The old adage that cash is king in real estate transactions has probably been more true over the last few years than ever before due to tight credit markets.  If a buyer can put down the cash and close in less than 30 days then a seller is usually willing to make some concessions if they are serious about selling and the concession is almost always in price.

However, I think when it comes to land that maybe the royal marriage of Cash and Land is not the match made in heaven that we think it is as so many of the royal matrimonial unions have shown us over the years.

Why would land sellers care less about cash offers?  Who doesn’t want a cash offer?  A few recurring factors seem to be at the core of the issue.

#1 Land Sellers want to sell but do not have to sell.

Really?  Yes, really.  Over half and probably more like 75% of all of our sellers own their land free and clear.  It has typically been in the family for quite some time and usually one or more of the owners uses the land on a regular basis or enjoys income from it. I think the longer days on the market history of land that we see is a reflection of this thought process.

#2 Land Sellers are more emotionally attached than home sellers.

Again, yes really.  Jonathan Goode recently posted an article here on LandThink about naming places on your land and his article illustrates that point perfectly.  Land sellers will share stories of their grandchild’s first hunt or first caught fish or where their Dad taught them to drive the tractor.  We all feel a connection to the earth and land sellers are particularly devoted to land that they grew up on. They will get insulted by lowball offers just as much as a homeowner does and maybe even more so at times.

#3 Land Sellers usually receive some type of income from their property.

More often than not the land seller has some type of income generation on the property whether it is farmland, hunting leases, pasture grazing rental or even billboard sign income.  This income also typically completely offsets their holding costs so in essence they have no pressing need to sell.

Ok so at this point you may be wondering why they are even selling.  The news media has blasted farmland as the best thing since sliced bread lately and sellers are probably trying to time the market just right.  Others have had a death in the family and the heirs are ready to move on but they will not give it away. Some even just try to test the market.  But in the end the thing I hear most often from land sellers is that they want the real estate transaction to be good for both them and the buyer. They believe the right person at the right time will gain as much enjoyment, benefit or income from the property as they did and so they just hold out for that buyer.

My Granddad always told me that things work out for a reason and I believe that.  So if you are offering cash lowball offers and getting nowhere then maybe there is a good reason.  Contemplate it and figure out what your goals are regarding owning land and try again because the right seller is out there for you.

I recently helped negotiate a contract with a couple that have been trying to buy a spot in the country since late 2006.  They were not your typical, always-looking customers.  This couple had made legitimate offers, that should have closed, on several different properties since Summer of 2007.  There were at least 5 offers made that did not close.  It’s not that they did not negotiate, or could not financially complete these transactions.  It’s not that they were offering 50% of asking prices expecting a miracle.  It’s not that they got cold feet at the last minute and backed out.  All of these deals fell apart due to something that was totally out of their control. At least three fell apart after a contract was agreed upon.  They were not putting odd contingencies or terms in their offers.  Each time they reacted rationally and methodically.  I was involved in some of these deals and some I was not.  I did show them a lot of properties, but it was because I knew they were ready, willing, and able…not because they could not effectively decide on what they wanted.  They had a clear goal in mind that guided their decisions.  I’ve never seen a couple work so hard at buying a property.  With a little persistence, though, they have finally gotten into a property that they really love.  To top all of that off, it’s the same property they made their very first offer!

In the summer 2007, the market was in full boom.  Prices had reached the levels that we now know as the “Peak”.  This couple made an offer on a property.  Full Price.  Another buyer made an offer on the same property, coupled with a few more acres and the seller opted to sell more acreage.  They really loved this property.  We looked at several properties and then settled on another in early 2008.  They negotiated for, and contracted for the property.  After 3 or 4 months of waiting the seller could not provide clear title.  This deal lead to our considering a neighboring property.  They liked it, and wanted to buy it.  The person that owned it was declared incompetent in the middle of negotiations.  We then moved on to another listing that I had in fall of 2008.  We looked at this property, up one side, down the other, then turned it inside out.  Then collectively came to the decision that this was not the place for them.  By this time, the market had turned significantly and I think they made the decision to wait it out for a while.  During this whole time, they consistently talked about that first property they tried to buy.  They wanted something like that.

Then early this year they began looking at properties with another agent.  That agent called me about some things that I had listed.  Once the agent had explained what her clients were looking for, I suspected it was the people I had been working with.  I sure did not blame them for getting a buyer agent at that point.  They had been through the wringer.  They made offers on one or two properties with her and did not close on either of those.  Between myself and their agent, we eventually got them to take a look at a property that was just across the road from the first property they made and offer on.  They looked at it twice.  I made sure that they understood that the sellers were VERY motivated. They contemplated.  Another week rocked on.  I called the other agent to tell her that the seller was very, very motivated and to bring an offer…even if it was an ugly one.  They contemplated some more.  Then they asked about the property across the road.  The one they originally wanted.  I let them know that I thought it could be bought, and at a good price.  They contemplated some more.  They eventually made an offer on that original property.  The one that they loved so much and wanted to find one like it.  After some negotiation, they got it!

Had everyone involved in this not been persistent, it would not have happened.  If I, or their agent, or the couple who were the buyers had not been persistent, they would not have gotten what they wanted.  After everything they had been through in the search for a property, no one would have blamed them for throwing their hands up in the air and giving up.  But they didn’t.  They were persistent.

This past week I had the opportunity to present offers on two different tracts of rural land in Alabama. Both of these offers were submitted by buyers that had been following the market for a while. It is my understanding that neither of these people had ever met, but their strategies were nearly identical. Buyer #1 was represented by a buyer’s agent and I worked with the other as a transaction broker.

Both of these prospective purchasers made an initial offer of roughly 2/3 of the asking price of the properties. It was their plan to “test the water” and “just see” what the seller would say. Neither offer resulted in a successful contract, and in fact one received quite an undesired response. The first seller asked me to convey that he would not be making a counter-offer and that the offer was so low that he felt like the potential buyer must be suffering from some disorder. He instructed me to inform the other agent that his client was not to set foot on his property again!

I feel sure the original intent of buyer #1 was not to grossly offend the property owner. Buyer #2′s offer did receive a counter-offer, but we were not able to get close to a meeting of the minds.  I was not thrilled at having to convey the low offers to my sellers and absolutely hated telling my fellow agent his client was not to come back to this tract.

This experience prompted me to share some thoughts with would-be-buyers about what a “buyer’s market” means in rural real estate and how it is often misinterpreted.  The aim is to help you set realistic expectations and be as educated as possible to help you identify and purchase the right rural property.

1. Not every seller is in a crisis. As a matter of fact, almost none of the clients I represent are in crisis. They would like to sell, but they are not in danger of foreclosure. Rural land in Alabama is not like the national residential housing market. There are very few foreclosures comparatively, because owners often inherited the land and own it outright, have sizeable equity positions, have higher incomes and can afford their land, or they have other assets that help keep their rural land afloat. A lender with Alabama Ag Credit recently said that in his 31 years in the business, he has only seen 4 rural properties go into foreclosure. That is vastly different from the residential real estate climate we are seeing today.

You should inquire about a seller’s motivation before throwing an offer out there. The number of days on the market, at least in Alabama’s land market, is not necessarily correlative to a seller’s motivation. Hunting and recreational properties are taking longer to sell at the present time. Don’t assume that a tract that has been on the market for a year can be bought for pennies on the dollar.

2. Study comparable sales. Contact land lenders such as First South Farm Credit or Alabama Ag Credit to find out what land is selling for in your area. Don’t just throw a number out there “to see”, but make an educated offer. They are usually happy to share general information about recent land transactions, which can give you a more up-to-date snapshot of what is actually happening in your area.

3. Explain your offer to the seller in a letter. I find this to be a helpful tool in negotiating a contract. A relative recently used this tactic in negotiating a contract on a bank-owned home and acreage in Georgia. He made a list of all of the repairs and improvements the property would require. He was able to convince the bank with his logic that other buyers would see the deal the same way and that they should accept his offer. When I walked through his house last weekend, I have to say I was quite impressed with his purchase and how well his idea worked in securing a low price.

4. Price and Value are not necessarily synonyms. One trap first-time land buyers stumble into is feeling like they should buy land with the lowest per-acre price. I believe it is better to pay a little more money for a quality property than buy a dog just because it is cheap. $800 per acre properties are fun to tell your friends about, but spending large additional sums to make it usable may not be the best value in the long run.

Ask a land agent for information about the best buy they know about. I have a short list of tracts I believe are really good values for the asking price, and will show those even if they are not my listings. Otherwise, you are probably going to see the properties you specifically call and inquire about.

5. Cash is King. Dave Ramsey says it. Your grandparents preached it. Cash money has advantages when a seller is really in a pinch. Being able to deal immediately with no contingencies is worth a lot to sellers who are desperate. I recently saw a seller knock $70,000 off a $190,000 property because he received a cash offer with no contingencies to close as soon as the attorney could do the title work. These are the instances when having a mattress full of money gives you leverage in negotiating a good buy.

Be patient and have a punch-list of traits you want your land to have. When you identify the right property at a fair price, be ready to pull the trigger and make an educated offer. I see prospective buyers drag their feet and waste valuable time over-analyzing great buys. Due-diligence is imperative, but be educated enough to jump on an opportunity when it arises. You can always have contingency clauses put in your offer to purchase that give you an “out” if the deal isn’t as sweet as you originally thought. Have a network of professionals such as foresters, land agents, surveyors, or cooperative extension agents that can help evaluate and offer advice when you do locate a candidate.

If you are going to make a low offer, make it easy for the seller to say “yes” by offering to pay closing costs or making other concessions. In business, for the long run, it helps when everyone is a winner. You will find doing your homework will have paid off when you are sitting at the closing table pleased with your purchase and a seller across the table that is a winner too.

An RFR is a future right, and it is contingent on the property being put on the market.

The terms of an RFR can range from vague and non-binding to very specific and very binding. An RFR can easily mean different things to different parties, so it’s essential that both know precisely what each means by an RFR when it’s first being discussed.

One type of RFR is essentially an option to buy the property before it’s sold to any other buyer. The seller and holder/buyer may or may not agree at the time the RFR is negotiated to bind themselves to a specific price and other terms. The option may or may not end at some specific date in the future. The seller is not obligated to sell if price and terms have not been established when the RFR was set up.

A variation on the RFR as option price is an agreement to sell and buy at a price based on one or more appraisals when the RFR is invoked or as a percentage of the current value as agreed to by the parties when they negotiate the RFR. The parties could agree, for example, that 100 acres is worth $100,000 right now and the option price will be three percent higher during the term of each succeeding year, either compounded or not compounded.

A second type of RFR is the right of its holder to match any offer the seller has, thus preempting its sale to another party. The holder is usually not required to match an offer, but may choose at his option to do so.

A related idea is something called a Right of First Offer (ROFO), or Right of First Negotiation). The language usually requires the property owner to engage in good-faith bargaining with the ROFO holder before negotiating a sale with other parties. But an ROFO may simply give its holder the right to make an offer and not obligate the seller beyond looking at the holder’s proposal. An ROFO could, but usually does not, bind the parties to come to an agreement. An ROFO gets the buyer’s foot in the seller’s door, but nothing is predictable after that.

Every RFR should be drafted as either an agreement or a contract (in which the holder gives some “consideration,” or pays for, the right). It may bind the current owner alone or run with the land. In either case, I would advise having it recorded.

Both parties — the holder of the right and the owner/seller — find a self-interest in working out an RFR. The owner/seller’s motivation may be cash in hand at the time the RFR is agreed to. The holder is usually motivated by a favorable price or terms down the road coupled with an improved ability to pay for the sale.

A purchased RFR typically sets forth a future (option) price and other terms. This gives both parties in current conditions certainty about a future time, price and other arrangements. If the holder cannot meet the RFR’s terms in the future, the RFR is not exercised and the seller is free to sell or not sell to anyone. In most cases, the RFR holder has no claim for the money he paid in advance for the right he does not use.

An RFR can also be set up among ownership principals that allows those who wish to continue to own a jointly held property the right to make a first offer or match an offer to a partner who wants to exit the partnership or to that partner’s estate. The holder/buyers get the chance to keep ownership among themselves, while the seller may be able to get the best price from those already in the deal. A fractional share in an ownership entirety is often discounted in the market, and a sale outside the group may penalize the seller.

RFRs of whatever type are usually set to expire at some specific future date. (This does not apply to ROFOs.)  The longer the term of the RFR, the more uncertainty and risk each party accepts in light of market changes for the property’s value. As a rule, time benefits the holder to the extent that real estate is appreciating on a fixed-price RFR. One or two years is the typical range.  Some RFRs allow either seller or buyer to invoke the RFR at any point during its term. Others give the buyer the right to make an offer only at the end of the specified term.

A lender or mortgage broker may ask a borrower to agree to a refinancing RFR that obliges the borrower to work through the holder (i.e., lender or broker), or gives the holder the right to match any refinancing terms. Do not agree to this type of RFR, which, depending on its language, can gum up a sale or refinancing at better terms. If you have signed such an RFR with a lender, request a release and talk to a lawyer.

An RFR is not a do-it-yourself legal project. Both parties should get lawyers involved in drafting language and making sure that everyone understands how it will work.

It’s now your job to submit a written offer that includes a specific price.

The seller is asking $1.2 million for 500 acres. Your pre-offer research has determined that its value to you is about $650,000. The appraisal value is $900,000, but the market has softened since the appraisal’s comps were sold. The tax-assessed value is $800,000.

Here are the choices you face.

Option One is “Play it straight.” You are not willing to pay more than $675,000, so you offer $600,000 in hope that you can negotiate a deal at $675,000 or less.

You include a detailed letter explaining to the seller all the property liabilities and uncertainties that your research uncovered, as well as the over-valuation of several assets. You make a point of mentioning that three important material defects were not disclosed to you. The seller’s appraisal of five months ago is now outdated, you explain. A current appraisal would come in at less than $750,000 and would not include price discounts for the defects you’ve described. You carefully explain the problems with relying on appraisals to determine a property’s intrinsic, individual value.

This approach risks turning off the seller to working with you, since you’ve offered exactly 50 percent of his asking price. The seller will see this as a low-ball offer despite your best efforts to be transparent about your reasoning and the evidence on which it’s founded. If the seller frames your offer as an insult, he won’t negotiate. The only way to convince the seller that you’re not being arbitrary about your low offer is to show him the research you used to reach your offer.

The seller wants to get at least $900,000 from the sale and will settle for $800,000, or maybe $750,000. But your offer gives the seller no confidence that time spent negotiating with you on the basis of an offer of $600,000 will get you to where he wants to be. Unless, of course, you convince him of the depth and sincerity of your interest.

Option Two is “Roll High.” You are not willing to pay more than $675,000, but you plot a different strategy. Instead of offering $600,000, you offer $1.1 million. That’s above the seller’s appraisal value of $900,000, which the seller likes a lot. But you tie the offer to three butt-biters.

First, you offer only a $10,000 down payment and insist on seller-financing.

Second, you make your offer contingent on a three-month study of the property’s “assets and liabilities,” the results of which must be acceptable to you. If the results are unacceptable, you may void the contract offer without penalty.

Third, you state that the seller should pay your closing costs.

You are not acting in good faith. Your plan is to concede the seller financing in return for a $5,000 down payment. Your plan is to concede the seller paying your closing costs. But you are not willing to concede your 90-day study contingency, because that is the heart of your deception.

After three months in escrow, you plan to tell the seller that his property did not prove up as you had expected. A number of problems were found, and several assets were worth less than you had anticipated. Therefore, you are exercising your absolute right to void your offer because the results of the study were unacceptable.

However, you tell the seller that you will submit a no-contingency contract for $625,000, with a $5,000 down payment (with maybe some seller financing) and a fair division of closing costs.

Your plan from the beginning has been to tie up the seller with your bogus contingency, string him out for three months and soften him for your hardball offer.

The $1.1 million number was sucker bait.

Both choices are driven by the fact that you have done your homework before submitting an offer. You know that the property is only worth $650,000 to $675,000 to you, and that you won’t pay more. So your negotiating problem is to figure out a strategy that promises the most chance of getter the seller to join you at that price.

Option Two risks infuriating the seller with your tactics. This seller is perfectly within his rights to tell you to jump into a bottomless lake wearing diver boots.

You’ve balanced that risk against the tightening squeeze the seller finds himself in after three months of waiting for you in a softening market…to explode a cigar in his face.

I’ve seen both options work…and I’ve seen both fail.

The Third Option is, Take-It-Or-Leave-It. Your buyer’s price is $650,000, which is what you offer with no contingencies and a reasonable down payment. You explain how you arrived at that offer, and that you don’t want to give the seller the impression that you’re willing to come up in price. I’ve seen this succeed and fail too.

Each of these offering price strategies has been driven by the fact that you know the property is only worth $650,000 to $675,000 to you, and that you are unwilling to pay more.

Is there a fourth option?

Maybe. Here’s an example.

You offer $750,000, with the seller financing $350,000 at 0 percent interest payable in one lump sum of $350,000 in 15 years. Although you are paying $100,000 more than your $650,000 price, you are getting that $350,000 interest free. If you had financed all $650,000, you would have ended up paying more in interest over 15 years than under your proposal. You end up financing only $400,000 of the $750,000 selling price. And the last $350,000 will be paid in dollars eroded by inflation. These specific numbers are to illustrate the approach. The workability of actual numbers will depend on many factors.

Keep in mind that mortgage interest is tax-deductible up to its cap. That means a dollar in interest the buyer pays is less dear than a dollar in principal.

The buyer needs to plug in specific numbers to craft a proposal that makes financial sense from the buyer’s point of view. The extra price paid has to be more than offset by the savings on interest when tax consideration are factored in. The interest the buyer saves on conventional financing has to be significantly more than the extra money in sales price.

Here’s another example.

The seller values his 500 acres for hunting, but needs cash to finance his retirement. So the buyer can propose a ten-year, no-cost hunting lease to the seller as part of his $650,000 offer. The seller comes up $100,000 short, but he keeps what he really wants in the property—the hunting rights.

One thing that buyers generally never find out is how the seller set his asking price.

And most buyers never bother to ask.

Occasionally, a smart seller will voluntarily disclose to buyers the path he followed to his asking price. These sellers arm themselves with arguably neutral sources, such as one or more appraisals, tax-assessed value from public records and individual asset valuations. They disclose how much they paid originally and what their tax hit is likely to be at their asking price. They have evidence showing local appreciation rates for properties they think are comparable to theirs.

I’ve found this approach to be very effective in anchoring negotiations around the seller’s asking price, which is why smart sellers do it. Disclosure places the buyer under the burden of showing that the seller’s documentation is wrong.

Far more often, however, a buyer is left to imagine how the seller set his asking price. Where buyers do their research, they may be able to track a seller’s logic. If, for instance, the tax-assessed value is $200,000 and the asking price is $300,000, the buyer can feel reasonably confident that the seller added 50 percent to the tax-assessed value and will probably settle for $250,000, or 25 percent over the tax value.

If, in another example, the buyer pays for an appraisal, the buyer’s appraisal value may come in at the same number as the seller’s. In this case, the seller may have tacked on an additional 25 to 50 percent to see what the market might bring and cover his sale costs. If the buyer’s appraisal is significantly lower than the seller’s, the buyer should ask his appraiser to explain the difference. The buyer’s appraisal may be more recent than the seller’s or use different comps (which may be better or worse). It is also possible that the seller asked his appraiser to hit a high number, which the appraiser did.

Often, a seller uses one recent, nearby sale as the only peg around which to frame the worth of his own property and set its price. In this case, the buyer may have the job of persuading the seller that his one preferred comp is not as good as two or three others. This is a near-hopeless task.  Beliefs in beliefs are very hard to change.

I’ve always found it worthwhile to ask the seller or the agent working with the seller how they arrived at the asking price. This may or may not produce useful, truthful information. The broker might say something to the effect that the asking price was set in terms of current market values. The seller may say something like that he just feels it’s worth the price he put on it. But every once in a while, someone on the seller’s side actually helps a seller by disclosing a thought process that a buyer can reproduce and test.

What should a buyer do when his appraisal and the seller’s agree on current market value? The answer depends totally on whether the appraisal value matches the value of the property to the buyer. If it does, the buyer should offer the consensus number. If the buyer’s valuation is lower than the market valuation, he should offer his price and explain why.

The buyer’s valuation of a property produces a buyer’s price, which is what the property is worth to the buyer.

The distinction between current market value (or appraisal value) and value to the buyer (buyer’s price) is crucial. A property fairly and honestly appraised at $1 million may only be worth $700,000 to a particular buyer, given his plans, resources and assessment of the property’s pluses and minuses.  Appraisals often neglect to properly value certain land assets and don’t inspect improvements for defects in operating systems. Appraisals are good at showing what one property is worth in terms of recent sales of several similar others, but they are not very good at determining the intrinsic net value of a property by researching its individual assets and problems.

So let’s say that the seller has set an asking price of $1.2 million on 500 acres.

My immediate intuitive response is that this seller wants $2,000/acre, or $1 million, gross. Any time I see an “orphan uptick” on an asking price, I adjust down to the nearest big round number as a chainsaw method of cutting to where I think the seller probably wants to wind up. By this way of thinking, $79,000, gets cut to $75,000; $750,000 goes to $700,000, $7.5 million to, maybe, $6 or $6.5 million. This approach tells me nothing about what the property is worth to me, only what might be the seller’s settle price. And it should be obvious that my intuition may be dead wrong. The only way to know for sure is to ask the seller after finding out as much as possible about the property and the seller’s motives and ways of thinking.

When “crafty” sellers price property like gasoline per-gallon — $159,900 — I always helpfully refer to the asking price as $160,000. By framing the asking price at what it really amounts to, it feels easier to bargain it down. The bump up to $160,000 makes it obvious to both of us that the price — $159,900 — is too high. Exaggerating it makes that point—at least that’s how I see it. The higher number — $160,000 — allows the seller to feel that he is giving a big concession to make the deal. A $20,000 concession sounds a whole lot bigger than $19,900.

But all speculation that a buyer might do about what a seller wants from a sale is beside the point—the buyer’s price.

Buyers should pay the price that’s right for them in light of the property’s assets and problems, their resources, needs and plans. Buyers should understand that in almost every instance alternative properties are available that will satisfy most, if not all, of their needs. If a seller rejects a buyer’s offering price without opening negotiations, the buyer should move on rather than negotiate himself down to a lower offering price.

So I approach finding an offering price by researching the property and figuring out what it’s worth to me—my buyer’s price. I will look at tax-assessed value and appraisals, but only for context. Those numbers are not particularly relevant to the valuation exercise that I am going through.

A buyer who offers somewhere around his buyer’s price should be prepared for rejection, because it’s often substantially lower than the asking price. Nothing is wrong with that.

I also spend time figuring out what the seller has in the property, what his after-tax net is likely to be under various price scenarios and what his motivation is for selling. Determining the intensity of seller of motivation is the key that can unlock a seller to a buyer’s price. A not-very-motivated seller won’t turn that key.

I also try to figure out what kind of negotiator is on the other side. Is he afraid to negotiate, evidence for which is that he announces that his asking price is take-it-or-leave-it?  Is he experienced in give-and-take bargaining? Is he likely to stick with what he says or slide around?

A buyer, having determined his buyer’s price, can low-ball it a bit in order to come up, or walk the seller through his reasoning as a way of justifying a take-it-or-leave-it offer. My buying strategy is almost always to get negotiations going. The more that process develops the more invested in its success each side becomes…and the more likely a deal will be struck.

With ridiculously inflated asking prices, I offer a defensible low-ball price—often more than half off. It does a buyer no good to meet an inflated asking price half way, because you will end up overpaying.

Here’s an illustration. Let’s say the seller has put $1.2 million on his 500 acres and my research shows that the property is fairly appraised at $450,000 but it’s only worth $325,000 to me, I might offer $300,000 to get things started and include a letter explaining my offer. The seller may reject me out of hand, but if he’s carried his property for a while, needs to sell and knows that he’s way overpriced, he might come back with something that moves in my direction. I look for terms that help him. If the seller doesn’t get close to $325,000, it’s not a good deal for me no matter how much he comes down from $1.2 million. In this example, I keep in mind that the seller should have started at maybe $500,000, not $1.2 million.

The buyer-determined buyer’s price provides a rational, defensible anchor for negotiating. It may not get to a deal, but it will protect a buyer from making a foolishly overpriced purchase.

I’ve never discovered a simple, quick-and-dirty formula for coming up with an offer. If you apply a fixed rule — offer 25 percent less than the asking price and settle for 15 to 20 percent less — you’re playing the seller’s game.

Each property is different. So buyers need to trust their research and their method for determining the right price for them. Never buy property without determining a buyer’s price.

For most buyers, their thoughts on offering price are anchored in the seller’s asking number.

That’s not the right place for the buyer to be most of the time.

I’ve come to the conclusion over the years that most buyers do not need to buy most properties at which they make a purchase run. A buyer may need to buy some property at a particular time, but not necessarily a particular property. A buyer’s level of need always depends on his BATTP—Best Alternative To This Purchase. The better a buyer’s BATTP, the more negotiating power he’s likely to have.

Buyers can choose among properties, particularly in a buyer’s market.

If, as I believe, most property purchases are essentially discretionary and voluntarily from the buyer’s point of view, it follows that buyers should have a formula for determining a property’s right price from their perspective.

The formula that I’ve concocted is something like this: The right price for the buyer is based on his pre-offer research into the total net value of the property’s disaggregated assets, together with an analysis of the buyer’s resources available for purchase and his plans for the property.

The buyer must approach each property as a bundle of assets, some of which can be severed and sold, leased or used to generate income. These assets have value in the market that can be determined, but more important, the buyer assigns each asset a value to him.

When the total net value of the disaggregated assets falls short of the asking price, that number is the buyer’s offering-price anchor. Or, it may be a signal to walk way…fast.

Here are several ways of looking at asking price and offering price.

A seller owns 500 acres that he’s priced at $7,000 per acre, or $3.5 million. It has a main house, barn complex and a tenant’s house in a far corner set back from the road. Two hundred acres are cropland, 100 acres are pasture and 200 are woods. The farm will convey with all mineral rights, and natural gas is a likely lease possibility in the future. The farm has various conservation-easement values, depending on what restrictions are imposed. It generates $30,000 a year in farm income.

Scenario 1: The seller hands the buyer an appraisal showing $3.5 million. The buyer commissions his own appraisal, which comes back at $3.5 million. The buyer makes the deal at $3.5 million.

Scenario 2: The seller hands the buyer an appraisal showing $3.5 million. The buyer immediately offers 20 percent less, or $2.8 million. They haggle. They settle for $3.25 million, which is $200,000 more than the seller had hoped for.

Scenario 3: The buyer investigates the property’s assets before making an offer. He hires consultants to establish the discrete value of 150 acres of cropland, 50 acres of cropland plus main house and barn, 100 acres of pasture, merchantable timber on 200 acres of woods, future value of gas rights and conservation-easement values. He comes up with a total of $5 million. The buyer makes the deal for $3.5 million and sells $1.5 million in discrete assets for $2 million. The buyer is left with 350 acres, the main house and barn for $1.5 million. But he’s in for some post-purchase surprises.

Scenario 4: The buyer investigates the property assets and liabilities before making an offer. Assets are valued at $5 million, but there are deductions for liabilities. A neighbor has fenced in 40 acres of pasture that is the seller’s by deed. Other boundaries are disputed. The buyer faces a $25,000 survey cost, which does not guarantee resolution. Lack of resolution means he can’t divide the property and sell the pieces he doesn’t want.

The merchantable timber worth $3,000 per acre can’t be logged because it’s sited on habitat for the federally endangered blue-eyed nosepicker, which also means no development. The cropland harbors an invasive species that the appraiser didn’t know about which limits its value. The appraiser also didn’t know about the noxious weed infestation in the pasture that reduces livestock gain by 25 percent. And 150 acres of open land are in a 50-year floodplain. Netted out the adjusted value is $2.1 million. The buyer submits all of his material to the seller, with the words that such matters need to be disclosed to all buyers who come after him. They settle at $2.35 million.

Scenario 5: The buyer is interested in the main house and only 300 acres. Assets are valued at $5 million with a discounted value at $2.1 million. The buyer pays $2.35 million and sells 200 acres, which includes the tenant’s house and most of the floodplain. He treats the cropland and pastureland curing them of their afflictions. He sells the woods for $800,000 to a conservation group who promises to protect the nosepicker for ever. He leases the gas rights under 500 acres for $25,000 with a 12.5% royalty of net on future production. His lease includes a No-Surface Occupancy provision.

His sales are: 100 acres of woods, $800,000; tenant’s house and 20 acres, $300,000; four 20-acre lots, $100,000 each, for $400,000. Net cost to buyer of purchasing main house and 300 acres, $2.35 million less gross sale proceeds of $1.5 million = $850,000, or $2,833 per acre including main house and barn complex.

I have seen each of these scenarios play out in what one of my college professors used to call “real life.” It’s useful to remember the words of Steven Cohen, head of The Negotiation Skills Company and author of Negotiation Skills for Managers: Price is what you pay; value is what you receive.

A buyer must understand through pre-offer research what value he will receive, which then determines the price he’s willing to pay and not pay.

Pre-offer research provides a buyer with the net value (gross value less discount costs for liabilities) of each asset. That approach and level of analysis helps the buyer develop a post-purchase plan. The combination of determining the net value of all the discrete assets on a particular property and developing a post-purchase plan leads a buyer to an offering price.

Once the buyer establishes the net value price of the property to him, he can then determine the intensity of his interest in a purchase and set an offering price that makes sense. It’s not that hard to do, but most of us don’t bother.

2. Physical and legal access
Does the seller have legal and physical access to the property he’s selling? If the seller’s property has frontage on a state-maintained public road, the seller should have direct access. If the seller’s property does not have direct access to a state-maintained public road, the buyer must make sure that the seller is conveying a legal and physical right to cross the property of another(s) to get to that state-maintained road.

I’ve faced a situation where the legal access to a seller’s property was not the physical road that the seller used. The legal right of way (ROW) should be identical with the physical access road, otherwise problems will arise. The right of way in the form of an easement should be sufficiently wide to suit the buyer’s purposes. A 12-foot-wide ROW is wide enough for pick-up trucks, but not wide enough for snow plowing and log skidding.

If the seller’s property is accessed by a road that connects the property to a public road, make sure the seller has a recorded document establishing the right to use this road. Make sure this right-of-way easement imposes no restrictions—such as width, traffic weight, types of use—that would limit your intended use of the property.

If you are buying undeveloped property that borders a public road, make sure that there is enough sight distance on either side of your proposed entrance to allow you to get a new-entrance permit from the state or county road office.

3. Do any neighbors have a claim against the seller’s property?
If you find a fence line that is not where the seller’s deed states it should be, either a neighbor may have fenced in some of the seller’s land or the seller may have fenced in some of the neighbor’s land. Consent for this may or may not have been obtained. If the encroaching party can meet the state’s definition of adverse possession, that party will gain ownership of the fenced in land. A party can also gain use of the property of another by meeting the state’s standards. Sometimes, a neighbor (or the seller) will have a claim of one sort or another, though no evidence shows on the ground. You need to ask both the seller and the neighbors if unrecorded claims of any sort burden the property.

4. Is the seller conveying all rights and interests in the property, i.e., is the property being conveyed in fee simple?
The ideal situation for a buyer is to find a seller who is able and willing to convey all rights and all interests in his property to the buyer. This means 100 percent of the property’s ownership and 100 percent of all rights in the property. The buyer must have his lawyer check the title for any other party owning a portion of what the seller is selling. This situation often arises when the seller’s property has been part of an estate with many heirs. The seller may be selling something less than 100 percent ownership.

If the property has had some right—minerals, timber, water, wind—severed and sold, the seller cannot convey that right to you.

Easements that allow some party to use the seller’s property are relatively common; they may or may not be significant. Utility companies will own an easement allowing them to install and maintain power lines. A neighbor may have an easement to cross the seller’s property. A conservation easement involves some right that has been donated or sold, and which the buyer cannot reacquire. These can be very important rights, such as the right to develop the property for housing, the right to cut timber, the right to extract minerals, the right to sell water commercially and so on.

5. Are there any environmental problems?
The seller’s property may be the site of an environmental problem, such as a leaking underground storage (petroleum) tank, habitat for an endangered species or an asbestos dump. Or it may be subject to an environmental pollutant originating from beyond its borders, such as air or water pollution. In mining areas, look for abandoned mines, acidic streams and surface subsidence. Maps are available showing floodplains and earthquake zones. Check precipitation maps and ask around to see whether seller’s property gets enough rainfall every year.

6. How will you fit in with your neighbors’ properties?
Chances are you will get along with your new neighbors and the ways in which they use their own properties. But the country is no different from a city or a suburb—sometimes you have a neighbor who is not to your liking.

I urge buyers to meet all of the seller’s neighbors before submitting an offer. Visit them; tell them what you’re doing. Make sure you understand what the neighbor does with his property—and how that might impact you. If you are not comfortable with the sights, sounds and smells around the seller’s property, find another place. You will not change the behavior of someone who’s been doing whatever it is before you arrived. Don’t move into a community threatening nuisance suits. If you plan to significantly change the uses of the seller’s property, you should flag your plans for your neighbors. Likely opposition may persuade you to find another place.

The future uses of neighboring property are hard to predict. A new neighbor can seek a zoning variance or new classification when he wants to do something different with his property, such as divide property into 20-acre farmettes, install a wind farm or build a sawmill. Rural property that is zoned for agriculture can be used for new activities that newcomers might find offensive, such as a dairy farm or confined-poultry operations. A buyer can get a sense of what might be near-term neighbor plans by talking with the seller’s neighbors as well as local planning and zoning officials. This information provides no guarantee against zero change.

A prudent buyer needs to protect himself to the extent possible by asking the question, what is the worst possible scenario from my perspective that might occur on my neighbors’ properties?

7. Does the property have enough water to do what you want to do?
Each property has surface water and underground water. You may need to look at both to determine whether you have sufficient quantity and quality to satisfy your needs. If the seller’s property is dependent on irrigated water, water leases or purchased water, make sure that every such arrangement will continue beyond your purchase.

If your plans involve changing water usage, particularly increasing it, you will need to determine whether you will have access to the quantity and quality that you need.

Test water quality from a spring or well that serves the seller’s residence. Water samples should be comprehensively tested.

8. Fences.
Fence law and customs differ from state to state, county to county, neighborhood to neighborhood. In a general sense, you are responsible for one half of the boundary fence around your new property; there are exceptions, of course. The 50 percent requirement means that you and the adjoining neighbor maintain and build your common fence, splitting the effort and cost. Or it could mean that you assume the seller’s portion of the fence and the neighbor assumes whatever he claims is his portion of the fence. You may or may not get a straight story as to which section of fence is yours. Don’t be surprised if you wind up with a little more than your share.

So the first question is:
How are fence responsibilities apportioned on the seller’s farm?
Do not be surprised if the “systems” vary, neighbor to neighbor.

Fence question two is:
What portion of the boundary fence will you, as the new owner, be responsible for? Or, if the responsibilities are shared jointly, which portions have to be rebuilt?

Fence question three:
How much will it cost over your first year to get your share of the boundary fence up to the standard of “legal fence” in your state?

Fence question four:
If you are going to change the uses of the farm, what additional fencing—and what new types of fencing—will be required? If you want to operate a horse farm, you should replace cattle fences made of barbed and woven wire with safer materials.

Be prepared to hold up your end of shared fencing.

2. CPA (Certified Public Accountant)
A CPA can help you figure out the seller’s numbers—his basis, equity, remaining debt, appreciation and after-tax income from your offer. He can help you determine what the property is worth and whether it’s priced fairly in terms of itself and the current market. He can help you set up your purchase in the most tax-advantaged way. If you’re buying a working farm, he can help you analyze the seller’s financial information.

3. Surveyor
It’s unlikely that you will need to survey the seller’s property before making an offer. But it may be advisable to have a surveyor walk the boundary lines with the seller’s deed in hand to make sure the lines on the ground match up with the language in the deed. A buyer should have his surveyor draw the deed’s boundary calls on a topographical map. This will determine both acreage and boundary closure.

4. Consulting Forester
If your seller’s property contains more than five acres of woods, it’s worth asking a consulting forester to do a walk-through to determine its commercial value, if any. The consulting forester will determine the merchantable value of the seller’s timber, i.e., the likely current sales price in light of volumes, species and quality. You can use this number—or not, depending on what it is—in your negotiations with the seller. You can also use it to establish your basis in the timber for tax purposes.

5. Local Advisor
It’s always useful to know someone who is both locally knowledgeable and in your corner. Your local lawyer may be this person; the seller’s real-estate broker is not.

6. Property-Specific Consultants
In addition, you may find yourself in need of advice from a soils engineer (if you have to find a septic-system site), physical engineer (if you have to build a bridge or construct a septic system), home inspector, architect, appraiser, environmental consultant (if you’re faced with a problem or liability), excavator, contractor, carpenter, farm consultant (to help evaluate a farming operation), farmer (if you have to evaluate farm buildings, systems and equipment), soils consultant (particularly if you’re going organic), neighbors (who can tell you a lot about your seller’s property and any claims or grievances they have) and environmental specialists (if you’re dealing with asbestos, mold, radon, water pollutants and the like).