Selling Your Ranch: How to Prepare and What to Expect

CONSIDER TAXES & FINANCIAL PLANNING

The first and most important step in selling your ranch is ensuring your family's tax and financial planning are current and competently prepared.  Planning is essential for multi-generational ranch families.  I say this because they are the most likely to neglect this stage.  Modern ranch owners, who have purchased a ranch in the past 30 years as an investment and family gathering place, often utilize tax and financial advice.  Traditional agricultural families are more likely to be unprepared.  It's never too early to start planning for the tax and financial implications of selling your ranch, but it can be too late.  If your family has neglected this, there's still time; just be sure to do this before you list the ranch for sale with a land broker.  This stage is enormously important if you want to keep as much of the sale proceeds for yourself and your family and prefer not to pay Uncle Sam more than you have to.

TAKE CARE OF FAMILY MATTERS

Communicating with your family members is integral to preparing to sell your land. There is an unfortunate irony regarding farms and ranches that have been in the same family for generations; selling can be a wedge that splits families apart. Planning and communicating can decrease the possibility of this happening to your family.

Here's a typical scenario: Four grown kids now have their own families.  One of the kids stayed and worked on the land for 30 years. The others moved off after high school and have lived lives very separate from the land. The parents pass on, the kids who don't live on the land want to sell, and the sibling who has spent a lifetime working the land doesn't want to sell. They have sweat equity into the land while their siblings are chasing careers in the big city.  They have a connection to the land their siblings may not understand. Selling means uprooting their family. They have nowhere to go, and they may have a child who wants to stay on and continue working the land.

Working with a family that is at odds on whether or not to sell is not only a negative process, but it's also a waste of everyone's time. My advice is to plan, communicate and remember that nothing is more important than family.

PREPARE YOUR LAND TO BE SHOWN

As you contemplate selling your land, it is essential to understand the process ahead of you and prepare your land to be as attractive as possible to potential buyers.  Preparing your land for sale often involves cleaning up the junk.  Ideally, this begins before putting your land on the market.  For many ranch owners, there is an accumulation of old, discarded machinery, often loosely organized in a "boneyard."  The buyer will likely require the boneyard to be cleaned up as a condition of sale, which can add to the stress of selling.  Cleaning up before offering your ranch for sale is beneficial and may result in a higher level of interest and sale price.

If you hire a competent land broker to help you with the sale, one of the first things they will determine is the most attractive aspects of your ranch and how to best show these off to a potential buyer. As a landowner, these assets may differ from those you have always felt were the most valuable characteristics of your ranch, but a good broker will have a sense of what buyers are looking for in your market and help you prepare.

If your ranch has a significant agricultural operation, you'll need to be able to explain how and why you do it the way you do and have an income and expense sheet.  The next owner may change the operation from grain to hay or from a cow/calf operation to yearlings, so your numbers may not apply to what they do going forward. However, it will benefit a potential buyer to understand the cost of ownership.

Elk can be highly destructive to fences and can eat a tremendous amount of grass that a rancher would prefer to feed their cows.  However, elk can be highly desirable if you sell your land.  Love them or hate them, trophy-size elk drive value.  If you regularly have big bull elk on your ground during hunting season, it makes sense to market your land as an elk-hunting property.  You'll need to prove the animals are there; the best way to do that is with photos.  Collect photos of big elk harvested on your land and take pictures of large bulls.  A game camera can be an excellent way to accomplish this. A healthy upland bird population, quality whitetail deer, and waterfowl hunting are also beneficial.

If you have a trout fishery, this will drive value.  If the trout are big, you'll need photos. 

Keep a trail cut along the river or encircling your bass or trout pond to make it easy for people to walk or drive along it so they can see the amenities of your land. A good trail system is beneficial for showing off a valuable asset and protects against fire danger.  Cut trails are one of the most inexpensive ways to increase the value of your land. A competent and experienced land broker will know how to show off the most valuable characteristics of your land, whether it's the agricultural operation, the views, the big game hunting, the trout fishery, the upland bird hunting, the waterfowl hunting, or, ideally, a combination.

DECIDING ON A LAND BROKERAGE COMPANY

Once you've prepared your property, you can decide which brokerage company to work with.  If you have a ranch (or a farm, timber tract, or plantation), don't list with a company that sells residential or commercial real estate.  Instead, work with a company that specializes in selling land.  As a land broker, when I have a house I need to sell, I list it with a residential agent because houses are their specialty, and they know the residential market better than I do.  Selling land is a specialized business, so you want to work with a land broker.

You'll also want to consider which land brokerage company will expose your land to the largest qualified audience, which is often referred to as "reach."  Assuming you've priced your land accurately, the more qualified buyers your land is exposed to, the stronger your negotiating position is. If you have interest in your land from more than one buyer, you have negotiating leverage. Negotiating from a position of strength increases your likelihood of getting the highest sales price for your land.

Many land brokerage companies have websites but rely almost entirely on local marketing, significantly limiting your audience.  The other end of the spectrum is companies with a national marketing program targeted at land investors that have been in business for decades. Marketing land nationally is costly for a brokerage company but effective and desirable.  Look to see which companies are marketing and doing business from coast to coast. Your land is likely worthy of a national marketing strategy because the buyer could come from any state.

The best companies have a multi-pronged marketing program, including digital and print advertising and event sponsorships. It is also essential that the company has spent many years developing relationships with land investors. There is no way to shortcut developing positive relationships over decades by being a hard-working, competent, trustworthy company. The majority of a good company's transactions will come from these relationships. Look for the company that casts the most extensive net and has an excellent reputation.

Some land brokerage companies intentionally erect hurdles to deter agents from other land brokerage companies from showing their land listings so they don't have to share the commission.  This approach is not in the best interest of the Seller.  Your land broker must develop positive relationships with land brokers from other companies and actively market their land listings to other land brokerage companies.  The company you choose to list your ranch should have a reputation of "playing well" with others, increasing your land's exposure to qualified buyers.

CHOOSING A BROKER

You will also want to list your ranch with a trustworthy broker you like who works hard.  Do they tell you the truth or just what you want to hear?  Are they straight shooters? Do they have a good reputation?  Do you think they'll show your ranch well, provide a quality experience for potential buyers, and show off the most important attributes?  Or are they just going through the motions?

Some brokers drive the potential buyers around and never get out of the truck.  A good broker will figure out a way for the buyers to experience your land.  They'll let the buyers take a walk, catch a trout, look for elk, and have a nice picnic in a particularly scenic spot.  If your agent has three or four properties to show the buyer in a day, they may not have time to do this on their first visit, but if they come back for a second showing, it's essential that your land stands out and the buyers have a chance to experience it.

PRICING YOUR LAND

When it comes time to price your land, if you've chosen a good, trustworthy broker and they've done their homework, listen to their recommendation on price.  One of the oldest tricks in the book for an unprofessional agent to get a listing is intentionally providing the Seller with an inflated estimate of value. 

When agents inflate the value of the land and overprice it to get the listing, it is called "buying the listing."  Some land brokers tell the Sellers what they want to hear because it's easier. The best brokers tell the truth and have the knowledge and experience to back it up. Making your choice based on the highest estimate of value for your land is the equivalent of getting three bids for a construction job and taking the lowest bid—it almost always works out poorly because the company is compensating for some deficiency. Integrity is important.

If you end up listing with the company that gave you an inflated value, stay in touch with the company that gave you an accurate valuation.  Likely your land won't sell during the listing period with the first company, and you'll end up listing with the company that was truthful and professional.

It's not easy to accurately estimate the value of a ranch, as each one is unique and often has subjective value (for example, incredible scenery, a great location, and excellent recreational amenities).  If you list with the right company with a substantial database of potential buyers, you'll likely get a good sense of how well you did pricing the land within the first three to six months. The market will let you know when you've priced the land accurately. The best scenario is to price the ranch accurately from the outset, likely attracting more than one interested party. Then, the Seller has leverage throughout the negotiating process, and ultimately the result is a higher price than if the ranch had undergone a series of price reductions. I've written another article entitled Pricing Your Land that addresses this important subject in more detail.

CHOOSING THE RIGHT OFFER

Receiving an offer can be exciting, depending on how the offer is written and if the offer price is in the ballpark.  The details can vary from region to region and property to property. An offer will consist of a clearly stated price, an earnest money amount of approximately 3% of the offer price, and a due diligence period lasting 30 to 60 days. The due diligence period refers to the time allotted for the interested buyer to research the land.  The buyer will have specific areas they plan to investigate and include clauses in their offer allowing them to examine specific aspects of the land. These clauses are called contingencies.  The contingencies often include researching the title report, the water rights, mineral rights, and the environmental condition of the ranch. There may also be contingencies that are specific to the property. 

If issues are discovered during the due diligence period, the buyer identifies and provides information on the problems to the Seller, and the Seller has an opportunity to remedy the issues. Some issues can be solved, and others cannot.  If the land has problems that cannot be solved, the buyer must decide whether they can live with the issue or not.  If the problems are significant enough that the buyer decides they no longer want to buy the ranch, they can terminate the transaction and receive their earnest money back.  A third option is the buyer proposes a reduction in the purchase price equivalent to their perception of the diminution in value the issue represents. Requesting a reduction in purchase price can lead to a second negotiation period. 

If the ranch passes inspection, the buyer waives their contingencies, the earnest money becomes non-refundable, and the transaction proceeds to closing. Closing often occurs within 15 to 30 days from the contingencies being waived or more, depending upon what's involved with the Seller moving. There are often livestock and crops to consider.

AFTER THE SALE

It is essential to consider what to do with the proceeds from your sale before the day of closing.  If you've experienced a capital gain, there are tax implications to selling your ranch.  One option to consider is a 1031 Tax Deferred Exchange.  To better understand 1031 Exchanges, you can find plenty of information on the internet, and you should also talk with your tax expert. Some clients we've worked with have done 1031 Exchanges into income-producing assets, which defer the tax payment on your gain and can provide income in the future.

This article intends to give landowners a sense of the process of selling their ranch.  Each ranch is different and has unique attributes and challenges, too numerous to address here.  Fay Ranches handles the sale of farms, ranches, timber, and plantations throughout the United States. As a result, we run into various challenges specific to the property, the region, and the individuals involved.  No two transactions are the same, but hopefully, you now have a general idea of what to expect and how to prepare.

Fay Ranches has offices from coast to coast. If you have any further questions about selling your land, don't hesitate to contact the Fay Ranches broker closest to your property; they will be happy to help you find the answers.

View Greg's Listings