Midwest Minute- Jan 2/19- “A Primer on Farmland Sales and Leasing for Non-farmers”

A Primer on Farmland Sales and Leasing for Non-farmers

I believe the next ten to fifteen years will see a significant change in ownership of land from those who at one time farmed it to those who never have or never will.

We are already receiving more than the usual number of inquiries from beneficiaries, usually sons or daughters who left home after high school pursuing a career other than riding a tractor or dealing with cold newborn calves at midnight.

Mom or Dad, when they retired, rented the farm to a neighbour or extended family member and used the income to support themselves. Petroleum or natural gas surface leases were a cash bonus.

They have now passed, and the adult children are left wondering what they should do.

The emotional tie back to the home farm is strong, making decisions difficult. They know their parents had always counselled land was the best investment and are reluctant to be the one to part with it.

However, dealing with tenants can be stressful, never mind the opportunity the capital value of the land could offer for adult children facing their own retirement decisions, job loss, relationship breakdown, or support of offspring beckons.

One of the great mysteries of leasing farmland in Western Canada is the lack of data about what parcels in a district are renting for.

It goes without saying tenants want to keep their costs down so likely won’t offer top dollar unless forced to. The coffee shop or RM office is a shaky place to get accurate information as it is all hearsay in those forums.

Then there is the “family and friends discount”; an expectation to charge less than the market would bear for the cousin who always hosts the family reunion, or the friend you rode the school bus with back in the day.

The only way to truly establish what is current is to go to the open market using a tender process but this is rarely used in fear that longstanding relationships will be damaged.

Selling a parcel of land can be just as difficult for all the same reasons.

I am constantly surprised at how many non-farming beneficiaries are reluctant to get one or more independent valuations before settling an estate or jumping in to marketing a property.

It is a lot easier to put the ship in the harbor, if you know where the harbor is.

I had two sisters from out of province who couldn’t see the need in paying for a valuation on six quarters of quality land.

When I asked them what they thought it was worth they told me they were seriously considering an offer from a cousin $1,500,000.

There was a long silence on the phone when I told them that land of equal productivity had been actively selling in the district for $500,000 per quarter, and that didn’t include the contributory value of the oil surface leases, of which there were ten on this land.

They discussed the situation with their lawyer, and he sent them right back to me for a written opinion of value.

The cousin was not impressed, but frankly neither was I with him trying to take advantage of naïve sellers.

Not all land is equal. In fact, there can be significant differences between adjoining parcels.

Even land of similar productive value can vary widely depending on its distance from service centers, or amount of competition for cropable acres in a district.

Supply and demand is alive and well.

I am a strong advocate of sealed bid tender as it gives everyone an equal opportunity to indicate their interest but there are times when stating an asking price will work better.

More and more I am being asked to facilitate a private deal between a seller and a prospective buyer.

I provide a perspective on the current market value, provide it to both parties then meet with them to hammer out terms.

But whatever path is chosen, it all starts with a conversation on goals, realistic expectations, and a willingness to listen to advice from your accountant, lawyer, and friendly neighborhood Realtor.

Vern McClelland is an associate broker with RE/MAX of Lloydminster. He can be reached at (780) 808-2700, through www.vernmcclelland.com or by following the Midwest Group Lloydminster on Facebook.

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