Why Does Land Change Hands?

“Buy land, they aren’t making any more of the stuff.” This is the seemingly universal fact that people know about land. Everyone knows that they are supposed to buy and hold onto land, but land is constantly on the market. So why do people sell land?

People sell rural land for any number of different reasons. This past week I listed a property for a family who wants to sell their rural farm in central Alabama to buy a home on the Gulf Coast (relocation). A landowner called last week needing to put his farm on the market because his accountant made a mistake over a 3 year period and he now owes hundreds of thousands of dollars to the IRS in penalties and interest. Two years ago I sold a recreational property for a man who was out working his land and had several tick bites. The medical complications from the bites became so bad that he was no longer able to use the land he loved.

There is a plethora of reasons people sell rural property. I looked at the 33 transactions I have closed over the previous 18 months, and there were five basic motivations for selling that characterized those transactions. Many real estate agents around the country will have clients with different motivations for selling their properties, but these are directly from my most recent sales. My area does not see much of the commercial driven sales or transitional sales where farm land is converted to residential developments, so that is a glaring hole in what many other brokers would be seeing.

Estate Transition (17/33 or 51.5%)- Rural properties in my area often change hands when there is a transition in an estate. Someone passes away, and heirs inherit land where they do not live and do not use. These heirs often sell the property because they have no desire to use it or be an absentee owner. This is by far the number one factor land sells in my market.

Investor Selling (9/33 or 27.3%)- Investors have purchased properties to hold, then when the time is right they are ready to sell their land. Some of these were tracts an investor bought and cut the timber or where they improved the property and put it back on the market. These types of sales in my area are most often driven by buyers looking for recreational properties. Investors are selling directly to end-users. These investors often turn around and do a 1031-exchange into another property, and do it all over again.

Relocation (3/33 or 9.1%)- When you’ve got to go, you’ve got to go. Land is not easily portable, and so to make the move people have to sell in one location and move to the next.

Asset Transition (2/33 or 6%)- These transactions took place because the property owner needed to buy a different class of assets. The seller was ready to trade in their rural property for cash for their business. Land is a great asset for long-term investment that generally holds its value well. These owners needed to move on to their next project, so we sold their properties.

Liquidation (2/33 or 6%)- Most often prospective buyers of rural land in my area think this is the driving motivation for all of our land sales, but as you can see that is not the case. Most landowners I deal with obviously inherited a property, and are not pressed to sell it for a fraction of its worth. In 18 months, I have only sold 2 tracts where the owner “had to sell”. This is the opposite of many real estate markets around the country, but in west central Alabama we just do not see many “fire sale’’ opportunities.

My sales record is probably not indicative of what most other land professionals see around the country, but it is a representative picture of what my market looks like. My hope is that this article paints a more realistic picture of what drives rural land sales, particularly in my area of west Alabama. Brokers, you are welcome to share what motivations drive sales in your markets.