Turning the corner in the real estate market?

[Hardwood11]

A CRP farm (with good soils) sold for $8200/acre with 4% buyers premium at an auction in my area of Minnesota ! I was thinking $5000/5500?

Way higher than it should have ! Still has 2 more years of CRP and then it can be farmed again. This is in a county that’s not bringing that kind of money !

 

[letemgrow]

I sure hope people are paying cash for these farms....

People said $750 an acre was too much for rec land in northern MO 20 years ago.

 

[jflournoy]

As someone who makes their living in the land business, I'll throw in my 2 cents.

1) The truth is that it frequently is *landowners* who are driving the inflated listing prices, not realtors. The average southern Iowa landowner I talk to does not have a very realistic view of the actual market value of their land. And they may think they want me to tell them the truth, until I actually tell them the truth. I have had more than a few landowners walk away because they thought their land was worth a lot more than what I told them, and that was with me showing them recent comps to their land. When a landowner in one of the Iowa/Missouri border counties says "but I've heard good farmland is selling up in Dallas County for $12k/acre", I know I have to go into my explanation about why his 45 csr2 tillable ground isn't comparable to low 80's csr2 tillable ground. I recently talked to a landowner in a well-known southern Iowa county and he was a bit miffed that I only brought him 3 comps for his land while another realtor brought him 10. I told him that I started out with 10 but 7 weren't truly comparable and that's why I brought him the 3 that were. He ended up listing with the other realtor and.....the property is still sitting on the market unsold 2+ months after being listed. What can you do?

2) While there are plenty of overeager (and in some cases less than fully honest) land realtors in Iowa who are happy to let landowners think their land is worth more than it is (in order to get the listing), the truth is that the average realtor certainly does not want to see a listing sit on the market for 6 months unsold. Not much profit in that. But he also doesn't want to be without any listings. It's a catch-22. I won't take a listing where the seller has no understanding of the realistic value of their land and isn't willing to consider the hard data in form of comps. If they want to list at 20% over the realistic market value at that point in time, I tell them to find someone else to list it. I can't pay my bills with showings, I have to have sales. And listings that start out with unrealistic expectations most likely end with an unhappy seller on closing day. But there are plenty of guys who will take those listings so they can get their name out there. Some may get to that point by being less than fully honest with the landowner in agreeing with him about his perceived value of his land. Others may get to that point because the landowner acknowledges the price is high but he just wants to bait the line and see if any interested buyer might bite.

3) If only correctly priced properties were listed for sale on the market, there'd be about 5 pieces of land for sale in southern Iowa between Illinois and Nebraska right now. Maybe. The ratio of accurately priced properties is higher in northern Missouri by a decent bit.

4) The thread author's contention that high quality tillable that was going for 16-20k/acre is now going for 12-15k/acre is....just not accurate. Has it moderated *a little*? Yes. Is it still going for *premium* prices? Yes. Check out this site for up to date Iowa farmland auction prices. And prepare your jaw to hit the floor. https://twitter.com/theLandTalker

5) Rec/Hunting land in southern Iowa has not come down much in price because there is still strong demand and small supply. There was high demand before the land craze in 2021/2022, and now that the craze has moderated with rising interest rates, there is still high demand. Yes, there are lots of properties that are "sitting" on the market right now because they're overpriced and there are less people willing to reach at a high price, but if they came down in price they'd be snapped up quick at still very strong prices. There are a lot of "financed" buyers who are sitting on the sidelines right now because of interest rates, but there are plenty of cash and 1031 buyers out there still.

6) I don't have a crystal ball so I don't know what the future holds. I expected we'd already see more moderation in prices than we have. As long as inventory is low and there are plenty of buyers for good land, in my opinion it's going to take a pretty strong negative economic cycle to see even a moderate drop in sale prices. I don't think we're close to that point yet. I'd be shocked if we saw a 20% correction in the rec/hunting land market in southern Iowa. It needs to happen in my opinion, but whether it will is another question. Northern Missouri may be a different story though. Again, supply and demand.

Ok, that was more than 2 cents.

 

[Windlooker]

Thanks for your insight. This past spring the Iowa land company sold two rec farms in a week that border me. They simply listed the pieces based on ISUs semi annual land valuation. I did get a call because I bordered the listings, thought the numbers were high and tried to negotiate. His response was look at ISUs land valuation. Idk. He got asking for both. What’s your opinion on ISU numbers.

 

[jflournoy]

Thanks for your insight. This past spring the Iowa land company sold two rec farms in a week that border me. They simply listed the pieces based on ISUs semi annual land valuation. I did get a call because I bordered the listings, thought the numbers were high and tried to negotiate. His response was look at ISUs land valuation. Idk. He got asking for both. What’s your opinion on ISU numbers.

Using the countywide property sales average seems to me like an inaccurate way to value the land if that's how it was done. An average is a combination of the high, low, and everything in between. If you've got a property at the high end and you list it at the average then you're selling that landowner short. If you've got a property at the low end and you list it at the average then that's not fair to the landowner either.

 

[Windlooker]

The number he used is an average computed by ISU for SC Iowa considering tillable, pasture and rec acreage. Slick sales strategy basically telling me to argue with ISU.

 

[jflournoy]

The number he used is an average computed by ISU for SC Iowa considering tillable, pasture and rec acreage. Slick sales strategy basically telling me to argue with ISU.

Yes, I've seen the ISU numbers. If it was the "average" property for the county, then maybe the price was close to market value, but I still think there's a lot of room for error there. I looked at the average for my own county and it's above what rec/hunting ground around here is selling for and below what good tillable ground around here is selling for. Hence the "average".

I would also just comment that just because they sold the property quickly at full asking price doesn't mean that was the real market value.

 

[Windlooker]

Complete crap shoot. We don’t trust ISU computed numbers, many realtors fudge numbers etc. It comes down to how valuable the property is to the buyer and situation. In the two recent sales near me One buyer owns nearly the entire section and wanted it to add to his contiguous land. The other is a Nrlo who kept getting outbid on other farms, so he gave asking. Again, do we know true value, hence, the risks of any investment. In 20 years of watching Iowa rec ground I’ve experienced not one so called “correction”.

I purchased and sold land in 2003, 2004, 2006, 2010, 2012, 2019 and currently pending on small piece (2023) and not once has the number paid, or the so called value, decreased in the future.

 

[Slick]

. In 20 years of watching Iowa rec ground I’ve experienced not one so called “correction”.

Yes the last 20 years have been good no doubt. The gains the last 3 years have been EXCEPTIONAL. 60 to 100% in a lot of cases. The 20 years prior to that were not like what you experienced. History can, does, and will repeat its self at some point.

 

[Windlooker]

Pike County has been waiting 30 years for their correction as property is selling at 7k per acre even though many say it’s severely declined.

The 20 years before that you’re referring to had zero to do with rec ground. In fact rec ground wasn’t a thing then. People pay extraordinary money to entertain themselves and in the case of land ownership the desire is increased by a tick because you’re entertained and you own it. The farming commodities crash of the 80s is apples and oranges when compared to rec ground. I’ll keep buying.

 

[Slick]

Pike County has been waiting 30 years for their correction as property is selling at 7k per acre even though many say it’s severely declined.

The 20 years before that you’re referring to had zero to do with rec ground. In fact rec ground wasn’t a thing then. People pay extraordinary money to entertain themselves and in the case of land ownership the desire is increased by a tick because you’re entertained and you own it. The farming commodities crash of the 80s is apples and oranges when compared to rec ground. I’ll keep buying.

I didn't say stop buying.....just think the last 3 year gains will have an up hill battle to maintain current value.

 

[jflournoy]

Complete crap shoot. We don’t trust ISU computed numbers, many realtors fudge numbers etc. It comes down to how valuable the property is to the buyer and situation. In the two recent sales near me One buyer owns nearly the entire section and wanted it to add to his contiguous land. The other is a Nrlo who kept getting outbid on other farms, so he gave asking. Again, do we know true value, hence, the risks of any investment. In 20 years of watching Iowa rec ground I’ve experienced not one so called “correction”.

I purchased and sold land in 2003, 2004, 2006, 2010, 2012, 2019 and currently pending on small piece (2023) and not once has the number paid, or the so called value, decreased in the future.

There's no question that sometimes is a factor, though a "one-off" high sales price here or there doesn't mean that's the new market value for that kind of land in that area. I went to a farmland auction in Wayne County back in the Spring for a piece of slightly above average tillable ground for that area. The market said it should have gone probably in the $7-7,500/acre range, but it went for $11k+/acre as I recall. Turns out the buyer was the neighbor and owning that piece made access significantly better to the ground he already owned on the border. Great example of a unique situation, but not a new market value.

 

[deerdown]

There's no question that sometimes is a factor, though a "one-off" high sales price here or there doesn't mean that's the new market value for that kind of land in that area. I went to a farmland auction in Wayne County back in the Spring for a piece of slightly above average tillable ground for that area. The market said it should have gone probably in the $7-7,500/acre range, but it went for $11k+/acre as I recall. Turns out the buyer was the neighbor and owning that piece made access significantly better to the ground he already owned on the border. Great example of a unique situation, but not a new market value.

But these 1-offs may be one of the reasons a landowners wants to list at those high prices. It only takes 1 buyer.

And these high prices sales are the ones that hit the newswires and has everyone talking, feeds the idea that "I" might get that price too.

Why wouldn't I try?

 

[northcedar]

Realtors will be the reason to artificially inflate a land sale here this wk. It's class A+ dirt, but a well known swamp to the locals. They didn't post any yield history on the website. I emailed to ask them for some yield data. He said no. Field looks great this year since there was no water damage. Some sucker will buy it. Big auctioneer from IA starting with an S.

 

[jflournoy]

But these 1-offs may be one of the reasons a landowners wants to list at those high prices. It only takes 1 buyer.

And these high prices sales are the ones that hit the newswires and has everyone talking, feeds the idea that "I" might get that price too.

Why wouldn't I try?

You're not wrong, but *banking* on your sale being the exceptional one is a good way to be disappointed, especially if you're unaware of the reason some other property went for a higher than expected price, which is the case more often than not. A landowner hears some property in his county (or not in his county) went for some price and he figures his must be worth that too. Maybe it is, and maybe it isn't. A *lot* of factors figure in. A prudent and competent realtor doesn't just throw out a high dollar figure hoping the landowner will get dollar signs in his eyes and sign a listing agreement. Are competent realtors always right about their evaluation? Of course not. But you might be surprised the number of different things I take into consideration when evaluating a property for a landowner. Sometimes it's just a wing and a prayer because there are no recent/close comparable sales, but usually I go through a very detailed process to complete my evaluation.

I got a call from a landowner in a county bordering Des Moines last Fall about listing his land. I had sold a property in that county just a few months prior that was decently comparable, so I had a baseline to help value his property. I told him I thought we should list his property for somewhere in the neighborhood of $9,000/acre and hope for a sale somewhere in the $8,500/acre range. He wanted to list at $15k/acre and walk away with $12k/acre. He thought it should get the Des Moines commuter premium price because of location. I told him that was not a realistic expectation and I told him the reasons why, it was on the wrong side of the commuter corridor and it had about 5 miles of gravel road to boot. He stood firm and so I told him good luck and I'm sure he could find another realtor willing to take the listing. He found another realtor and they took the piece to auction (along with a neighboring piece he decided to throw into the mix). His expectations at the auction were not met and it was a "no sale". He then listed the property in a traditional listing for $10k/acre, where it has been sitting unsold for around 6 months now.

One factor that few landowners take into consideration is that the longer a property sits on the market unsold, the worse the chances it will get sold for a good price. Potential buyers generally start to wonder one of two things: 1) Is there something wrong with the property? 2) It's priced so high that the landowner must not really be serious about selling and so I'm not going to bother even going to look at the place or making a realistic offer. I have tried to explain this to a number of landowners over time but it frequently doesn't make a dent in their resolve. There's a 3rd factor that most landowners do not consider also, and that is appraisal. Yes, a cash sale is always a possibility and that usually makes an appraisal a moot issue, but you can't and shouldn't *count on* your buyer being a cash buyer. All things else being equal, you're more likely to get a financed buyer and if the agreed price is well above the normal market value then there's a good chance it won't appraise properly for the bank, then it's back to the negotiating table. Buyers frequently aren't happy about giving more than the agreed price, so often it falls to the landowner to drop his price in order to consummate the sale. Realistic expectations from the start are very important, but frequently absent. Usually makes for unhappy seller on closing day.

 

[Windlooker]

A problem with “one offs” is they now become a comp for the realtor. Hard to argue with comparables in the area. In my neighborhood I have 3 comps, 2 described above, in the past 8 mos that went for asking based on ISU land valuations. How does the next buyer argue that?

In my experience it’s funny how the appraisal often is right at purchase price. Come on , it’s an industry where everyone is scratching each others back

 

[John Young]

A problem with “one offs” is they now become a comp for the realtor. Hard to argue with comparables in the area.

What’s hard to argue is your property sitting and not selling. Like most farms are now. Not to mention all the price reduced properties and still not selling. Well they were priced double the market! Now they are proved 3/4 higher! Keep sharpening the pencil!!! What this last post said makes lots of sense and sounds like this realtor isn’t like most fishing for suckers. Too bad every realtor isn’t like him. All these landowners that think their sitting on gold would be for sale by owner and never sell!


Sent from my iPhone using Tapatalk

 

[jflournoy]

Realtors will be the reason to artificially inflate a land sale here this wk. It's class A+ dirt, but a well known swamp to the locals. They didn't post any yield history on the website. I emailed to ask them for some yield data. He said no. Field looks great this year since there was no water damage. Some sucker will buy it. Big auctioneer from IA starting with an S.

Do you know it's the realtor and not the landowner who is driving the sales price? How do you know it will go for the "inflated" value? Refusal to give requested yield data is certainly a red flag. If they did not make available FSA records for the farm, that is a red flag also. You can ask anything you want for a sale, doesn't mean you'll get it. It's easier now than ever for buyers to do their due diligence, and if it's a low lying moist area then good maps are easily enough available to show that for any buyer willing to do the legwork. If someone pays an inflated price without doing due diligence, then that's on them. A fool and his money are soon parted. Though perhaps someone might buy it knowing the situation, with the intention to enroll it in crp at some point. CRP rates on A+ dirt that is frequently wet can be very high.

 

[northcedar]

Do you know it's the realtor and not the landowner who is driving the sales price? How do you know it will go for the "inflated" value? Refusal to give requested yield data is certainly a red flag. If they did not make available FSA records for the farm, that is a red flag also. You can ask anything you want for a sale, doesn't mean you'll get it. It's easier now than ever for buyers to do their due diligence, and if it's a low lying moist area then good maps are easily enough available to show that for any buyer willing to do the legwork. If someone pays an inflated price without doing due diligence, then that's on them. A fool and his money are soon parted. Though perhaps someone might buy it knowing the situation, with the intention to enroll it in crp at some point. CRP rates on A+ dirt that is frequently wet can be very high.

Fair enough. Obviously if the landowner doesn't provide yields then the auctioneer can't showcase them. It was probably a joint effort. You're correct it's a red flag. Tells me all I need to know.

 

[jflournoy]

A problem with “one offs” is they now become a comp for the realtor. Hard to argue with comparables in the area. In my neighborhood I have 3 comps, 2 described above, in the past 8 mos that went for asking based on ISU land valuations. How does the next buyer argue that?

In my experience it’s funny how the appraisal often is right at purchase price. Come on , it’s an industry where everyone is scratching each others back

Maybe, maybe not.

If there are *3 comps* in your neighborhood that went for higher than you thought, then I would argue that is not a "one off". Perhaps the market has just gone higher in that area than you think. I'm not saying this is you, but sometimes locals don't understand why area properties are selling for higher than they think they should, or what the motivation of certain buyers might be to pay a higher price than they would be willing to pay. I listed a property in eastern Iowa about 45 minutes from Dubuque in the Fall of 2021. The farm tenant (grew some crops on some and grazed cattle on the rest) was given an opportunity by the landowner to make an offer on the property prior to listing it with me. He offered $3,500/acre. I told the landowner based on recent comps I thought we should list at $6,500/acre and hope for a sale somewhere between there and $6k/acre. He went *back* to the tenant and gave him a 2nd chance to up his offer. He upped it by about $500/acre. The landowner declined, and we listed it. The property sold for $6,300/acre. The farm tenant was very sore about the whole thing. He actually told me on the phone that he should have been the one to buy that property. I told him in a nutshell that I agreed that would have been the logical course, and I told him I completely understood why the property wasn't worth more than $4,000/acre to *him*, but that that didn't mean it wasn't worth well more to someone else. And "someone else" in that case happened to be someone who wanted to build a home in the country on a beautiful property with hunting opportunities within a 45 minute drive from their job in Dubuque. They thought $6,300/acre was reasonable for what their goals were. As it turns out they kept the farm tenant on so he's no worse off, but he could have been. There was another local farmer who made an offer in the $4,500/acre range, cash, and thought that was too high, but really scoffed at the asking price. He also was a little cranky when it sold for so much higher than he offered.

You have a bit of a cynical take on the appraisal topic. I haven't had a property fail appraisal in the last couple years, but that is because I won't take listings at highly inflated prices. I have had a few appraisers call me on a couple of my sales and ask if I knew of any recent comparable sales that maybe weren't listed on tax assessor sites yet. In those cases I was able to show them data on recent sales that they weren't aware of yet and the appraisal was able to come through ok. But I absolutely know of other properties that didn't appraise at the agreed purchase price.