New ways to buy and sell farmland

Today, farmers don’t buy land with a handshake over the fence, as Grandpa and Grandma, or even Dad and Mom might have done. Selling methods like sealed tenders and online auctions are becoming ever more prevalent, and the key is finding which one best fits the size, type and circumstance of the farming operation. 

“There are more smaller pieces of land being sold by sealed tender,” says Sheldon Froese, a Manitoba real estate agent with Royal LePage Riverbend Realty Farm Division. “Typically, that wouldn’t be on big farms, it would be on something with no buildings.”

That’s caused controversy in some communities, Froese adds.

“People might not think they get a fair chance to buy the neighbour’s land because it’s a sealed tender,” Froese says. “Often, we get involved in trying to make the process a little more transparent, so that people understand that they have a fair right to make an offer to purchase. But at the end of the day, the seller has the choice to do what he or she wants.”

Some buyers still prefer to go the traditional real estate route, although that process is definitely more complicated than it used to be. The first question real estate agents typically ask their clients is whether they have talked to their accountant and other professionals, Froese says.

“When I started doing this over 20 years ago, we would go see farmer when they were getting ready to sell. We would list the farm, find a buyer and sell it. Now, there is a lot more involved,” Froese says. “There’s tax laws people need to be aware of, and if the reason for selling is retirement, they want to make sure that they do things properly so they have enough to retire on. For the buyer, they want to make sure there’s no hidden surprises, especially if they’re buying a corporation compared to just assets.”

A different approach to selling farmland

Saskatchewan realtors Tyler Badinski and his brother Vince are taking a different approach to selling farmland, and they report being told by clients, and the professionals they deal with, that it’s filling a void that is going to be increasingly important given the huge transfer of wealth about to take place over the next decade in farming.

“Today there are a lot of farmers who are 55-plus, with no succession plan in place, and that can make it difficult to sell, especially to the family, because the values have inflated so much,” Badinski says. “Growing up on the farm, we had a succession plan, but nobody knew what it was because it wasn’t really talked about. So, I am passionate about helping our clients make sure they are actually ready for this. What is distinguishing us is that we are sitting down with the lawyers, accountants, financial planners, farm advisors and saying ‘Is this client ready? Have they had the discussions they need to have? Are they tax prepared?’”

If necessary, Badinski says he will advise a client to wait to sell if they are not ready.

“We actually pushed off a client from listing his farm because he was not financially prepared,” he says. “The tax repercussions were in the hundreds of thousands for him to sell at the time versus waiting a year or two later. We never advise outside of our scope of our licence, but having grown up on the farm gives us lots of understanding and empathy of what they are going through, so I am able to relate with clients about their situation, and point them in the right direction as needed.”

Badinski, who founded Serca Realty five years ago, fully believes that the role of farm real estate brokers is changing and a big part of that process is to make sure sellers are aware of the value of their land.

“Another reason I got into this is to make sure sellers were educated about what their land was worth, and they are not leaving money on the table,” he says. “You always have to have a fair deal for everybody, but a fair deal shouldn’t be a buyer buying for $500 an acre less than they know it’s worth just because the seller doesn’t.”

He also sees real estate being viewed in the future as less of a one transaction deal.

“If a Ma and Pa operation with 10 quarters, and no kids to take over sold those 10 quarters, it was always viewed as a single transaction, and away they go,” Badinski says. “We take the approach that we sit down with our client’s other professionals to make sure they are ready ahead, during and after the sale.”

The virtual world of farm real estate selling

Although farmers have long been used to buying equipment at auction, and increasingly those auctions have been online, are they so keen to buy farmland in this way?

The answer is yes, according to Jordan Clarke, sales director for Ritchie Bros. Auctioneers, which has been selling through traditional and online auctions for the past 60 years across Western Canada. “Farmers are definitely becoming more comfortable with online real estate auctions, and around Edmonton and Northern Alberta, it’s almost the preferred method,” Clarke says. “We have had very successful sales across all of Western Canada for farmland.”

To a certain extent, the COVID-19 pandemic has driven a lot of companies to change their business model to online offerings, but online real estate auctions have been gathering steam for a number of years because they offer a lot of convenience, flexibility and various options depending on the seller’s situation.

Selling real estate by online auction is really no different than selling farm equipment. The ultimate aim is to create competition and get the best result for the seller, and doing that virtually opens up a much wider and potentially bigger audience.

“The more people involved in the auction process, the more demand it creates,” Clarke says. “Typically, they will bid against each other and drive the price higher. And that’s a very good scenario for a seller, because that’s what they want, they want competition and they want to sell for the best price.”

Online auctions may not be for everyone, but for some, especially retiring farmers, the certainty of a sale can be a motivating factor in using this method instead of going through a real estate company or tendering.

“With a retiring farmer, their farmland can represent up to 80 per cent of their total wealth in some cases,” Clarke says. “Their retirement is built into their land, their improvements, their yard and their equipment. When they reach the point that they want to sell and move to the next stage in their life, with an unreserved auction there is certainty of sale on auction day.”

The internet has definitely opened up a lot more options in terms of selling farm real estate than ever before. Clarke says Ritchie Bros. can also offer a straight commission on the proceeds of sale, or a net guaranteed price that’s set before the auction and guarantees that the seller gets a guaranteed amount regardless of what happens at auction.

“Through our online marketplace, Marketplace-E, customers can also test the market with a reserve, so they can accept offers and see what the value of their property is,” Clarke says. “We have an option that will cover the risk tolerance of any seller.”

There are advantages for buyers too.

“There are a lot more variables when it comes to selling or buying real estate, so buyers at times just need more time to think about it,” Clarke says. “Through an online or timed auction, they are able to spend that time, as opposed to being at a traditional live auction where the auctioneer is chanting away for a minute, and they have 10 seconds to increase their bid before someone else does.”

Five years ago, most auction companies did live auctions, and it was fairly capital intensive to get into the auction business. Since COVID-19, with such a massive transition to online services, those barriers to entry have been largely removed, with the result that a lot of new businesses are offering auction services, so sellers need to do their homework, and make sure the people they deal with are qualified and compliant with the rules and regulations for not just real estate sales but also auctioneering.

“We sell from British Columbia to Manitoba and the rules and legislation are different for each province, so we have worked hard to make sure we are 100 per cent compliant with the requirements and rules of those jurisdictions to provide confidence to our customers,” Clarke says.

Taking the pressure off

Whether they are selling a couple of quarters or the whole farm, it can be a stressful process for farmers who have to make a difficult decision about who to sell the land to, which is where an online auction can help remove some of the pressure.

“A majority of our customers live in a rural setting, where they have friends, family and neighbours they have worked alongside and lived with for many years, and whoever they end up selling to, there are going to be people who may be upset they didn’t get the opportunity to make an offer,” Clarke says.

“When a farmer puts land up for public auction, the pressure is not on the farmer anymore because everybody has an equal opportunity to click that bid button, and at the end of the day whoever has the highest bid receives that real estate.”

Clarke also advises farmers not to sell themselves short. “Sometimes farmers don’t fully realize the competitive scope of the marketplace,” he says.

“They may want to sell to a neighbour who they like, and that’s all fine, but there might be other people that would have paid more money. It’s a strong demand market right now, and there are farmers looking to expand, so they are aggressive and willing to spend more money. Just because a certain amount of dollars per acre has purchased land in an area before, it doesn’t mean that’s going to be the number tomorrow or the next day. Through the auction process we can offer a net guarantee so the bottom end is covered and there is price discovery on the top end with no cap on the value. It’s really the best of both worlds.” 

This article was originally published at Country Guide.