New ways to buy and sell farmland

Farmers today don’t buy land with a handshake over the fence, like grandpa and grandma or even dad and mom might have done. Sales methods such as sealed bids and online auctions are becoming more common, and the key is to find the one that best suits the size, type and circumstances of the farm operation.

“There are more small parcels of land being sold by sealed tender,” says Sheldon Froese, a Manitoba realtor with Royal LePage Riverbend Realty Farm Division. “Generally it wouldn’t be on big farms, it would be on something without buildings.”

This has caused controversy in some communities, adds Froese.

“People might think they don’t have a fair chance to buy the neighbor’s land because it’s a sealed tender,” Froese says. “A lot of times we get involved to try to make the process a little more transparent, so people understand they have the right to make an offer. But at the end of the day, the seller has the choice to do what he wants.

Some buyers still prefer to go the traditional real estate route, although this process is significantly more complicated than before. The first question real estate agents typically ask their clients is whether they’ve spoken to their accountant and other professionals, Froese says.

“When I started doing this over 20 years ago, we went to see farmers when they were about to sell. We would list the farm, find a buyer and sell it. Now there’s a lot more involved,” says Froese. “There are tax laws people need to know, and if the reason for selling is retirement, they want to make sure they’re doing it right so they have enough money for retirement. For the buyer, he wants to make sure there are no hidden surprises, especially if he is buying a company rather than just assets.

A different approach to selling farmland

Saskatchewan real estate agents Tyler Badinski and his brother Vince are taking a different approach to selling farmland, and they report clients and professionals they deal with say it fills a void that’s going to be increasingly important. given the huge transfer of wealth about to take place over the next decade in agriculture.

“Today there are a lot of farmers over 55, with no succession plan in place, and that can make it difficult to sell, especially to family, because values ​​have inflated so much,” Badinski says. “Growing up on the farm, we had a succession plan, but no one knew what it was because we didn’t really talk about it. So, I’m passionate about helping our customers make sure they’re actually ready for it. What sets us apart is that we sit down with the lawyers, accountants, financial planners, agricultural advisers and say, “Is this client ready? Did they have the necessary discussions? Are they prepared for taxes? »

Tyler Badinsky.

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If necessary, Badinski says he will advise a client to wait to sell if they are not ready.

“We actually talked one client off of listing his farm because he wasn’t financially prepared,” he says. “The tax implications were in the hundreds of thousands for him to sell at the time rather than wait a year or two later. We never advise outside of our scope of our license but growing up on the farm gives us a lot of understanding and empathy for what they are going through so I am able to communicate with customers about their situation and point them in the right direction. guidance as needed. »

Badinski, who founded Serca Realty five years ago, believes the role of agricultural real estate brokers is changing and a big part of that process is making sure sellers know the value of their lands.

“Another reason I got into this is to make sure sellers were made aware of the value of their land and that they weren’t leaving money on the table,” he says. “You always have to have a fair deal for everyone, but a fair deal shouldn’t be a buyer buying for $500 an acre less than he knows it’s worth just because the seller doesn’t. not.”

He also sees real estate being viewed as less of a one-deal deal going forward.

“If a Ma and Pa operation with 10 neighborhoods and no children to care for sold those 10 neighborhoods, it was still considered a one-time transaction, and that’s it,” says Badinski. “We take the approach that we sit down with our clients’ other professionals to make sure they are ready before, during and after the sale.”

The virtual world of agricultural real estate sales

Although farmers have long been accustomed to buying equipment at auction, and these auctions are increasingly taking place online, are they so eager to buy farmland in this way?

The answer is yes, according to Jordan Clarke, director of sales at Ritchie Bros. Auctioneers, which has been selling traditional and online auctions for 60 years in Western Canada.

Jordan Clarke.

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“Farmers are certainly becoming more comfortable with online real estate auctions, and around Edmonton and northern Alberta it’s almost the preferred method,” Clarke says. “We have had very successful sales across Western Canada for farmland.”

To some extent, the COVID-19 pandemic has caused many companies to change their business model to online bidding, but online real estate auctions have been gaining momentum for several years as they offer a lot of convenience, flexibility and various options depending on the seller’s situation.

Selling real estate at online auctions is really no different than selling farm equipment. The ultimate goal is to create competition and get the best result for the seller, which practically opens up a much larger and potentially larger audience.

“The more people involved in the auction process, the more demand there is,” Clarke says. “Generally they bid against each other and push the price up. And that’s a very good scenario for a seller, because that’s what he wants, he wants competition and he wants to sell at the best price.

Online auctions may not be for everyone, but for some, especially retired farmers, the certainty of a sale can be a motivating factor to use this method instead of going through a real estate company or tender.

“With a farmer retiring, his farmland can represent up to 80% of his total wealth in some cases,” Clarke says. “Their retirement is integrated with their land, their improvements, their yard and their equipment. When they reach the point where they want to sell and move on to the next stage of their life, with an unreserved auction, there is certainty of a sale on auction day.

The internet has definitely opened up many more options in terms of selling agricultural real estate than ever before. Clarke says Ritchie Bros. may also offer a direct commission on the proceeds of the sale, or a guaranteed net price which is set before the auction and ensures that the seller gets a guaranteed amount regardless of what happens in the auction.

“Through our online marketplace, Marketplace-E, clients can also test the market with a reserve, so they can accept offers and see what their property is worth,” says Clarke. “We have an option that will cover any seller’s risk tolerance.”

There are also benefits for buyers.

“There are a lot more variables when it comes to selling or buying real estate, so buyers sometimes need more time to think things through,” Clarke says. “With an online or timed auction, they can pass that time, as opposed to a traditional live auction where the auctioneer sings for a minute, and they have 10 seconds to raise their bid before someone ‘one else does.’

Five years ago, most auction companies held live auctions, and it took a lot of capital to get into the auction business. Since COVID-19, with such a massive shift to online services, these barriers to entry have largely been removed, so many new businesses are offering auction services. Sellers therefore need to do their homework and ensure that the people they are dealing with are qualified and compliant with the rules and regulations not only for real estate sales but also for the auction.

“We sell from British Columbia to Manitoba and the rules and legislation are different for each province, so we have worked hard to ensure that we are 100% compliant with the requirements and rules of these jurisdictions to give confidence to our customers,” Clarke said.

Release the pressure

Whether they’re selling a few quarters or the whole farm, it can be a stressful process for farmers who have to make a tough decision about who to sell the land to, and that’s where an online auction can help. to relieve some of the pressure.

“The majority of our customers live in a rural setting, where they have friends, family and neighbors that they have worked and lived with for many years, and no matter who they end up selling to, there will be challenges. people who might be upset. didn’t get a chance to make an offer,” Clarke said.

“When a farmer puts land up for public auction, the pressure is no longer put on the farmer because everyone has an equal chance of clicking that auction button, and ultimately whoever has the highest bid receives this real estate.

Clarke also advises farmers not to sell themselves short. “Sometimes farmers don’t fully realize the competitive scope of the market,” he says.

“They may want to sell to a neighbor they like, and that’s fine, but there could be other people who would have paid more money. It’s a high-demand market right now, and there are farmers looking to expand, so they’re aggressive and ready to spend more money. Just because a certain amount of dollars per acre has already bought land in an area doesn’t mean it will tomorrow or the day after. Through the auction process, we can provide a clear guarantee that the low end is covered and there is price discovery on the high end with no cap on value. It really is the best of both worlds.

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