What does a "Buyer's Market" really mean in today's rural land climate?This past week I had the opportunity to present offers on two different tracts of rural land in Alabama. Both of these offers were submitted by buyers that had been following the market for a while. It is my understanding that neither of these people had ever met, but their strategies were nearly identical. Buyer #1 was represented by a buyer's agent and I worked with the other as a transaction broker.
Both of these prospective purchasers made an initial offer of roughly 2/3 of the asking price of the properties. It was their plan to "test the water" and "just see" what the seller would say. Neither offer resulted in a successful contract, and in fact one received quite an undesired response. The first seller asked me to convey that he would not be making a counter-offer and that the offer was so low that he felt like the potential buyer must be suffering from some disorder. He instructed me to inform the other agent that his client was not to set foot on his property again!
I feel sure the original intent of buyer #1 was not to grossly offend the property owner. Buyer #2's offer did receive a counter-offer, but we were not able to get close to a meeting of the minds. I was not thrilled at having to convey the low offers to my sellers and absolutely hated telling my fellow agent his client was not to come back to this tract.
This experience prompted me to share some thoughts with would-be-buyers about what a "buyer's market" means in rural real estate and how it is often misinterpreted. The aim is to help you set realistic expectations and be as educated as possible to help you identify and purchase the right rural property.
1. Not every seller is in a crisis. As a matter of fact, almost none of the clients I represent are in crisis. They would like to sell, but they are not in danger of foreclosure. Rural land in Alabama is not like the national residential housing market. There are very few foreclosures comparatively, because owners often inherited the land and own it outright, have sizeable equity positions, have higher incomes and can afford their land, or they have other assets that help keep their rural land afloat. A lender with Alabama Ag Credit recently said that in his 31 years in the business, he has only seen 4 rural properties go into foreclosure. That is vastly different from the residential real estate climate we are seeing today.
You should inquire about a seller's motivation before throwing an offer out there. The number of days on the market, at least in Alabama's land market, is not necessarily correlative to a seller's motivation. Hunting and recreational properties are taking longer to sell at the present time. Don't assume that a tract that has been on the market for a year can be bought for pennies on the dollar.
2. Study comparable sales. Contact land lenders such as First South Farm Credit or Alabama Ag Credit to find out what land is selling for in your area. Don't just throw a number out there "to see", but make an educated offer. They are usually happy to share general information about recent land transactions, which can give you a more up-to-date snapshot of what is actually happening in your area.
3. Explain your offer to the seller in a letter. I find this to be a helpful tool in negotiating a contract. A relative recently used this tactic in negotiating a contract on a bank-owned home and acreage in Georgia. He made a list of all of the repairs and improvements the property would require. He was able to convince the bank with his logic that other buyers would see the deal the same way and that they should accept his offer. When I walked through his house last weekend, I have to say I was quite impressed with his purchase and how well his idea worked in securing a low price.
4. Price and Value are not necessarily synonyms. One trap first-time land buyers stumble into is feeling like they should buy land with the lowest per-acre price. I believe it is better to pay a little more money for a quality property than buy a dog just because it is cheap. $800 per acre properties are fun to tell your friends about, but spending large additional sums to make it usable may not be the best value in the long run.
Ask a land agent for information about the best buy they know about. I have a short list of tracts I believe are really good values for the asking price, and will show those even if they are not my listings. Otherwise, you are probably going to see the properties you specifically call and inquire about.
5. Cash is King. Dave Ramsey says it. Your grandparents preached it. Cash money has advantages when a seller is really in a pinch. Being able to deal immediately with no contingencies is worth a lot to sellers who are desperate. I recently saw a seller knock $70,000 off a $190,000 property because he received a cash offer with no contingencies to close as soon as the attorney could do the title work. These are the instances when having a mattress full of money gives you leverage in negotiating a good buy.
Be patient and have a punch-list of traits you want your land to have. When you identify the right property at a fair price, be ready to pull the trigger and make an educated offer. I see prospective buyers drag their feet and waste valuable time over-analyzing great buys. Due-diligence is imperative, but be educated enough to jump on an opportunity when it arises. You can always have contingency clauses put in your offer to purchase that give you an "out" if the deal isn't as sweet as you originally thought. Have a network of professionals such as foresters, land agents, surveyors, or cooperative extension agents that can help evaluate and offer advice when you do locate a candidate.
If you are going to make a low offer, make it easy for the seller to say "yes" by offering to pay closing costs or making other concessions. In business, for the long run, it helps when everyone is a winner. You will find doing your homework will have paid off when you are sitting at the closing table pleased with your purchase and a seller across the table that is a winner too.
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