If you are shopping for hunting, timber or farm land, here is a checklist created by trial and error from experts in the field.
1. Be clear on why you want to own land
Hunting, investment, rural residence and family recreation are all good reasons for owning land, and each one leads to a different kind of land. For example, if you plan to live on the land, legal access and proximity to public services will be important. Be clear on your intentions, so you can focus your search. The key to fewer regrets is thinking in detail about how the land will be used and involving your family in the shopping effort.
2. Look at many properties
The more you shop, the better deals you’ll find. People change their minds about details once they do some shopping. Looking at many deals can be challenging because it takes a lot of time, but it’s important. Keep in mind that easy-to-find properties (on the internet) are only a small part of all the land available for new ownership. That’s because more properties are promoted by thousands of landowners or smalltown agents. In fact, research shows that many properties available for purchase have not been promoted at all. So keep looking and get help if needed.
3. Inspect the property
Not every property will have the physical characteristics you desire. To determine suitability, you’ll want to physically inspect any possible purchase. Depending on intended use, things to consider are neighborhood desirability; ease of access; timber species; age and quantity; soil productivity; how the land lays (topography); presence of creeks; quality of pastures; existence of boundary line and corner markings; potential boundary or access problems with neighboring landowners.
Whenever you buy land, remember that one day you may want to sell it. Whatever appears to be a problem now will likely be a problem for future buyers, too. To inspect a property, look at aerial photos and topographic maps with the boundary lines indicated. Get out and walk the lines. A good source for boundary line information is the county tax assessor office. In fact, many counties have tax maps online. And, there are private sources for paper and online tax map data. A consulting forester can help with an inspection.
4. Talk to the property owner
Believe it or not, some people will say they want to sell their land but really don’t have a sincere interest in selling. It might be for a free appraisal, or even for the attention. So you should interview property owners to assess the strength of their motivation to sell. Ask good questions of the owner or listing agent, such as, how long it’s been on the market; how many price changes there have been; how many offers have been made; how many different agents have listed it; and why the owner is selling.
5. Confirm the acreage
Most rural land has never been surveyed. The fact is, without a survey, no one really knows exactly how many acres are in a tract. For example, the deed may say 160 acres because the property is 1/4 of a Section (a perfect Section is 640 acres), but the tax assessor may say 155 acres. Each have their reasons, but without a survey, neither should be viewed as exact. Because surveys are expensive ($0.40 to $0.80 per foot), most land buyers make a rough check on acreage and live with the ambiguity. Examples of this include plotting the boundary lines as indicated by the tax map on a topographic map or aerial photograph with known scale. Another example is pacing the boundary lines (assuming they are visible on the ground) which is also a good way to check for encroachments by neighbors (a loss not covered by title insurance). A forester can help you do this and may have a GPS, which is also a good rough check. Sometimes a lender, seller or buyer will require a survey. But unless there is reason to suspect a problem, a rough check will find serious errors and save a lot of money if you can live with a little uncertainty.
6. Confirm the timber value
Timber can be worth as much as $4,000 per acre, and a property that looks clear cut along the road may have excellent timber on the back side across the creek. If a property is timbered, it’s a good idea to have a consulting forester walk the property for a rough check on timber value. Testing the validity of the asking price of a property will require you to have some idea of the timber value. Many times, a walk-over is enough of a check if the timber has unexceptional value. The cost of a walk-over will be somewhere around $400; however, most foresters will give credit of this cost toward a formal appraisal if the walk-over indicates a timber cruise is in order (a timber cruise is the process of counting and measuring the trees). A timber cruise and appraisal will typically run $4 to $8 per acre, but it’s a small price to pay for peace of mind (and good info for establishing your timber tax basis).
7. Test the asking price
It’s not unusual for land sellers to have an unrealistic opinion of value, so independently testing the asking price is very important. Study actual sales data. Get an appraisal; retain a real estate professional; or go to the courthouse yourself; otherwise, your estimate of fair value will be shaped by coffee-shop talk or what an owner asks for the land – all poor guides for fair pricing. Sale data is available at the county probate office if you know how to search. Be sure the sales data you consider is of property similar to the one you are looking at (similar size, location, timber value, access, land quality and use). If the property is listed with an agent, the agent should be able to provide you with comp sales data.
8. Examine the title
A title exam is a written report on the legal history of the property. It identifies the claims of others in the land (for example, a long-lost cousin with a 1/64th interest) and informs you of the limits to your rights as the new owner (for example, the rights of the power company who have a transmission line across the property or a neighbor with a road-use easement). It can identify mineral interest (but may not) or the legal condition of the road to the property (just because there is a road does not mean you have unrestricted use of it). Many people take this step after a contract is signed; however, in our experience, a title exam is a cheap way to find a deal killer early and save time and money. A title exam (also called a binder) can be purchased from a local attorney or title company. It will take about a week to complete and typically run about $300.
9. Determine if you will use debt
Land and timber investments rarely earn the loan payment, and your cash may be needed for other matters. Finding the right balance of cash and debt is important, so talk to financial advisors early in the process.
10. Contract negotiations
Once a price is agreed upon, there will still be things to work out between you and the seller. For example, who pays for title insurance; closing attorney; survey, if needed; mineral inclusion; cost to get the deed recorded at the court house; loan cost, etc.
11. Setting up tax basis accounts
Once you buy the property, it’s a good idea to set up two accounts for tax purposes (known as your basis). Determine the value of your timber at the time of purchase (your timber basis), then; the balance of the purchase price is allocated to land (your land basis). The purpose for this is to allow you to calculate capital gains tax should you sell some or all of your timber or land later on. Capital gains tax is only charged on the amount of gain from a sale above the amount of your basis.
12. "Current Use" property tax status
“Current Use” is a special property tax status that allows rural land to be taxed at a lower rate than other types of real property. Current Use can reduce your tax bill by 50 percent or more. The tax assessor’s office in your county can verify the tax status and help you apply for Current Use if you do not already have it.
Brinkman is a registered forester, certified appraiser and land broker with more than 40 years of experience. Contact him at 205-936-2160 or tbrick@CyprusPartners.com.