14 Tips for a Successful Farm Land Purchase

Individuals interested in purchasing farmland for the first time often face a daunting and confusing process that can be difficult to navigate. So before purchasing land, what do you need to know?

Leanne Prothero - Montana Ag, Farm, Ranch Broker

Eastern Region Manager/Broker CRS, GRI, RRS
216 E. Main Street PO Box 863
White Sulphur Springs, MT 59645
Cell (406) 439-6904
Office (406) 547-3000

We asked some of the experts in ag land purchases to help us put together some tips for buyers. Leanne M. Prothero is the Eastern Region Manager and an experienced real estate broker for Clearwater Montana Properties Inc. Here are some great tips for farm, ranch, and ag land buyers from Leanne.

  • Establish a Budget!

    Determine what you can spend on the type of property that you are searching for. Make sure to factor in ALL of the costs including the price to purchase & care for livestock, purchases or repairs made to irrigation equipment, or any needed improvements that you will have to do to make the property work for you.

  • Ask Questions!

    There are a lot of things you will need to know so ASK! What are the annual property taxes? What water rights will transfer with the sale of the property? Is there equipment that is included in the sale? If so, may I get a copy of the inventory list? Have there ever been underground fuel storage tanks on the property? Your real estate broker should give you great guidance in knowing what questions need to be asked.

  • Work With Ag Professionals!

    Work with professionals that specialize in the field of farm and ranch or agricultural properties! Find a knowledgeable real estate broker, banking lender, accountant, inspector, and attorney. There are likely to be other professionals that you may have to consult with during the course of the transaction. The main thing to remember is that you want that individual to have vast knowledge of the type of property that you are going to purchase.

The team at Farm Plus Financial has compiled some step by step tips to help guide you through the land purchase process.

Step by Step Tips for a Successful Farm Land Purchase Process

  1. Plan Ahead

    The first and most important step to the land purchase process is to plan ahead as thoroughly as possible. It is crucial that you have decided what you plan to use that land for before you beginning looking for a plot of land. This decision affects what type of lender and loan product your land purchase will require. Are you buying land for:

    • Farming, Livestock or any agricultural use
    • Building a home
    • Development
    • Long term or short term investment
    • To diversify your investment portfolio
  2. Research

    If you plan on starting an agriculture business, consider the type of agricultural business you would like to start. What type of crops will you be growing grow? What climate and geographical location will the property need to be located in to grow your desired crops? What costs and time are needed to grow the crops?

  3. Business Planning

    You should consider creating a business plan or business concept in order to determine the financial impact of your farm business and to assess the local economic conditions. The New England Small Farm Institute and the USDA's Small Farm Funding Resources both contain sample business plans as well as step-by-step advice for farmers taking the first step in developing their business/farm enterprise. In addition to helping you conceptualize the sort of business you would like, developing a solid business plan can help you qualify for loans and obtain better loan terms from many lenders.

  4. Marketing Planning

    Having a good marketing plan is crucial to any farm business. Marketing encompasses the products you will be producing, the price you will be setting, options for selling your products and ideas for advertising the product. Having a strong marketing plan sets you up for success and provides you an upper hand in the market. Do not leave this portion out of your business planning.

  5. Secure Farm Financing

    The next step is to get pre-approved for farm financing as soon as possible. While federal farm loan resources are a great place to start for many beginning and disadvantaged farmers, federal money is limited. Waiting too long might make it hard to obtain federal loans since farmers whose loans have not been processed and approved before money has run out in a given period may have to wait until the next fiscal cycle. In addition to federal concerns, farmers seeking loans through private companies like Farm Plus Financial are best served by contacting us as early as possible so that we can help you prepare and gather necessary documents and information. Farm Plus Financial can provide you with a pre-approval letter which will give you an essential upper hand when you find a property that you would like to purchase. Call Farm Plus Financial at 1.866.929.5585 as soon as you begin your search for a land purchase.

  6. Save For Down Payment

    The next step is to save enough for the down payment. Individual lenders have different loan to value requirements so you need to check with the lender on how much will be require for a down payment on a purchase. Farm Plus Financial has a list of farm loan requirements that are helpful to know ahead of time. Farm Plus requires a down payment of at least 30% or additional farm land to use as collateral for a property purchase however it is important to speak to a loan officer so that they can evaluate your specific situation.

  7. Search for Farm Land

    The next step is to begin the property search. A local real estate agent that specializes in land purchases and ag properties can help you find the properties that meet your agricultural needs. These local ag agents are experienced in assisting farm, ranch and ag buyers through the purchase process and will be able to give you great insight in to what to watch out for, the questions to ask and are the best resource for land pricing in that area. Additionally, keeping an eye on local newspapers and ag real estate publications might be a good resource for properties. There are also a number of helpful online resources for finding land and ag properties for sale; some of which are listed below:

  8. Contact the Sellers

    Once you find a property that you are interested in via your online search or meeting with a ag real estate professional, you or your real estate agent will want to contact the seller. It is important that you ask the any questions you have regarding the property. Some of the key questions to get answered include:

    • Does the property have a water source, utilities or restrictions?
    • Do any structures exist on the property?
    • Is the property currently used for ag production? If so, what types?
    • Can the land support a septic system?
    • Why are the sellers selling the property?
    • Is the property located in a flood zone?
    • What is the history of the property and the area?
    • Is there a lien against the property?
    • What is included in the sale of the property?
    • Are there any easements or access roads included in the property?
    • What problems have they had with the property?
  9. Look Over the Farm Property in Person

    It is important that you have a chance to walk the property yourself or better yet with an experienced professional.  Make sure that you get permission from the land owner beforehand and abide by all laws.  Walk the property, take photos and find the property boundaries, make note of and investigate structures, wells and water sources.  Look for any structures that are on or cross the property line.  Look for roads and easements that neighboring properties use or that you would have to use to gain access to your property.

  10. Meet and Interact with the Neighbors

    The neighboring land owners are a great resource for answering questions about the area, the weather in the area, if they have heard anything that you need to be aware of, the history and any other questions that help you research the area.  Its important to note that the neighbors come with the property so make sure that there are not any major red flags that could lead to future problems.

  11. Continue Researching the Property

    You can look up the lands previous appraisal value and what it last sold for.  If there are wells on the property, research when it was dug and the depth. Look up county plat maps online and call the county  for zoning information and to see if there are large land parcels surrounding the land in question or if they are subdivided into lots of subdivisions.  This is important to predict if development is planned for the area.Research online the area's economy, history, climate, past wildfires or floods in the area, etc.

    • Find out if the property is in a flood plane.
    • If he land was used for farming in the past, there may be pesticides or leaking fuel storage tanks in the soil.
    • Find out how much it will cost to get utilities to the property or alternatively look into the cost of solar power or wind turbines.
    • Verify the area of the property with the developers survey of the property or hire a surveyor.
  12. Make an Offer that Allows Negotiation

    When you are ready to make an offer on the property, it is important that you look at this purchase from a business prospective and not get attached to a property before its yours. Properties typically sell for 85% of the original asking value. You will want to offer the lowest possible amount for the land but also keep in mind that unreasonable offers can be seen as insulting to the seller. You will want to do this because you will want more bargaining leverage if the seller counteroffers. If the seller counteroffers, you might consider counter offering back to meet somewhere in the middle. It is extremely important that you and the seller understand, in writing, what is included with the purchase of the property. The contract list may include:

    • Gates, fences, fence posts
    • Feeders
    • Livestock panels
    • Portable sheds
    • Treatment or removal of any existing farm or hunting leases
    • Any miscellaneous farm equipment
    • Anything that can be moved
  13. Have a Third Party Look Over the Contract

    The seller is acting in their best interest and you are acting in your best interest so it is a good idea to have the contract reviewed by a third party. The seller might even split the cost with you. Follow up on any contingencies - such as title check, well inspection, etc.

  14. Closing

    By the time you are ready to close on the property, the buyer should have all financing in place and be fully informed of the closing process. The seller, buyer and closing agents from the farm lender or title company will meet at the scheduled closing to sign the applicable documents with the buyer and seller. Ensure that you have worked with your lender throughout the process to ensure that all of the financing documents will be ready for your closing.

In addition to these tips and steps, it is important always important that you do your own research. The tips and process provided in this article are provided in good faith. Farm Plus Financial is here to help you with your ag property search and to answer any questions that you might have throughout the purchase process. If you need recommendations on real estate professionals in your area, give us a call at 866.929.5585. We look forward to providing you with farm financing for your next property purchase or refinance.

Special Thanks to Leanne M. Prothero with Clearwater Montana Properties Inc. for her tips. If you are looking for a property in Montana contact Leanne M. Prothero.
Clearwater Montana Properties Inc.

Leanne M. Prothero
Eastern Region Manager/Broker
CRS, GRI, RRS
216 E. Main Street PO Box 863
White Sulphur Springs, MT 59645
Cell (406) 439-6904
Office (406) 547-3000
www.CMPMontana.com
www.CabelasTrophyProperties.com

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