Jonathan Goode

Why in the world would a landowner hire a land agent when doing a deal with a neighbor or adjoining owner? That seems like the most slam dunk deal that any landowner could find himself in. Let’s address a few of the reasons why this can be a good idea.

 

Dave Milton, president of AlaLandCo, and I have had a running discussion throughout 2011 about becoming a trusted advisor for our clients. Our desire is to be more than just an agent, but to be the go-to source of information for anything pertaining to land. At AlaLandCo, we do not merely “hock” land; we offer solid advice about ways to improve any land transaction for our clients. So this article is in that vein of thinking.

 

Sometimes Neighbors are not so Neighborly- Ever hear of the Hatfields and McCoys? For 23 years these “neighbors” from Kentucky had an all-out war, sparked by a pig that had crossed from the land of one family to the others. Everyone in the land business has heard stories of deals gone sour between adjoining owners. Hiring an agent to help navigate the trouble spots in a land deal can save lots of frustration if a problem arises. One of the biggest potential icebergs for sinking a deal is when a landowner is selling a property that he does not know has a problem with the title, boundaries, or something for which he was honestly unaware. In my experience, problems arise in nearly all real estate transactions. It is the response to that issue that determines whether the deal will have a successful outcome or not. People do not naturally respond well to problems that may affect their pocketbook. Having a good agent to steer the negotiation can help avoid a costly shipwreck.

 

The Dirt is in the Details- I had a client that sold 40 acres along a state highway to a friend of his. He owned 120 acres, sold the front 40 to his friend, and kept the 80 acres in the back. 5 years after that transaction he decides to sell the remaining 80 acres. In the original deal, he did not reserve an easement in the deed to get to his back property. The “friend” is now reluctant to have people driving by his house and wants to make sure he controls who his new neighbors are. He has held the 80 acres hostage for two years, and the seller is reluctant to sue his “friend”.

 

A good agent would have advised his client on the front end to reserve an easement for ingress and egress. At that time I guarantee the easement would not have been a barrier for the buyer to agree to. After the ink dries, everything becomes subject to renegotiation. Other similar considerations would need to be given for water and mineral rights, shared fences, boundaries and a host of other potential snags. Settling these on the front end will help keep thing amicable for parties on both sides of the fence.

 

You have a Scapegoat- This past month I was hired by a landowner to help negotiate the purchase of tracts that touch his property. We made strong cash offers on two adjoining tracts, but were unable to reach a meeting of the minds on either. We offered more than the fair market value of each, but neither of the adjoining owners were willing to accept those terms. The point is that they are all still neighbors after the failed negotiation attempts. Now when they pass each other on the road or in the local café they can be neighborly. I was the go-between and any frustration or disappointment was dumped on me, not the other owners. This paves the way for making a successful offer in the future. If there is a breakdown in negotiations it is easier to throw the agent under the bus (figuratively I trust) and be able to have a peaceful co-existence.

 

But an Agent Costs Too Much- I would ask a broker or agent to work for you in this sort of transaction for a reduced fee. Most will be agreeable. In a situation where the agent does not have to go out and secure the buyer or seller they are more likely to agree to work for less money. I stress to my clients that I do not earn my money advertising or showing land. I really earn my money once the contract is signed and bringing the deal to a successful close. A good agent will make or save you more money than they cost.

 

If you still don’t buy into my concept, think about what happens in many do-it-yourself projects. How many times do you wish you had paid the plumber, accountant, mechanic, or dentist to do something properly out of the gate instead of living with regret over a leaky faucet, noisy car, or ragged smile?

 

As a landowner, you should find a broker or agent that can be your trusted land advisor. Wear them out asking advice, current sales information, or any question you can think up about land. Then when the time comes let them help you make money and save grief in a land transaction. You will be well-served by having a quality land professional in your corner, even when dealing with an adjoining owner.

Most of the people in America are in agreement on one thing right now: our national economy is a mess. Those who keep tabs on the land markets across the country would share that sentiment for recreational and timberland tracts. From what I experience first-hand in Alabama and the anecdotal evidence from land professionals in other regions shows that in many locations across the country timberland sales are way down.

The bright spot in the land market right now is good agricultural land. Arable acreage in the Midwest and the Mississippi Delta is selling at all-time highs; bolstered by strong commodity prices and investors like George Soros betting that the demand for food will increase dramatically as the world population grows in the coming decades.

I believe what is happening in the timber and recreational segments of the land market right now is akin to a major logjam in a river. We have many factors that have combined to form a major blockage in the flow of land sales that were happening from 2004 to 2007. We all know that what happens in the global economy now trickles down to our local markets. Thomas Friedman is correct, “The World is Flat”, and so there are many more forces at work that affect our local land sales than even a decade ago. I am not smart enough to identify and address even a fraction of those factors, but there are three main logs in this jam that I think we can put our finger on that we have some influence over. Running a successful business right now means you have to focus on what you can influence, and work hard at tilting the table your way.

1. Behavioral Economics of Sellers- Understand your product (land) and work to understand people. Markets fluctuate, circumstances change, but human nature is relatively constant. Personalities vary, but there are traits that most people share in common when it comes to their money and assets.

Most landowners will feel like their property is worth more money than the exact same type of property across the road or next door. It is worth more money for one very important reason: it belongs to them. This is called the endowment theory, which boiled down is, “mine is worth more than yours because it is mine.”

In addition, human nature makes us hate losing money. The average person has more anguish over losing $1000 in a deal than they have joy over making $1000. This is called the risk aversion theory, and that coupled with endowment is why so many sellers say, “I am not going to give my land away.” It is as natural a reflex as your knee bouncing when tapped by a doctor’s mallet.

In an investment, if you had a 100% chance of making $5,000 or an 80% chance of making $6,000 which would you choose? If you had to sell and you had a 100% chance of losing $5,000 or an 80% chance of loosing $6,000 which would choose? Most people choose option A in the first question and option B in the second. That is exactly the opposite of what a smart investor would do. The upside is almost certain in the first question and the downside in the second has a strong chance of increasing your losses. So choosing option B in the first example almost assures you of making 20% more money, and you are almost certain you will lose your $5,000 plus 20% if you chose option B in the second example. We make those decisions because we naturally have an aversion for risk. (I found a similar example in a TD Ameritrade investment class I took this year.)

It is our job to provide the most recent and accurate information about what a landowner’s property is worth in our professional opinion, and then help them make the decision as to whether they are willing to sell their land in this market.

2. Financing Difficulties- Securing financing for rural land is more of a challenge than it was five years ago. Land professionals need to be more educated about the possibilities of financing acreage. Having preferred lenders to recommend potential buyers to is a good start, but having a working knowledge of USDA Rural Loan Programs, owner financing options, and 1031 exchanges are also very helpful.

3. Lack of Consumer Confidence (Scared Buyers)- The plain truth right now is that people are uncertain about the future of our country and are afraid to turn loose of large amounts of money. A recent Gallup poll showed that 81% of Americans are dissatisfied with the way our government is being run, and they believe that $0.51 of every tax dollar is being wasted. That fear is causing paralysis when it comes to making major purchases.

However this distrust of government and fear of the unknown is opening markets for mini-farms of 10 to 20 acres where families can grow their own food and get out of cities. The 2010 census showed that over 83% of Americans now live in the 331 largest metro areas, leaving roughly 17% of our populous in rural areas. Land professionals have a unique knowledge that 83% of the population are not experiencing on a day to day basis. That means the odds are highly in our favor when someone is ready to purchase rural land. By showing a prospective buyer that investing in land is historically safer and a better investment than buying stocks or gold, you put them at ease with the purchase and increase your probability of making a sale.

The flow of the land market is shifting. Just as a logjam in a river causes the flow to change course, so the cumulative effects of the global economy are shifting rural land buying trends right now. Farmland in the Mississippi River Delta and Midwest is at all time highs, Florida citrus farming acreage is down 36% since 1996, China’s imports of pecans have created a demand for pecan orchards; these are all trends that are happening because of forces outside their regions. When a stream changes course it erodes part of the old bank and makes a new shoreline. The same is true in the land market. This logjam is creating new opportunities. It does us no good to pine for how things used to be, all of that has been washed downstream. This logjam is moving our industry in new directions and also building up demand for when the economy recovers. Opportunities to make money are out there. This logjam may be just the thing that helps take your business to the next level if you are prepared and are willing to accept the chang

61 acres +/- of beautiful land for sale near Fayette, Fayette County, Alabama for $161,000. Twin Springs farm is a gorgeous tract that has been in this same family for over 80 years. The current owner has been running cows here since 1999. The land consists of approximately 40 acres in pasture and the balance in woods. Two nice barns provide ample storage space for equipment and hay. The property is fenced with extensive well-maintained cross-fencing throughout the tract. There are two catch pen areas and two head catches for the cattle operation.

 A 2004 mobile home in great condition is also being sold with the property. It is very clean and in good repair with HVAC and a septic tank. The mobile home is serviced by Alabama Power and water from the town of Berry. I had Verizon telephone service here, and the owner has used wireless internet from AT&T for some time. The old home place is still on the property and could be used for dry storage or with a little work could be repaired and made a guest cabin.

Two springs flow through the property, providing water to the livestock year round. This property would make an amazing horse farm or an exceptional game day farm for University of Alabama fans. Aprroximately 50 acres is on the west side of the road and 11 acres or so is on the east side. The east side is not fenced, but there is a superb garden spot just across from the mobile home. One of the barns has a storm shelter room built in. The view from the deck is really nice.

The area is peaceful and secluded, we didn't see or hear a car for two solid hours as we toured this property. It is 12 miles to the Super WalMart in Fayette. Lots of wildlife travel through this property. We picked up turkey feathers in several different spots and found deer sign in the back food plot. You could hold great dove shoots or manage this tract for quail habitat as well. The possibilities on this tract are nearly endless. The mineral rights are included with this tract and the owner has received small royalty checks in the past 3 or 4 years from a gas well operating in this section. The farm is well kept, functional, well-priced, and ready to go. Showings are by appointment only please as it is still a working farm, so please contact me today for more information.

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Jonathan Goode is a licensed real estate agent with AlaLandCo that serves Perry County, Alabama. Jonathan and his family live in Marion. Agents with AlaLandCo specialize in helping people buy and sell timberland, farmland, recreational tracts, and investment properties.

Jonathan is a member of the Alabama and national chapters of the Realtors Land Institute, which is an organization of land professionals that seek to be the in their specific profession.

In addition to Perry County, Jonathan can also help you buy or sell property most anywhere in west Alabama. He has served customers and clients in Autauga, Bibb, Chilton, Dallas, Fayette, Hale, Jefferson, Lowndes, Marengo, Perry, Pickens, Sumter, Tuscaloosa, and Wilcox Counties.

If you are considering buying or selling rural land in Perry County or anywhere in west Alabama, please do not hesitate to contact Jonathan.

An Ounce of Gold or an Acre of Land?

Yesterday I noticed that the price of gold has risen to $1600 per ounce, and the thought struck me that land in my part of west Alabama is selling for approximately the same price per acre. I posed the question to two local business owners whether they would rather own an ounce of gold or an acre of land. Both men responded that they would rather own land. This is an intriguing question about investing and value.

Full disclosure, I am not a research economist, an analyst, or an investment advisor; I am a real estate agent that specializes in selling rural land, so here is how I approach the answer to the question.

The Caprice of Gold

Gold has been a highly prized commodity for several thousand years. Gold matches well with the criteria Aristotle laid out for a good money in that it must be durable, portable, divisible, and have intrinsic value. Gold is a good store of value, and its scarcity has contributed greatly to the desire of people to own it.

From a layman's perspective the price of gold seems to rise when there is a decrease in the confidence in the strength of our nation's currency. Gold began its current run up in price in 2001 at $265 per ounce and has climbed to a high this week of $1602 per ounce. That meteoric rise is being touted by experts as a reason for investors to jump into the gold market. I question that logic for 3 reasons:

Gold is at an all-time high. The real estate market bust that we are in has made me skeptical of buying anything at premium prices. If the market goes south, who is left holding the bag?

Gold is Capricious. In 1981, the price of gold had been experiencing strong gains, right before the bottom fell out and gold lost 2/3 of its value in one year. It wasn't until 2006, that gold actually reached the price it had seen 25 years before. For gold to have any value, you must have other people who are willing to agree to the value of your commodity. When an item is assigned great value but has little utility, I am always cautious.

Gold has a historic bull's-eye on its back. Feel free to disagree with me on this point, and yes I do know our currency is not tied to the gold standard any longer, but hear me out on this. 1n 1933, President FDR signed an executive order making it illegal for any citizen of the US to own more than $100 worth of gold. It wasn't until about 1974, that citizens were allowed to own gold again. With the recent spikes in gold prices and the falling value of the dollar, it seems plausible to me that trading of gold could be more heavily regulated with price controls or even stopped if the government decided it was in their best interest. I would simply cite the increased government attention at regulating the speculation buying of oil as support for that argument.

The Utility of Land

I like land as an investment for several reasons.

Land has utility. I am a function over form guy; you can tell that from my wardrobe, from my vehicle, and what I spend my money on. I believe in investing in land because you can grow food, timber, find water, mine useful substances, shape it, hunt and enjoy it. Land can sustain your life or your livelihood in many ways. Just last week I was talking with a farmer from Iowa who is having his best corn harvest ever at 220 bushels to the acre. That is a staggering amount of corn from an acre of land. Corn is just one of dozens of useful and essential commodities that can be grown on your land.

Land is historically a sound investment. Most people have heard the old saying, "Buy land, they're not making any more of it." Land has a certain degree of scarcity that contributes to its value, like gold and other precious metals. The USDA reported the average cropland price per acre in Alabama in 1997, was $1270. In 2010, the USDA survey shows a $2700 per acre price for cropland in the state. That is a 112% increase in price over the past 14 years, for a nominal rate of return of 8% annually through that period.

Private land-ownership is essential for our government to function. Local governments across the nation depend on private landownership to stay in business. Each local government appraises real property and assesses ad valorem taxes on landowners. These property taxes are used to fund schools and other essential government functions. It is highly improbable that the right to private landownership would be denied or that vast amounts of land would be taken by imminent domain. Where the government might see a potential threat to its currency in a commodity like gold, private landownership would still be an essential revenue stream for local governments.

Land equals Opportunity. America has been called "The Land of Opportunity", and I would say that land equals opportunity. It is exactly because of the historical value and multitude of uses of land that it presents so many opportunities as an investment. You have flexibility (in some types of soil) to grow row crops, or graze cattle, or plant trees based on whatever has the highest rate of return. Land has potential for development and there is always a highest-and-best-use consideration for a property. Owning land is an avenue to having revenue generating streams as well as possessing an asset that has real value.

John D. Rockefeller is quoted as saying, "The major fortunes in America have been made in land." I tend to agree with his assertion, after all he managed his wealth successfully. Given the choice between an ounce of gold or an acre of land, I take the land every time.