Is it located by other big farms? Is it located by other large farmers? Where it is located is a big part of the equation. “Before a land auction, I can just about tell myself how well that sale is going to go if I look at the platform,” Fladeboe-Duininck says. “Who is that farm located around, and what is the strength and quality of the farms next to it and the pocketbooks.”
6) Neighbors – Just like in residential areas, neighbors can play a huge role in the attractiveness of a property and how much a buyer is willing to pay to own it. What are the neighbors like? Are they respected? “It sure means a lot to have a good neighbor,” Fladeboe-Duininck says.
7) Strength of the Community – “We have strong communities, large and small,” Fladeboe-Duininck says, “and we have communities that struggle.” The strength of the surrounding or nearby community can often times help influence or dictate the price of a farm.
8) Taxes – Taxes attached to a farm can keep someone from making a buying decision. “Some of the taxes in my county are $50, $60, $70 per acre,” Fladeboe-Duininck says. Communicating as much tax information as possible, and doing so early in the process, might give an auction professional time to ease concerns or determine a way to move a prospective buyer past that obstacle.
9) Practices of the tenant/current owner – If you’re unsure how to obtain a third-party, objective into a farm’s history when it comes to upkeep, the local neighbors (be sure to vet the information you’re given) who have been driving past the land for years may be able to provide some insight. “They know how much care that farm has had,” Fladeboe-Duininck says.
10) Weather – According to Fladeboe-Duininck, the biggest factor driving land market strength isn’t distance, emotional attachment, buying emotion, family or anything manmade or controlled. It is good ol’ Mother Nature.
“We can have precision farming. We can tile all we want. We can do this and that, and this and that. We can buy more farms and sell online and live. We can go wild and crazy,” she says. “but aside from irrigation, it all comes back to weather.
“A farm I’m going to sell this fall has been hailed on twice this year,” she says. “The seller is very nervous about how that will affect the farm.” She says she won’t make any promises, but that she has discussed with the seller that farmers and investors, in her mind, are futuristic and won’t take one year of a hard crop into too much consideration.
World weather, too, can also affect local land value. If, for example, a huge drought affects the grain market in another part of the world, U.S. grain producers suddenly may see a rise in their land value as demand rises. Of course, the opposite can be true also.
This article was an excerpt from a presentation given at the 2017 NAA International Auctioneers Conference and Show. Full audio of the presentation will be available in the NAA Knowledge Center in September. You can also check out other valuable NAA content here.
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