Source: Farmers National Co. news release
As we move towards the post-harvest and winter land buying season, more farmland will be on the market for sale. For buyers, it is extremely important to know what they are purchasing.
A buyer should have some sort of due diligence system for assessing the land they want to buy so that they know its potential productivity and any blemishes it might have. For local neighbors who live across the road from the selling property or for those who live in the vicinity, due diligence can be as simple as having the long-time general knowledge and experience with the soils and farms in the area.
For investors and those who may not be as familiar with the area, a good due diligence process involves many points of information that are necessary when making a sound farmland purchase decision.
Knowing the soil types including erosion and wetland classifications is the first place to start. This gives the basis for understanding the potential productivity of the soils on the farm. Obtaining crop yield histories for the subject farm is useful to ground truth income and rental potential. It is important to gather information from the Farm Service Agency concerning the farm’s acres, program data, and enrollment in USDA farm and conservation programs.
Long term contracts such as the Conservation Reserve Program (CRP) need to be understood and should normally be transferred to the new owner. Past crop insurance enrollment is important in specific instances as the transfer of benefits to the new owner has to be done on a timely basis. If a lease is in place, it is important to know the terms and if the lease will be terminated prior to closing or if it will carry over to the new owner.
A preliminary title commitment should be provided by the seller to show any liens, easements, or judgements against the property so that the buyer can receive clear title when the transaction closes. Information from the county assessor’s office should be obtained to confirm taxable acres, assessed values, and any special tax assessments.
If there is irrigation on the farm, well registration and pumping reports should be researched to be sure there is adequate water which has been used correctly. Sometimes, it is warranted to test pump wells to have a current assessment of the quantity of water available. If a farm has drainage tile, it is very helpful to have a map of the underground lines and the outlets.
One final step brings the due diligence together and that is getting on the farm, if possible, prior to the sale to inspect it for any conservation needs or work that should be done. This includes assessing irrigation equipment, conservation structures, and drainage tile adequacy. Also, any encroachments, such as unauthorized hunting or roads can be discovered.
If a professional land brokerage, like Farmers National Company, is selling the farm, all this information should be available from the agent as it is important to honestly represent the property. If the brokerage is engaged by the buyer to represent them, the agent should be doing most of the due diligence for their client.
As with any major purchase, it is critical to have all the information necessary to make a good decision when buying land. If the buyer is not comfortable with doing all the do diligence steps, it would be in their best interest to engage a trusted advisor to help them with the purchase.