HOW TO PREPARE FOR A LAND AUCTION

So, you’ve decided to sell your property.  Congratulations.  This marks a significant chapter on one’s life.  Like many though, you’ve likely never sold a piece of land.  This is a frequent characteristic of many of our clients here at KILOTERRA, but not to worry.  There will be many decisions to make along the way, and this overview will get you on the right track.  We’ll outline here the process of preparing for a land auction.

We’ll assume for the purposes of this article that you have decided that a Land Auction is the best method for selling your property, as opposed to a traditional land listing.  If you aren’t sure, we have another article that can help you decide, here.  This is not a small point, and can often times be the difference between a successful sale, and one that leaves you feeling like you left money on the table.

DECISION MAKERS

For some situations, this is rather simple.  However, when it’s a large family farm, it is beneficial to identify a point of contact and decision maker, or at the very least, a decision-making process for the sale.  There will be multiple decisions to be made, and it helps to align on how decisions will be made up front.  When preparing for a land auction, or any type of sale, this is a key first step.

CONDITION OF THE PROPERTY

A well cared for farm articulates to the potential buyer that the owner &/or tenants have taken great pride in their land, which usually translates to good farming practices.  Well maintained waterways, mowed access lanes and ditches, good fences, proper drainage improvements, and general farm upkeep ensures potential buyers will perceive it as having a higher value over one with rundown buildings and clutter scattered about.  If there are minimal investments you can make to improve the appearance of the property, we generally suggest making them.  It’s no different than decluttering a house before you would put in on the market.  Ideally, these improvements should be made before photography and video work is done, so that the marketing efforts capture the improved state.  If the farm is already in tip-top shape, then you’re ready to begin planning the sale.  When preparing for a land auction, farm esthetics should not be overlooked.

WHEN TO HOLD THE SALE?

This is one of the most frequent questions we receive regarding our Land Auction. To be honest, there is no single right answer, but there are some general guidelines.  Time of year is certainly a consideration.  We like to avoid sales during planting season, as most farmers are busy trying to get their crop in the field.  Also, you don’t want potential buyers unintentionally driving over a freshly planted field.  Summer also presents a challenge, because a corn crop makes it difficult to really see a farm.  Most farm sales in our region occur in the fall / winter months, however if your situation dictates a different time of year, then we usually work to identify the best time within your constraints.

If you are really trying to maximize the sale price, then a qualified auctioneer will keep you well informed of the market as there are other factors outside of the season that can have a stronger impact on your sale.  Currently, here in late 2021, we are seeing a surge in crop prices combined with a shortage of available land on the market.  These are the perfect set of conditions to maximize the sale price of your land.

FARM INFORMATION & DETAILS

There are several details that will be important to those considering buying your property.  A qualified Land Sales & Auction company will help lead you through these details and gather the information well in advance of the Auction.  Depending on the complexity of the property you are selling, this can be involved.

For Farmland, here is a sample of information you will need to be gathering:

What have the historical costs and income been for the property?

Ideally, a farm will be offered open for the following crop year.  Do you currently lease the land for farming, and has that lease been terminated?  If not, can you get the farmer to sign an early termination agreement to open the farm for the next crop year?  If no, what is the cash rent per acre and how long is the lease?  Be prepared to provide a copy of the written lease agreement to your Auctioneer.

Be prepared to sign, or have your farmer sign, a USDA release for farm records on the property.

Also, you will want to note any improvements made to the property, as these are often great sales points.  Examples would be stocked ponds, water availability for livestock, tiling, terracing, fence condition, access to utilities, etc.

In addition to improvements, you’ll want to disclose anything that would detract from the property’s value.  Examples would include wells on the property, boundary disputes, structural issues with a dwelling, hazardous materials present, deed restrictions, etc.

You should also inform your Auctioneer if there are any special considerations in how the property needs to be conveyed, for example if you will be performing a 1031 exchange, or if there are any first right of refusal restrictions on the property.

Are there any hunting rights leased on the property and can those be terminated upon closing?

Is the farm enrolled in any CRP programs, and how will that be split at the time of sale?

There is a fair bit of information your Auctioneer will also gather outside of your assistance to present the property to the public for Auction, but the above-mentioned items are a sample of what you will need to gather when preparing for a land auction.  Note, this is not a comprehensive list, but a qualified Auction company will guide you through this information gathering process.

SALE METHOD & TERMS OF OFFERING

When it comes to Land Auctions, there are many Sale Methods to consider.  Will this be a Live In-Person Auction, On-Line, or both?  Or should you consider a Sealed-bid Auction?  How will you offer the Land?  Will it be multi-parcel, buyer’s choice?  Will you set a reserve, or will it be absolute?

As you can see, there are multiple options to consider when selling a farm through the Land Auction Method.  In short, it really depends on your goals and specific situation.  It is difficult to fully detail out all the considerations.  However, a qualified auctioneer will be able to fully analyze your situation and make a great recommendation.

It is likely that method will perform best for your Auction.  Typically, what we look at are details around our client’s goals for the sale, as well as the complexity and uniqueness of the land.

At KILOTERRA, our general recommendations are as follows:

Live Auctions are great for properties with a significant local interest of potential buyers.  An example would be a large tract of highly desirable row crop land.  If this tract is in a strong farming community, where land auctions are common, this is your best option.

On-Line Auctions are best suited for properties that may have a broad base of potential buyers, whom many of are not local.  An example may be a commercial property.  Commercial property investors can come from anywhere, so offering the property to only local buyers would limit your sale price significantly.  An On-Line Auction solves that challenge.  These are also great for highly desirable row crop or tillable type farms in which farmland investors from across the nation can buy the farm and then lease it back to an area farmer.  This is becoming more and more common.

Sealed-Bid Auctions are perfect when the property is unique enough that there may not be a lot of demand, and if a fair market value is hard to establish.

As for the specific terms of the sale, there are too many considerations to get into here, but with a quick call, any of the KILOTERRA team members can help you decide what is the best set of terms are for your Auction.

SELECTING THE RIGHT REPRESENTATION

There is so much information to gather and many decisions to be made when preparing for a land auction, which can make the process daunting.  However, selecting a knowledgeable Land Sales and Auction company to represent you in the process will certainly make it easier.

At the time of writing this Article, KILOTERRA is Licensed for Farmland Sales and Auctions in Iowa and Missouri.  If you have land in those states and would like to know more about what we have to offer, or how we can help you through the process of a Land Auction, please do not hesitate to reach out to us.  Call us at 515-442-7709 or send emails to: info@kiloterra.com

If you are outside of Iowa and Missouri, here are a few guidelines we would recommend when selecting an Auction Firm.  We recommend meeting with more than one auction company.  This is a substantial step in your life and finding the right firm that fits well for you often comes down to your comfort level with the individuals handling the sale.  Don’t be afraid to meet with more than one company.  Asking for referrals from past satisfied clients, or even reading reviews online is a great way to review the company’s character and qualifications.

Also, understand the requirements of the agreement.  At KILOTERRA, we cover all the advertising costs of our auctions up front, while some companies require sellers to cover these expenses.  We also offer a split in our commission with cooperating brokers, while others often retain all the commission for their auctions.  Simply put, this means that less potential buyers will likely be at your sale.  Also, if you have a reserve, and the farm does not sell, be sure you understand what your obligations are after the Auction.

While marketing capabilities may be difficult to understand, we recommend a firm that has an established record of successfully selling properties like yours.   At KILOTERRA, we wouldn’t recommend ourselves to sell your house in the middle of town; we are built to sell land and our marketing is designed around that.  Make sure the firm you are working with is knowledgeable about the land and how to maximize its exposure.

Locating the right firm for your land sale may be one of the most important steps to a successful outcome on the day of Auction.  Make sure you take the time necessary to align with the right Auction company.

Congratulations again on the decision to sell your land.  We hope this brief article has shed some light on the process you should expect when conducting a Land Auction.  While this article covers many of the points to prepare you for the sale, this is certainly not a comprehensive list.  Best of luck with your day of Auction, and please do not hesitate to reach out to KILOTERRA with any questions you may have.

For your Land Sale and Auction needs, please call us at 515-442-7709 or email: info@kiloterra.com