Strong demand for income-producing land is generating high farm values, especially those sold through auctions because of the benefits of competitive bidding.
“The opportunity for landowners to capitalize on the current market is incredible,” said Joe Gizdic, director of Ranch & Farm Auctions, an Illinois-based auction company operating in 38 states. “There is high demand for quality farmland because of tight inventories, commodity prices are at a three-year high and interest rates remain low.”
But to get top dollar, even in the current hot market, Gizdic recommends that sellers maintain good records and be able to provide key information that prospective buyers want to see. This includes the following:
- Soil fertility records, which include documentation of the current fertility and health of the farm’s soil. Fertility records can offset lower Productivity Indexes (PI, NCCPI, CSR2) of a farm. Productivity indexes serve as an indicator of crop performance and factor into the property’s assessed valuation. For farm owners who do not have this information, it can be obtained at a modest cost (generally less than $10/acre) by conducting a soil test.
- Tenancy agreements, if the farm is being operated by someone other than the owner. Prospective buyers will want to know the terms of such agreements and when they expire. Because tenancy agreements can lower farm value, owners may opt to delay their auction until near or after the tenancy agreement expiration. Buyers who are producers want to occupy and farm the property they buy, rather than be in a tenancy agreement with another producer.
- Actual production history, documenting annual yield performance, which has a direct bearing on farm profitability and the cash rents that can be charged to a tenant.
- Any recent farm improvements, such as drainage tiling, an irrigation system or conservation project, that add value to the property.
Gizdic noted that while some farm owners prefer a traditional sale, in most cases, the preferred format for selling tillable and income-producing land is through auction. And given the strong demand, he said farmland inventories for sale are tight, driving up prices. On average, he said Ranch & Farm Auctions is seeing farms sell for 15% to 20% above perceived market value.
“When it comes to income-producing acreage, auctions will reduce time on the market, create excitement in the marketplace, and have producers and investors competing for the opportunity to purchase that tract of land,” he said. “Auctions will determine the true market price of a piece of land through competitive bidding, and sellers often will get high bids above and beyond appraised or perceived market values as a result of that competition.”
For more information, visit the Ranch and Farm Auctions website.