Deciding whether to place your farm for sale is a difficult decision. What should you do once that decision is made?
Your first step should be to contact your accountant. Prior to putting the farm for sale, you should discuss with your accountant the capital gains tax implications of the sale. You should also have conversations with your accountant regarding valuation; not just of the farm itself, but also of your equipment, inventory, crops, and livestock. It may be appropriate to consider a 1031 Like Kind Exchange in order to defer capital gains tax. That consideration, however, is case specific and dependent on whether you plan to invest the sale proceeds into other investment real estate.
After you visit your accountant, it is important to choose the right method to sell your farm. You can sell your farm by public auction, by private sale, or through a realtor. There are certainly pros and cons to each. If you sell by public auction or private sale by owner, it is most important to know the value of your farm. This may require hiring an appraiser to appraise your farm. While some farm appraisals are very expensive, there are some more affordable appraisers. So be careful in hiring the right appraiser. If you decide to hire a realtor to market and place the farm for sale, be aware that not every realtor is the same. There is no specific designation for a realtor who specializes in selling farms. Not every realtor knows the intricacies and nuances of selling a farm. Therefore, it behooves you to get advice from others in the farming community, your attorney, and your accountant as to their recommendation of a realtor. Generally speaking, realtors that “specialize” in farms have a finger on the pulse of the farming community, and often already have buyers that are looking for farms for sale.
When negotiating to sell your farm, if there are any leases on the land, you should negotiate who receives the rental income. For example, if someone is leasing your ground and the rent is due in December and you sell the property in September, does the new owner keep all of the ground rent; should that ground rent be prorated at the time of settlement; or should you receive all of it when it comes due in December? Obviously, if there are still crops on the field, the issue of harvesting of those crops also needs to be negotiated.
Finally, many farm deeds are very old legal descriptions. A legal description consists of the courses and distances in a deed that describe the perimeter of the property. When selling a property, the attorney or title company for the buyer enters the courses and distances of the legal description into a computer program that draws the outline of the property. If there is a closure error, which means that the beginning point of the legal description is not identical to the end point of the description, then a survey may be required. The only way to fix a closure error in a legal description is through a new survey of the ground. If a closure error is small, then there is no problem. However, if it is a more substantial closure error, then the buyer may request a survey. Surveys of farms can be very expensive and cost thousands of dollars. So, before putting the farm for sale and before entering into a contract to sell the property, you should have your attorney plot your legal description to determine whether there is a closure error problem. If you know there is a closure error problem, then you can negotiate the issue and cost of a survey with the buyer prior to signing the contract.
Great care and thought is put into making the decision to sell your farm. You should proceed with that same level of care and attention to detail when selling it. If you have any questions about selling your farm or any other agricultural related questions, contact our Agricultural Industry Group.