The sale of farmland is rarely cut and dried- not only are there many factors that affect the value of farmland, there are many potential obstacles that both buyers and sellers need to be aware of. In this guide, we will discuss some of the challenges that arise when buying or selling farmland and provide practical tips on how to overcome them.
Situational Challenges
Understanding the Local Market
One of the biggest challenges in farmland sales is understanding the local market. This includes knowing the current trends and prices for similar properties in the area. Researching historical sales and mortgage history, along with examining the local real estate market in general, can help determine a fair price for the property and avoid overpaying or underselling.
Environmental Factors
Farmland sales can also be influenced by environmental factors such as soil quality, water availability, and potential contamination. These factors can affect the land's productivity and may require additional costs for remediation or mitigation. It's important to thoroughly analyze the land in order to market it properly and estimate its value.
Using LandGate's interactive map, landowners can receive a free property report detailing information about their land and its unique attributes along with free lease and sale estimates:
Pre-Existing Challenges
Long-term Leases & Other Agreements
When selling farmland, having a long-term lease can pose a significant challenge for potential buyers. Typically, those interested in purchasing farmland want to be the ones working on the land themselves. If you anticipate selling your farmland in the near future, it's advisable to avoid entering into any long-term leases. Alternatively, if you already have a long-term lease and are considering selling, you may want to explore options such as buying out the lease or renegotiating its terms. It's important to have the lease documents readily available in either scenario.
Liens & Encroachments
Liens and encroachments are another potential major challenge to selling farmland. Liens are placed on property, buildings, or equipment that have outstanding debt until the debt is paid. Encroachments are defined as any unauthorized intrusion onto the property, either above or below the land. This can be an old fence that wanders away from its property line, an aging tree that stretches from one property onto another, or the structural addition of a neighbors home that extends beyond the legal property boundaries.
Ownership Terms
If a farm is not owned by a single-family entity, this may create issues that hinder the sale of the farmland. For farms with multiple owners, achieving a stakeholder consensus is essential before proceeding with a sale. If all parties are in agreement, establishing this consensus will be a straightforward process. However, if there is a lack of agreement, the sale of the land will need to be postponed until all owners are aligned with the terms of the sale.
Easements
Farms are typically large tracts of land that often require easements to allow for property access in otherwise inaccessible parts of the acreage. There are many different types of easements, and they are typically established with neighboring property owners or other entities, such as the Bureau of Land Management or the United States Forest Service (in the case of conservation easements). Many easements are permanent and 'run with the land' regardless of who owns it, so potential buyers will want to clearly understand these easements, their permanence, and how they affect the land’s use.
Zoning Restrictions
Another challenge that buyers and sellers of farmland may face is zoning restrictions. Depending on the location, there may be strict regulations on what can be done with the land, which may limit its potential use and value. It's important to research and understand the zoning laws in the area before listing a property for sale.
With thorough research and understanding of the local market, environmental factors, pre-existing challenges, easements, and zoning restrictions, these hurdles can be overcome. The more knowledge and data that you have about your land, the better you can be prepared to overcome these objections. LandGate's free property report is a great place to start, as it provides valuable data about farmland (soil types, topography, floodplains, and more) along with lease and sale estimates to help you get started:
