PRICING YOUR RANCH
When it comes time to price your ranch, if you’ve chosen a good, trustworthy broker, and they’ve done their homework, listen to their recommendation on price. One of the oldest tricks in the book for getting a listing is intentionally providing the seller an inflated value. This is called “buying the listing.” Most sellers have an inflated sense of the value of their ranch, so it’s very easy to tell a seller what they want to hear. However, the best brokers tell the truth.
If you’re interviewing more than one company, it’s very tempting to list with the company that gives you the highest recommended list price. This is the equivalent of getting three bids for a construction job and taking the lowest bid—it almost always works out poorly because the company is compensating for some deficiency. Keep in mind that there is much more to consider than price when evaluating a land brokerage company.
If you end up listing with the company that gave you an inflated value, stay in touch with the company that gave you an accurate valuation. It’s very likely your ranch won’t sell during the listing period with the first company, and you’ll end up listing with the company that was truthful.
It’s not easy to accurately estimate the value of a ranch, as each one is unique and often has subjective value (for example, great scenery, a great location, and excellent recreational amenities). If you list with the right company with a substantial database of potential buyers, it’s likely you’ll get a good sense of how well you did pricing the ranch within the first three to six months. If there are a lot of requests for brochures, but few showings and no offers, it’s likely you’ll need to make a price adjustment. The market will let you know when you’ve priced the ranch accurately. If you haven’t priced the ranch accurately you’ll need to go through a discovery period of price adjustments until the market lets you know you’ve hit the mark. The best scenario is to price the ranch accurately from the outset, which will likely attract more than one interested party, putting the seller in the driver’s seat. Then, the seller has leverage throughout the negotiating process and ultimately the result is often a higher price than if the ranch had undergone a series of price reductions.
CHOOSING THE RIGHT OFFER
Receiving an offer can be an exciting time, depending upon how the offer is written, and if the offer price is in the ballpark. The details can vary from region to region and ranch to ranch, but generally an offer will consist of a clearly stated price, an earnest money amount that is approximately 3% of the offer price, and a due diligence period that generally lasts from 30 to 60 days.
The due diligence period refers to the time allotted for the interested buyer to research the ranch. The buyer will have specific areas that they plan to research, which are referred to as “contingencies.” The contingencies often included researching the title report, the water rights, mineral rights and the environmental condition of the ranch.
There can also be contingencies that are specific to a ranch. There are almost always issues identified during due diligence, and while some can be solved, some cannot. If the ranch has issues that cannot be solved, the buyer has to decide if they can live with them or not. If the issues are significant enough that the buyer decides they no longer want to buy the ranch, they have the option of terminating the transaction and receiving their earnest money back. A third option is the buyer proposes a reduction in the purchase price equivalent to their perception of the diminution in value the issue represents. This can lead to a second period of negotiation. If the ranch passes inspection, the buyer waives their contingencies, the earnest money becomes non-refundable, and the transaction proceeds to closing. Closing often occurs within 15 to 30 days from the date the buyer waives due diligence.
AFTER THE SALE
It is important to consider what to do with the proceeds from your sale before the day of closing. If you’ve experienced a gain, there are tax implications to selling your ranch. One option to consider is a 1031 Tax Deferred Exchange. For a better understanding of 1031 Exchanges, do some research on the internet and talk with your tax expert. Some clients we’ve worked with have done 1031 Exchanges into commercial buildings, which both defers the tax payment on your gain and can provide income going forward.
The intent of this article is to give landowners a sense of the process of selling your ranch. Each ranch is different and comes with its unique set of attributes and challenges too numerous to address here. Fay Ranches handles the sale of farms, ranches, timber and plantations throughout the U.S., and as a result, we run into a variety of unique challenges specific to the property, the region and the individuals involved. No two transactions are the same, but hopefully you now have a general idea of what to expect.
If you have any further questions about the process of selling your ranch, please contact the Fay Ranches broker located closest to your property, and they will be happy to help you find the answers. Good luck.
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