How to Fairly Sell a Family Farm?

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How to Fairly Sell a Family Farm

Millions of acres of land are sold daily. However, there are few resources available to guide people on how to sell a farm.

On the offline side, you can consult a wealth manager, lawyers, trust companies and land brokers. However, these people are generally greedy. They will tell you deals that will benefit them and not you.

In this article, we will discuss how to fairly sell a farm. So let’s get started.

Price

Price is the first thing that comes to mind when selling your farm. You would not want your hard-earned money to be wasted. There are some questions that you can ask yourself in this step:

  1. How much it cost us to build this property?
  2. How long we have been living here?
  3. What is the land price in our locality?
  4. What amenities are available in our farm?
  5. Any other question that you think is relevant.

Once you are done, you will get an idea of an ideal price. Ultimately, an appropriate price would be where you and the buyer could agree.

You can also compare the price of your land with similar lands in your city. Moreover, you can also find out the capitalization rate. For example, a rent of $5 on a $100 farm would put its capitalization rate at 5%.

These two things are enough to get a fair idea of the price.

Terms

Most people do not understand the value of this part and tend to avoid it. However, you must understand that terms and conditions are as important as the price.

Terms can include many things, like the time of selling, who will pay for the transaction cost, who will pay the fees in the legal process, etc.

You can contact a renowned lawyer in your city for this process. Do not try to do this on your own. This is a legal process and a single misuse of a word can put you in trouble.

Some common terms and conditions are leaseback agreements, hunting rights, right in case of resale, lease agreement, mineral right, etc. There are so many things that a seller would like besides the purchase price. All these should be considered in this part of the process.

Land Characteristics

You must know everything about your property before you go to sell it. You must know how much similar properties are costing in your locality. You must also know how much a buyer would want to pay for the property.

You must not keep a price that is over-budget. One thing you can do is compare its characteristics with other properties in the town and then decide its price.

Some characteristics you should consider are:

  1. Size of your property
  2. The land is tillable or not
  3. Irrigation
  4. Field slope
  5. Drainage tile
  6. Soil quality
  7. Distribution of various tracts
  8. How much crop it can yield
  9. Buildings and other important assets that make up the property

All these characteristics can influence your price.

Each of these factors can make your property more or even less attractive. For example, a small size farm will get the best price from local investors or a neighbor. However, large farms are usually bought with land funds.

Spend a considerable amount of time in finding out the characteristics of your farm.

Buyers

You should know the different types of buyers available in your market. This will help you to identify your potential customers.

If you live in an area where auctions are very common, and prices are well defined, then selling your farm would be a cakewalk. A proper farm estate planning is very important to sell your property.

On the other side of the spectrum, if you are living in an area where land buyers are few then it would be a bit difficult to sell it. If government laws restrict corporate ownership, then it would very difficult to get a fair price for your land.

Leases

It is a thing of common sense that most of the farm buyers would be farmers themselves. They would use your land for farming.

Try to make a long term lease agreement. This would not only help you to avoid unnecessary legal activities but also to get a constant flow of money. A long term lease also helps you to get a farmer for a long time.

Moreover, this is also beneficial for the farmer. They would be free to make long term decisions on the property. If the property is tillable, a long term lease would help him to get better yield.

Family and Financial Characteristics

You as a seller and your buyer should also discuss the structural and financial characteristics of the transaction.

If you are dealing with a family farm and have some siblings, then you must discuss it with them. If one sibling wants to sell the property and the others don’t then you will have a difficult time convincing them. Moreover, there are many memories associated with a farm which can make this process more difficult.

You should also know about all the taxes and laws associated with farm selling. At some places, the government levies very high taxes on the farm selling to avoid such transactions. If you live in this type of place, then it would be very difficult for you to sell your farm.

The Bottom Line

Selling a farm can give you lots of cash as well as freedom. However, the process is not very simple and straightforward. There are tons of things that you should keep in mind while selling your farm.

Having a solid understanding of all the legal requirements can be of great help. If not, you should consider hiring a lawyer.

Family matters should also be sorted. It should not be the case that one sibling wants to sell the property and others are against it. It is your family farm and your whole family should be willing to sell it.

At last, establish a good relationship with the buyer.