Pulse: Land Buyers Plan First, Shop Later

The October LANDTHINK Pulse revealed that 34.3% of respondents explore financing options before they begin searching for land. That’s right, potential buyers are doing things in the right order to help ensure a more successful land buying journey. Land is usually bought with cash and a loan, with the buyer paying a decent amount of cash down and financing the remaining balance. Once owning land has piqued their interest, many aren’t quite sure what they should do to get the ball rolling. Searching land for sale is a fun, exciting venture, but it’s easy for buyers to get caught up scouring online land listings and procrastinate the boring paperwork for later. But unless you’re paying cash, obtaining pre-approval for a land loan is a critical first step toward the goal of land ownership.

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Last month, the October Pulse asked: At what point in the land purchase process do you explore financing options?

Although many people use the terms pre-approval and pre-qualification interchangeably, there’s a big difference between the two. Pre-qualification is generally a quick process that involves obtaining an overall picture of your finances from a lender. Pre-approval requires documentation such as tax returns, bank statements, and current assets and debts, and includes a more thorough investigation into your financial background. Buyers should also lay out their plans for the land to the lender. Only one — pre-approval — puts you one step ahead of the land buying competition.

There is, however, a good reason real estate agents emphasize the importance of getting pre-approved before beginning your search for land. A pre-approval is beneficial in many ways and will save you time, money, and frustration. Professional land agents make sure they spend their time wisely, and they’re eager to work with a buyer who has their finances in order. Taking the necessary step to obtain pre-approval shows sincerity on the buyer’s part, and proves they are credible and able to act fast when an agent finds the piece of land they want to purchase.

Obtaining pre-approval also strengthens your offer to the seller and the seller’s real estate agent. If a landowner is eager to sell, they may be more willing to accept a lower offer from someone they’ve been assured is financially capable of following through on the purchase.

Buying land is a big decision, and taking the initiative to become educated about your financing options before beginning your search for land is the best strategy. Contacting a lender for the type property you are buying will help you determine if your goal of ownership is attainable. Most any land agent will tell you that local lenders are a good source for land loans as well as Farm Credit institutions, since they often have knowledge of the property and the area. Last year, LANDFLIP made it easy for buyers that visit their network to connect with a lender early in the search for land online, joining forces with Farm Credit institutions throughout the Southeast to help buyers gain access to land financing.

Knowing how much you can afford means that you take into consideration all of the extra costs that come before, during and after the land buying process. There are many methods to fund a land transaction, as Robert King covered in his LANDTHINK article, Funding Your Land Investment, but most choose to take out a loan to finance their purchase.

If speaking with a lender reveals that you don’t qualify for a loan yet, most will help you figure out the obstacles in your way and offer suggestions on ways to improve your situation and get you in a better position to buy land in the future.

Coming in second, 22.9% of respondents indicated that they did not need financing. The saying “cash is king” still holds true when buying land; cash purchases translate to a smoother and faster closing. An all-cash purchase gives the buyer a negotiating advantage, saves them money in the long-term, and translates into a quick closing since there’s no waiting on lenders and appraisers. When you pay cash, you own your land, free and clear, right off the bat. The buyer can walk away from the closing table without owing anyone money. 

There are caveats to paying for land with cash. Land is an illiquid asset, meaning that it typically cannot be sold quickly at a reasonable market value. Buyers that might want to purchase additional tracts of land should consider financing in order to maintain liquidity. If you plan to make significant improvements to the rural land or farmland you’re buying, like building a structure, adding a water feature or improving access, depleting your cash reserves might not be the best decision.

Technology has forever changed how people shop for land. Buyers today are doing most of the legwork when it comes to actually finding listings. With online listings and so many resources available to land buyers and sellers- in a hot land market with low inventory levels- transactions are coming together at high speed. Getting pre-approved gives you a leg up in negotiations since you’ve eliminated one huge hurdle for the seller.

Land agents that have been in the business for a while have established relationships with lenders and should be able to refer to you several lending institutions that are honest and trustworthy. Lenders and land agents will work closely with buyers and do the best they can to help them obtain financing for land. Buyers should seek advice from several lending professionals and explore all financing options.

The responses to last month’s survey question were all over the board, but the largest percentage (34.3%) of respondents said they start to explore financing options before they begin their land search. Coming in second was 22.9% who indicated that they did not need financing in order to purchase land for sale. This was followed closely by 22.1% who said they begin exploring financing options after they have located a specific property they want to purchase. Only 20.7% of our audience said they start thinking about financing after they start searching for land but before they find the perfect property.

LANDTHINK would like to thank Farm Credit of North Carolina for sponsoring the October Pulse and for coming up with a very interesting question to pose to our audience. North Carolina farmers and rural residents can qualify for loans for farms, homes, agribusinesses and more from one of the three Farm Credit associations in the state. Farm Credit of North Carolina is part of the Farm Credit System, which has been serving the credit needs of rural America for 100 years. Their loan officers live in the area they serve, and are an active part of their rural communities. Farm Credit of North Carolina knows farming and agribusiness best because their loan officers and directors are local farmers, who understand you need a lender that will stand by your side. For information about loans, services, and more, contact a relationship lender that services your area.

Become a Pulse sponsor! It’s a great way to ensure your brokerage is the first one buyers and sellers call when they have a need to buy or sell property. You’ll get insane exposure on Social + Email + Web. That’s 500,000+ monthly eyes on you! Once you have it, you won’t want to give it up! Pulse sponsorships are offered on a first come first served basis and are subject to certain limitations. If your business would be interested in sponsoring a Pulse question, please contact us soon.

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We want to know what you think about our November Pulse question, chosen and sponsored by AcreTrader. What is the primary reason you view farmland as a good investment? Answer now.