Looking to buy ag real estate? Land auctions are an exciting avenue for purchasing ag real estate, but they require preparation to ensure you are making an educated versus emotional decision.
Familiarize yourself with the process and learn best practices for aligning a land purchase with your long-term goals by reviewing this checklist before attending a land auction.
Get Approved for a Land Loan
Prior to the land auction, work to get your land loan approved. Contact your lender or fill out an online application.
To provide pre-approval prior to an auction, your lender will ask for your balance sheet and past tax returns, information on the property and its intended use.
You’ll need to provide the maximum dollar amount you want to pay for the land. Ask your lender about resources they may offer to help you analyze nearby land values to help you decide the maximum dollar amount you want to bid.
You should also be prepared to answer:
- Will you need an approval letter from your lender to be able to bid?
- How much earnest money is required the day of the sale, and will you need your lender to cover that amount?
- Do you understand the tax implications for owning the land?
- How do you want to take the title to the property?
Approval can also help with the speed of closing by allowing you to sign the purchase agreement and proceed with ordering title insurance knowing that you have financing secured.
Visit the Property
Access, location and suitability influence the desirability and therefore the value of land. If you live in the area where the land is being sold, drive by the parcel and evaluate it.
- Does the parcel have good access for ease of farming?
- Is it located on a well-maintained road?
- Is it located by an ethanol plant or grain elevator?
- Are there any non-tillable areas including timber, water sources, permanent pasture or acres enrolled in CRP?
It’s easy to overestimate the number of acres suitable for cropland based on observation alone. If this information is not available in the bill of sale, get in touch with the listing agent or contact the local FSA office.
Evaluate Soil Productivity
Soil productivity has a strong correlation to land values. Understanding this and how farms with similar productivity levels have sold in the area will help you get an idea of what the farmland is worth.
Use a local lender or expert to evaluate the productivity of the parcel. Does it need improvements like drain tile or irrigation to maximize productivity? If so, how much do those improvements cost?
Soil productivity is also a prominent factor in determining the cash rental rate or potential revenue generated from a flex or share agreement. This is a key component in financial analysis of the land purchase – will the land generate a positive cash flow after paying operating and ownership expenses as well as debt payments.
Consider Farmland Rental Options
Leasing can be a financially rewarding partnership for landowners and their tenants. If you will be a non-operating owner buying a parcel in a new area, do you have contacts in the area who will want to rent the ground?
Are you familiar with the various kinds of lease agreements available and understand which best suits you and your tenants’ needs? Farm Credit Services of America provides an overview on how to evaluate alternative farmland rental agreement options.
Determine the Method of Sale
Before auction day, it’s important to understand how the land sale will take place and the methods of bidding. The auction may be conducted in different ways, which may include:
- Traditional, in-person auction with an auctioneer.
- Online only – Similar to an in-person auction with an auctioneer, conducted virtually.
- Timed online auction – An online auction with a set close date.
- Hybrid auction – In-person and online auction.
Understand how the land will be sold:
- Will land be sold as individual tracts or multi-parcel?
- Will the auction be open or sealed bid?
- Is there a “right of first refusal” in place with another party?
On Auction Day
If you’re planning on buying land, you can reach out to the auction company in advance to ask questions. You can be prepared on auction day by:
- Understanding the terms and conditions – Is it a 30, 60 or 90-day close? Is the farm being leased?
- Know your bidding options – Can you only bid in person or is there an option to bid online?
- Arrive or log-in early to ask the auctioneer questions and avoid any last-minute issues with the bidding platform.
- If you’re attending in person, decide where you want to sit – In the back of the room if you need to make a phone call, or near your trusted advisor or neighbor.
- Determine when you want to bid.
Whether you are attending a land auction for the first time or are an experienced land buyer, the proper preparation, research and planning will ensure that you are well-equipped and well-informed to make the most of your next land sale.
Get expert tips for preparing, bidding and closing on ag real estate.
From our webinar on Land Auctions: How to Prepare and What to Expect, you’ll learn how to ensure financing is in place prior to the auction, steps for evaluating land values, tips for auction day and the process after the auction to close on the purchase.
