This past week I had the opportunity to present offers on two different tracts of rural land in Alabama. Both of these offers were submitted by buyers that had been following the market for a while. It is my understanding that neither of these people had ever met, but their strategies were nearly identical. Buyer #1 was represented by a buyer’s agent and I worked with the other as a transaction broker.
Both of these prospective purchasers made an initial offer of roughly 2/3 of the asking price of the properties. It was their plan to “test the water” and “just see” what the seller would say. Neither offer resulted in a successful contract, and in fact one received quite an undesired response. The first seller asked me to convey that he would not be making a counter-offer and that the offer was so low that he felt like the potential buyer must be suffering from some disorder. He instructed me to inform the other agent that his client was not to set foot on his property again!
I feel sure the original intent of buyer #1 was not to grossly offend the property owner. Buyer #2’s offer did receive a counter-offer, but we were not able to get close to a meeting of the minds. I was not thrilled at having to convey the low offers to my sellers and absolutely hated telling my fellow agent his client was not to come back to this tract.
This experience prompted me to share some thoughts with would-be-buyers about what a “buyer’s market” means in rural real estate and how it is often misinterpreted. The aim is to help you set realistic expectations and be as educated as possible to help you identify and purchase the right rural property.
1. Not every seller is in a crisis. As a matter of fact, almost none of the clients I represent are in crisis. They would like to sell, but they are not in danger of foreclosure. Rural land in Alabama is not like the national residential housing market. There are very few foreclosures comparatively, because owners often inherited the land and own it outright, have sizeable equity positions, have higher incomes and can afford their land, or they have other assets that help keep their rural land afloat. A lender with Alabama Ag Credit recently said that in his 31 years in the business, he has only seen 4 rural properties go into foreclosure. That is vastly different from the residential real estate climate we are seeing today.
You should inquire about a seller’s motivation before throwing an offer out there. The number of days on the market, at least in Alabama’s land market, is not necessarily correlative to a seller’s motivation. Hunting and recreational properties are taking longer to sell at the present time. Don’t assume that a tract that has been on the market for a year can be bought for pennies on the dollar.
2. Study comparable sales. Contact land lenders such as First South Farm Credit or Alabama Ag Credit to find out what land is selling for in your area. Don’t just throw a number out there “to see”, but make an educated offer. They are usually happy to share general information about recent land transactions, which can give you a more up-to-date snapshot of what is actually happening in your area.
3. Explain your offer to the seller in a letter. I find this to be a helpful tool in negotiating a contract. A relative recently used this tactic in negotiating a contract on a bank-owned home and acreage in Georgia. He made a list of all of the repairs and improvements the property would require. He was able to convince the bank with his logic that other buyers would see the deal the same way and that they should accept his offer. When I walked through his house last weekend, I have to say I was quite impressed with his purchase and how well his idea worked in securing a low price.
4. Price and Value are not necessarily synonyms. One trap first-time land buyers stumble into is feeling like they should buy land with the lowest per-acre price. I believe it is better to pay a little more money for a quality property than buy a dog just because it is cheap. $800 per acre properties are fun to tell your friends about, but spending large additional sums to make it usable may not be the best value in the long run.
Ask a land agent for information about the best buy they know about. I have a short list of tracts I believe are really good values for the asking price, and will show those even if they are not my listings. Otherwise, you are probably going to see the properties you specifically call and inquire about.
5. Cash is King. Dave Ramsey says it. Your grandparents preached it. Cash money has advantages when a seller is really in a pinch. Being able to deal immediately with no contingencies is worth a lot to sellers who are desperate. I recently saw a seller knock $70,000 off a $190,000 property because he received a cash offer with no contingencies to close as soon as the attorney could do the title work. These are the instances when having a mattress full of money gives you leverage in negotiating a good buy.
Be patient and have a punch-list of traits you want your land to have. When you identify the right property at a fair price, be ready to pull the trigger and make an educated offer. I see prospective buyers drag their feet and waste valuable time over-analyzing great buys. Due-diligence is imperative, but be educated enough to jump on an opportunity when it arises. You can always have contingency clauses put in your offer to purchase that give you an “out” if the deal isn’t as sweet as you originally thought. Have a network of professionals such as foresters, land agents, surveyors, or cooperative extension agents that can help evaluate and offer advice when you do locate a candidate.
If you are going to make a low offer, make it easy for the seller to say “yes” by offering to pay closing costs or making other concessions. In business, for the long run, it helps when everyone is a winner. You will find doing your homework will have paid off when you are sitting at the closing table pleased with your purchase and a seller across the table that is a winner too.
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Excellent article and very timely.
>You should inquire about a seller’s motivation before throwing an offer out there< Sorry Jonathan I don't think this has anything to do with the price. Most Sellers don't want to say they have to pay off the spouse or that they want to make 30% more than fair market value. I believe it is the duty to inform both buyer and seller to how a negotiation can go. As a Realtor I have to take all offers to my buyer, even when the buyer tells me to kiss my grits. How do I not know that since the last time he told me not to bring an offer the spouse got the house. Also remember that your article may sound correct for Alabama but in other parts of the country the market looks different and experts are finding it difficult to determine fair market value because comparables have dwindled. The buyer has the right to make the offer and the seller has the right to say no or to counter.
Sounds as if the Alabama land market is mostly the same as here in Kansas. Great points especially that rural land can take up to a year or more to sell and that is typical.
Steve- Thanks for stopping by and reading the article. Glad you enjoyed it.
Bill- You and your family obviously have a great deal of experience in the Virginia land market, and your ALC designation tells me you have worked very hard as a professional. If you are a buyer or working for a buyer (the aim of this article), part of your due diligence should be asking the seller or their agent how motivated the seller is to trade on a property. You can find out a wealth of information simply by asking. If I am a seller’s agent I am not going to answer that unless the seller has authorized me to do so.
About 8 weeks ago I helped a buyer client make an offer on a property. We made a strong first offer, and the seller countered back at full-price. We agreed to pay full price for the property because it was a good value. The sellers decided that since we were willing to pay full-price their land must be worth more. So they rescinded their offer and raised the price another $300/acre. Now if motivation isn’t a factor there, I don’t know what is.
Realtors are duty-bound to present all written offers, I get that. It is also part of our job to advise and offer counsel. Ultimately we aren’t concerned with a buyer’s or seller’s rights to make offers or reject them: let the ACLU or Supreme Court worry about that. Our job as agents is to close deals. We do that by representing our clients’ interests.
Thanks for chiming in on the article.
Marisa- Good to see you on here as well. Hope things in KS are going well.
Currently, people are being very selective in what they are making offers on and what they are willing to pay. There are a lot of great deals / investments out there right now and many feel that if a seller does not take their offer, that there will be another property or better deal out there that they will find.
In both the good times and bad times, sellers never seem to accept the fact that their property is not worth what they feel it is actually worth. But indeed this a buyers market. I both see and talk to numerous land investors and many are asking themselves, “Well this seems like a good deal today, but what could I pay for it next year if the economy continues to deteriorate?”
The good news is that transactions are picking up here in Alabama and the phone continues to ring! So there are still buyers out there.
Mitchell Kessler, ALC, CCIM
Kessler Land Agency, Inc.
If you don’t care about what you buy or where it is, this IS a buyer’s market. However, if a certain location or characteristics of the land are important to you, you’ll typically have to pay a fair price. For a lucky few, the right property at a bargain price becomes available.
Both buyers and sellers need to understand today’s market and we, as REALTORS, need to be the educators. We can do a lot to help people understand how their offer or counter-offer may be interpreted on the other side of the table.
Mr. Osterloh,
That is a good observation about the availability of good deals if you don’t care where you buy land or what features it offers.
I was wondering if anyone out there is seeing buyers willing to compromise on their list of qualities they are seeking in a property or buying lower-grade land just because it is cheaper?
I feel like people are still opting for value (traits they are seeking) over price-per-acre. Land (in my market) is not like BigLots. People don’t necessarily buy junk because it is cheap.
Johnathan,
I would defintely say in Kansas that people hold out for quality land and don’t give up on their features list (tillable, pond, timber) much either. The cheap low quality land lags on market for years and seldom sells.
Telling the seller your intended use for the land is not a bad idea, maybe they won’t get so mad when you come in at a reasonable offer for land intended for farm use. There is just no way on earth someone can get started in farming with the current land prices, it just doesn’t compute. Hobby farming is one thing, but you better be willing to loose money to play farmer. I think people need to get realistic about rural land, you can only build so many houses.
A good farm should be returning at least 7% on investment or 100% on farm costs, there doing it right now, do the math, see the history and buy, also look at the lifestyle value, when things boom, city slickers will pay many times the agricultural value of a farm if there looking at a river or the sea, why buy the back blocks when the front blocks are a bargain, when negotiating go for terms or the equipment not a discount, farmers like people who are like them, prepared to work hard and get there hands dirty, don’t buy a farm in a suit, don’t tell to many lies, get on a tractor and go for it.
Sold Morriston FL acreage during ’05 boom. Picked up 2/1 br-on-farm 235 hse on 2 AC in SE Al. Pocketed as much as possible. Been here 5 yrs. Fed Ag subsidies save the bigger. Hope to get back into FL tax deed sales from cash as econ falters. Al tax cert situation could pick-up. Possible tax code changes could big $$ to big sharks taking down large inherited parcels if inherit. tax chg!!!