It goes without saying; we certainly are in a depressed economy with very little consumer confidence. I don’t want to analyze how or why we got here or when recovery will be apparent. Everyone has an opinion of this, but I believe we are at the bottom and we will slowly climb out. What we do want to discuss is strategy for buying and selling land.
Following are a few facts to help with perspective. Millions of acres of timberland, rural land, residential and commercial land have been sold in the last ten years. Real estate has had quite a run up until the middle of 2008. I would estimate 75% of rural properties I have sold were a result of a 1031 tax deferred exchange. Residential and commercial properties have overbuilt and now have a huge inventory of excess product. Banking regulations have changed and credit is very tight and scrutinized heavily. Buyers can no longer get 100% financing and have to put anywhere from 20 to 30 percent of their own funds down. Financial institutions do not want to take back property because they are already faced with having to manage a considerable amount of foreclosed and repossessed assets. The bubble has burst and a new cycle begins. This is a natural cycle, however unpleasant it may be.
To those of you who wish to sell your land, we have several questions you must answer for yourself. Do you want to sell or need to sell? Can you wait one, two or more years for a recovery in your market? What is your “guess” as to how long the recovery will take? What is your property really worth in this market? What price can you put on your property that will actually produce a buyer? It does no good in this economic climate to over price land, because there are few buyers (low demand) and endless property for sale (excess supply). What your property is worth or should be worth are different in this market. This is why you need an Accredited Land Consultant to evaluate your property and assign value to whatever possible. We must prove why we are asking this price. Part of this valuation is based on knowing what properties are competing against your asset. This is why I ask if you want to sell or, need to sell. You need to be honest with your realtor so he/she knows how to proceed in a buyer’s market. There is no need in a land broker trying to sell an overpriced property in this market. It takes considerable experience and market awareness to assess the various assets of your property to produce a realistic sales price.
So, the shoe is on the other foot. We have not seen a drastic change in rural land values. We have not seen many sales of any sort, actually. Credit is virtually unavailable and you must utilize your funds as the down payment. The bank wants your money at risk with theirs. Appraisers have difficulty in finding value and difficulty finding comps. If you have cash, you are in the driver’s seat, and there are deals to be had. As mentioned in the above paragraph, you need to know what assets make up the value. What is on the market or not on the market, but could be bought. Sometimes value is not a tangible asset but maybe a matter of character, location or future use. We can help you with these questions. One mistake I have witnessed time and time again is buyers will not make an offer. Land is priced too high and the buyer does not want to insult the seller. Make the offer! In this market, you have to make the offer, as you never know what the seller will do until he/she has the money available to them. It is a very interesting position to be in when you have an offer on the table. Do you counter and risk the buyer walking away, or just accept the offer. We have had several offers and they were countered. The buyer walked. This is an excellent way for the seller to gain perspective of our current market. We usually do not tell the seller who the buyer is and almost never let them meet one another. Do your due diligence, and if a property interest you, make whatever offer you think is reasonable.
We are in a cycle that no one has ever experienced. We think we are at the bottom and beginning to pull out but recovery will be slow and agonizing. Deals are to be had especially the longer this recession drags out. Good information is essential in the decision process and Green Hill Land & Timber is here to help however we can. We would like the opportunity to help you with your land and timber investment.