Decisions about what to do with farmland always carry a considerable amount of weight, especially when it comes to buying and selling land.
Not only does your financial situation have to be in alignment with your desires to either buy or sell land, but so too do your emotions. We don’t have to tell anyone who has been in farming how much sentimental value plays a role in nearly all decisions concerning farmland.
In addition, though, the timing has to be right in most all cases where a transaction involving land might occur. Success in agriculture can often come down to timing. This is true both for factors farmers can control and those they can’t.
But how do you know when the time is right for buying or selling farmland? Here are some suggestions that hopefully will help you determine whether time is on your side.
Look at local land values
Whenever you are looking into whether or not you should buy or sell land, you need to have a very thorough understanding of land values in your local area. How the price of land has been trending will be a first sign of whether it’s a good time to start thinking about transactions involving land.
Here in Iowa, the average value of farmland has been steady up to September of this year, according to the Realtors Land Institute Iowa Chapter. Their latest survey showed that there was neither an increase or a decrease in cropland values, on average, across the state between March 2020 and September 2020. That stability continues a longer trend of land values holding steady, for the most part.
Some regions and other localized areas did see some small decreases, though. There are some factors that could have brought values down for some property. According to RLI, those negative factors are uncertainty with trade, uneven crop yields in 2020 due to a variety of reasons and weather patterns for the current year.
However, other current factors have for the most part been supportive of land values. Those factors, cited by RLI, include the small amount of land that is available on the market, 1031 Exchange activity and the currently low interest rates.
What local land values mean for you
Local land value trends can point you in the right direction when you are analyzing options for buying and selling land.
Along with a trusted financial advisor, realtor with experience in agriculture or farm management consultant, you should be able to look at the asking price and quality of area land that is up for sale.
From there, a buyer can look further into how you and your advisors believe your farmland matches up. A seller, on the other hand, can get a better idea of whether local factors are pointing toward it being the right time to buy additional land.
Ask yourself why you might want to buy
When it comes down to it, people choose to buy farmland for three primary reasons: production, investment and consumption. If you want to buy, then one of these is likely going to be your reasoning.
Production is a simple reason and it is what it sounds like. A buyer looking to produce wants to use the land to generate farm-related income that ideally results in a profit that is as healthy as possible. It’s a reason that makes the most sense for anyone who is able to see somewhat of a more immediate return on the purchase.
Investment is more of a medium- to long-term reason for buying cropland. The idea is to let the land gain in value. Over time, the plan is for the land to be worth more than it was worth when bought. At this point, it could be an attractive option for the owner to sell. The land can also be leased to a tenant farmer to provide the land owner with income year-to-year.
Then there is consumption, which is more of a personal reason, including establishing hunting property, setting up conservation practices or building a home on the land.
Once again, the timing has to be right for these reasons to be enough incentive to buy farmland. Hopefully, if you are inclined to buy, then finances or future profits match up and allow you to make the purchase.
Know why you want to sell farmland
On the same note, time plays a highly relevant role in deciding whether you should sell land. The land value can set a great asking price, but sometimes time constraints – such as other financial obligations or pressures on the horizon – are the real determining factors.
If you are an active farmer looking to cover expenses, then it may be the time to sell some land, especially if it’s of high quality. This decision isn’t always right for everyone who may be facing financial issues. This is another situation that should be taken up with an advisor or consultant who can help sort through all available options – and determine if now is the time to sell land.
Make sure you have all the information available
We can’t overstate the importance of working with an experienced and trusted advisor on trying to get the timing right for decisions involving buying and selling farmland. These professionals can help you gather all the information needed to make such a critical – and sometimes difficult – decision.
Finding information about land you want to buy or putting together information for land you may want to sell can take some time, but it’s worth putting in the effort. By doing the research and going through those motions, you can make the rest of the transaction process (on either end, buyer or seller) go much quicker. It will also help the process have a better chance of ending up in your favor.
Get the information – and The Advantage
Are you planning on buying or selling farmland? Get The Advantage on your side by working with Advantage Realty and Land Management.
Contact our team today and we will help you get started.