Source: blog by Randy Dickhut, AFM, Sr Vice President – Real Estate Operations, Farmers National Company
There is often a misconception surrounding who sells farmland. Many immediately think of farmers as the sellers of most farmland, but this is not correct. Farmers typically do not sell land unless it is to trade up in quality and location or in the rare occasion to improve their financial condition.
Most sellers of farmland are estates, beneficiaries, and non-operating landowners who either have decided to sell and capture the appreciation profit or they need cash for expenses. Current tax laws for capital gains and estates plus regulations on stepped up basis generally foster the holding of real estate by the original owner with the passing of title upon death.
Buyers of farmland are a more diverse group made up of farmers 60 to 80% of the time. Local investors make up another significant group with out of area individuals and institutional investors making up the balance of farmland buyers. The buyer mix will vary by state due to farmland ownership laws affecting corporations and foreign investors.
When selling farmland, one needs to know not only the characteristics of their land, but also the local land market. Understanding the quality of the farm as well as how aggressive the local buyers are will assist in determining an expected sale price. In order to sell the farm for the best possible price, it takes a full marketing effort to attract out of area buyers who will compete against local buyers.
If one is buying farmland as an investment, it is important to do extensive due diligence on the property including details surrounding the purchase, pertinent information affecting production, income forecasts, and knowledge of the marketplace.