March 22, 2016
I must have seen it a thousand times. A farm sells for a high price and the owner of a nearby farm perks up. His farm, after all, has similar soil types and on the surface looks almost identical. Can he get the same price?
Maybe, maybe not. In evaluating its potential, one of our first jobs is to evaluate the “neighborhood,” because a farm’s value can be affected positively or negatively by factors that have little to do with the land itself. Recent prices in the immediate area would obviously be a major factor. If land prices have consistently lagged a nearby county, prospective buyers are going to put more weight on the more local “comps.”
Another factor is the historical productivity of the land closer by. Even if the soils are comparable, yields might be lower simply because operators and owners have been less aggressive in the use of technology and sound farming practices.
I like to drive around the area and look for visual signs of economic vitality – or the lack of it. How much storage is visible, and what shape is it in? When surrounding farms appear to be well maintained, that can be a sign that the farmers and/or landowners are doing well and may have the wherewithal to emerge as possible buyers. If I see rundown houses, poorly drained farms and rusty storage sheds, I worry that we will have a thin pool of local prospective bidders.
Reputation of the area also plays a role. Whether we like it or not, investors have biases. They may perceive one county as a great place to own a farm, while overlooking another farm in an area with a lesser reputation, or even one in an area with which they’re unfamiliar.
This doesn’t mean we can’t sell the farm, of course. It simply means that we have to take the local factors into account. When the base of local buyers looks weak, for example, investors from outside the area may play a bigger role. These may range from an operator in the next county to a pension fund. But one thing they all will have in common is that they’ll want to be sure they can find suitable tenants who can pay competitive rents and run their farms in a way that enhances the land and ensures the best possible result.
In the end, the market will rule. But good marketing can help you come out on the higher end of that market. At Murray Wise Associates LLC, our staff includes experts in marketing, farm management and investments. We work every day with operators and investors alike, and that puts us in a strong position to get the best results for you. You can always reach us by calling 800-607-6888 (inside the U.S.) or 217-398-6400.