“Should I try to sell my land now?” is a question many rural property owners are currently asking themselves. Over the holidays lots of people had family meetings to discuss what they are going to do with family-owned land in the coming year. Landowners often get to the end of the proverbial diving board and stand there staring into the murky waters that make up our current land market and take a long look before committing to make the leap.

I love working with landowners, and 9 out of 10 times I am the listing agent in a transaction. A listing agent works for the landowner, and should try to be as helpful as possible in helping their client achieve his goals while selling a property. When asked by sellers about what they should do or expect if they decide to sell, I try to be as honest about the current state of affairs as possible and help them have the expectation that even when marketed properly it could take a year to sell a nice property. I invariably hear, “Well I’m not going to give my land away. I don’t have to sell it.” (That phrase must be written on a slip of paper closing attorneys or estate executives hand out to new landowners when agents are not around, because that response is universal.) My advice in that situation is almost always to wait another year or so because you may be able to realize more money from the sale of your land then. Landowners usually follow up with, “But I would like to go ahead and put it on the market.”

I am a word picture kind of guy, so let me use a metaphor to help describe the current market of rural land in Alabama, and from what I gather it is much the same in other parts of the country. The market is currently packed with available rural properties for sale. LANDFLIP.com currently has 1339 active listings of land for the state of Alabama. I have done some research and discovered that there are over 100 companies that have some emphasis on land sales in our state. If we were to assume that a whopping 10% of all available rural properties in our state are on LANDFLIP.com, then we would have about 13,000 tracts of land for sale in our state at this moment. When a seller gets ready to put their property on the market, they essentially enter a competition with a host of other owners that are selling too.

Imagine you live in a major city, and you would like to go to a store that is 15 miles away at the heart of the city, and you need to be there about 5:00pm on a weekday. You know from living there for years that the freeway will be packed with people coming and going at that time of day. You have to decide how important it is to you to make it to that store at that time. So you hop in your car, and enter the fray. This same scenario is playing out right now in the rural land market. Lots of people are selling in this market for many reasons: the land may be bank-owned, distressed, or sellers simply need the money. Whether people are headed to the city-center to visit a store, hospital, or try to get home, they are all still part of the congestion. The reasoning makes no difference.

You look across the median to the south bound traffic and you see light congestion and drivers leisurely changing lanes. That is what a seller’s market looks like. Sellers can set prices within reason and have separation from other properties. That is what a seller needs to move a property in this market too: SEPARATION.

All of the cars on the freeway are moving at the same speed so they stay bunched up. This is exactly what happens when properties are priced according to stale comparable sales. A log-jam develops and properties seldom sell at those asking prices.

So how does a seller differentiate their properties from the competition? I tell my clients two things will sell your land in this market: price and marketing.

Price- It is imperative that you price the property correctly right out of the gate. New listings get a lot of attention as soon as they come on the market, and a well-priced property can sell within days or weeks with the right exposure. If you try to list it at a price that is too high to “just see” in this market, your land will get lost in the shuffle. I am seeing properties listed at 15% to 20% of the appropriate price get no attention, 5% to 10% will get minimal activity, and a property 5% to 10% under can get you a really quick sale. That is because properties offered slightly under the market price get attention from savvy buyers who know what price they “should” be paying. That is one way to get separation.

Marketing- Your land needs exposure to every prospective buyer. A seller or their agent must have a good strategy to advertise a property broadly. If 85% of prospective buyers are beginning their search online, as the NAR reported last year, then your land must be visible to those searchers. This is one way that a great land agent will help separate your property from the mix. A great agent uses the basic online tools to market it, but is also innovative and finds ways to maximize exposure for your property.

You don’t want a middle-of-the-road land agent in this climate. Find a great agent that has the pulse of the market in your area, and let them go to work on helping you sell your land. For your land to sell right now it has to stand apart from the competition through a combination of great features, good price, and exceptional marketing exposure. Find a way to separate your land from the traffic jam and get it sold this year. If you have a property on the market currently, make the necessary changes now and hopefully they will be met with success.

Everyone is swallowing hard in this market: sellers on price, buyers on turning loose of money and not knowing where the economy is headed, and agents at laying out money to market listings that may not sell. Finding a win-win solution for each party to a transaction will help get more deals to the closing table.

Here are several broad principles that usually — but not always — apply in these decisions.

1. Don’t sell when there are a lot of properties like yours for sale in your area, unless you are in a hot seller’s market.

Competition among many sellers with essentially the same product inevitably means advantage to buyers. That usually plays out in a buyer playing off one seller against another. In a buyer’s market, the seller’s asking price will be discounted and his ability to hold to a wanted price is weakened.

Unfortunately, the economic forces that depress the economy and real-estate sales in particular, also corners sellers into having to sell their property because they have to.

If you don’t have to sell in today’s market, don’t put your place up for sale. Wait.

2. Sell investment property when you can use the sale profit to make a better investment.

This requires that you have a reasonable sense of how the property you own will appreciate in the future as well as how your next target property is likely to appreciate. This amounts to combining trend analysis with a crystal ball.

Consider using a 1031 exchange to protect your gain going forward.

3. Sell when you’re sick of fooling with a property you hate.

Some properties are just one headache after another. If they’re making money, you have to decide whether you value the net (not the gross) more than the headache. I start getting headaches when dealing with house tenants, but that’s just me. I’ve had good experiences with hunting and pasture tenants.

Fix-up places are always good candidates for headache properties, particularly if you’re living in the middle of the work…and you’re married.

4. Sell when all the other choices you have are worse.

Things don’t work out well sometimes. And at other times, things work out so badly that you have to choose between dreadful alternatives to muddle through.

The one time I was in that situation I found that making a decision to sell a very smart real-estate investment into a bad market was made for me. I had no other choice.

At such a point, you do what you have to do, sell what you have to sell, and don’t waste time and energy stewing.

5. Sell investment land when you don’t have to.

Lack of pressure on sellers to sell provides flexibility and the ability to hold for the right deal. When you’re in this fortunate position, look for advantage in terms if you and the buyer get stuck on price.

6. Sell farther out rather than closer in.

My experience has been that every single land investment I’ve had over 40 years would have sold for more if I had held it longer. I cannot say the same for stocks, that’s for sure.

I’ve found sellers, including myself, setting an asking price for real estate by fixing its value in one of at least several ways.

Seat of the pants. Sellers normally know more about the property they’re selling than any other party. Over time, sellers get a price-feel for how their places compare with others in terms of assets and liabilities. When it comes time to sell, many sellers integrate the information they’ve acquired over the years and intuit their way to a price.

Need. When the economy is lousy, some sellers find themselves pinched for cash and forced to sell real estate. Where the property is secured by a mortgage, the sale price is hoped to be sufficient to pay off the debt, transaction costs, taxes on gain and meet as much of the crisis need as possible. In the best circumstances, the seller will have some profit left; in the worst, sale of the real estate will leave him short of meeting his cash needs.

This seller must take the amount of his cash need and weigh that against what he thinks the market will bear for an asking price. The need-seller, in other words, like all others has to employ some method of coming to an asking price, apart from the numbers of dollars needed, which is his motivation for selling.

If I need $100,000 and I know my property won’t bring more than $40,000, it does me no good to set the asking price at $100,000. My best approach is to substantiate a price as much over $40,000 as I can, usually by disaggregating the property’s assets, valuing them individually, then adding them together.

Competitive Market Analysis (CMA). If the seller is listing the property, the listing broker can undertake a CMA to determine recent selling prices of roughly comparable properties. Brokers experienced in the local market will help a seller tweak that information in light of the comps used, the property to be sold and current market conditions. This is often a very practical approach. But it’s subject to influence when an agent or broker inflates a suggested “CMA-based” selling price in order to snag a listing.

Appraisal. Some sellers pay for an appraisal as a way of establishing the current market value of their properties. They then set an asking price, above or below appraisal value.

Appraisals are opinions of value, based on selecting the recent selling prices of three comparable properties sold within the previous six months. The appraiser adjusts the value of the seller’s property in light of each comp and arrives at a reasonable estimate of current market value.

Buyers tend to put some faith in seller-supplied appraisals, because they are supposed to be unbiased. Appraisals are readily manipulated to get to a certain number. Appraisers are free to choose the comps they want to use (and not choose others) and make further adjustments. A seller-commissioned appraisal is subject to pressure a seller may choose to apply to the appraiser to hit a high valuation.

The other problem with appraisals that I’ve found is their too-general level of analysis. Appraisals rarely dollar in or dollar-out quality-of-individual-asset considerations.

Timberland, for example, that contains $1,500 in immediate timber-sale value is usually valued at the same price as timberland that has $750 in timber value. Improvements are valued by type, age and square footage, but quality factors — materials, details, condition, convenience of layout, etc. – are not generally looked at hard.

I’ve also found that appraisals rarely dig deeply into material defects that affect the property’s usability, such as a crawlspace that’s too low to the ground, or ground that’s too steep for operating equipment, or land that’s unproductive for various reasons.

A market that’s either in rapid decline or rapid ascent requires an appraisal derived from pending sales, not ones that are as much as six months old.

I’ve seen a seller commission simultaneous appraisals from three different appraisers and then set his asking price as the average of the three. If, of course, a seller is willing to lean on one appraiser, he’s also willing to lean on three to get to the number he wants.

The average-of-the-three approach is a practical method for establishing the value of estate property where one heir wants to buy out the interests of the others—and everyone is looking for a fair-to-all way of doing so.

Tax-assessed value (TAV). In recent years, tax-assessed values lagged selling prices with most types of rural property. For that reason, buyers often used TAVs as a starting point in negotiations, forcing sellers to dismiss them as unrealistically low. With sales slowing, the situation could easily reverse, with TAVs of record showing unrealistically high values.

TAVs are based on formulas that reassessment appraisers use across the board. Very little, if any, digging into quality-of-asset considerations occurs. The TAV method provides a way of comparing the value of one parcel with its neighbors since the methodology is applied to all equally, but TAVs don’t tell a seller or buyer much about the value of any particular property once its researched assets and researched defects are netted out.

Online home-value sites. I ran through a number of these sites. None provided any valuation of my current rural residence, a house that has been standing for almost 100 years, on a street with a numbered address. I concede for the record that Blue Grass, Virginia is not in the thick of things.

I plugged in my childhood home in Pittsburgh…and got wildly varying results, a low of $84,500 to a high of $154,000. The sites could not agree on the number of bathrooms and most recent sale date. Others may have better luck with sites such as Eppraisal, Real Estate ABC, Zillow, Yahoo, Homegain, cyberHomes; PropertyShark and HouseFact.

Home-Price Indexes. These efforts — Federal Housing Finance Agency House Price Index; Purchase-Only; Radar Logic (25 metro areas using price psf); S&P Case-Shiller U.S. National Home Price Index; NAR Median Sale Price; LoanPerformance House Price Index; and Integrated Asset Services IAS360 National Index — are not very useful for rural properties for various reasons, mainly dealing with different approaches and different data bases. (Carl Bialik, “Only One Person Knows a Home’s Value: Its Buyer,” Wall Street Journal, November 21, 2008)

Each provides a trend that shows percent gain/loss plotted against time, and they don’t agree. Since January, 2000, four show about a 50 percent increase and two show a 75 percent increase. All show a decrease over the last couple of years, but the steepness of the decline differs. Taken together, they give a seller a sense of price direction.

So what’s a seller to do?

First, property does not have an objective dollar value until a buyer buys it. Every other number is speculation, to one degree or another.

Second, the various approaches described above will provide a range of value estimates, hopefully narrow enough to be useful. A seller can narrow the range by throwing out the low and the high numbers, then averaging the remainder. The seller might consider this number his estimated working value (EWV), in terms of which he sets his asking price.

Third, the settlement, or sale, price should be more related in the seller’s thinking to the EWV than to the asking price.

Fourth, sellers should understand that familiarity breeds overvaluation. The longer a seller has owned a place and the more emotionally invested he is, the more dollars he thinks its worth.

No universal formula exists for a seller to determine his property’s EWV, asking price or settlement price. EWV is the result of pulling together as much data-hardened information as possible and using experience and judgment to come up with a good-enough value estimate, given the seller’s circumstances. Asking price is a matter of tactics, and settlement price is often a matter of circumstances.

When a seller has only one buyer, his choice is to make a deal or keep the property. If holding is not an option, the seller has to make the best deal he can. In that circumstance, a seller does what he has to do. The decision is forced upon him by circumstances, so there’s not a lot of agonizing.

When a seller has flexibility and holding power, he should make a good-faith effort to figure out his EWV. It makes setting an asking price and a settlement price much easier. When a buyer is close to the seller’s EWV, it’s time to make a deal.

Sellers lower their asking prices to move their properties in a market that’s turned against them.

A cut in price will have more impact on buyers if it’s packaged with three trust-building gestures that position them to make a deal.

1. Provide complete property information.

I advise sellers to put together a packet that includes the following:

• Seller’s deed with boundary description. If the seller did a title search when he bought the property, offer it to the buyer. If the seller is offering less than a general warranty deed and fee-simple ownership (all rights, including minerals), explain why and what it means. Sellers can offer warranties as part ofa purchase contract that go beyond their deeds.
• Disclose any easements that run with the land, such as conservation restrictions and provisions for ingress and egress
• Topographical map with drawn boundaries or recorded survey
• Current tax-assessed value and property tax
• Balance on seller’s mortgage, if any; name of lender; assumability
• Original purchase price or seller’s adjusted basis in the property; length of seller’s ownership
• How is the property owned—individual (s), husband/wife, estate, business entity, etc?
• Willingness or not of seller to finance buyer; include conditions and format
• Honest valuation of particular assets, such as agricultural land and facilities, timber, minerals, income-producing activities, etc.
• Cost of current insurance; scope of coverage; insurance vendor
• Environmental issues that affect or limit use of property, such as floodplain, archeological resources, endangered species and their habitat; wetlands; ground issues (earthquake or landslide zone, sinkholes), invasive species, dumps, etc.
• Patterns of trespass, nuisance and annoyance
• Boundary disputes. Encroachments. Fences off survey lines. Unrecorded documents.
• Reason for seller selling.

Some very good country brokers follow this rule of thumb: “The more you tell, the more you sell.”

In this market, sellers have to build trust with their buyers. Full and accurate information is the way to do this.

Don’t exaggerate the value of assets or conceal problems. When the buyer discovers the truth, the trust that the seller has been building evaporates.

2. Explain your price.

Price is the bone that buyers and sellers usually gnaw on. “This is my price,” the seller says. “Too high,” the buyer replies. And it either goes from there, or goes nowhere.

I’ve found that buyers are more receptive to a seller’s price when it’s explained and justified with honest numbers.

3. Sellers: Make yourselves available.

When property is listed with a broker, a wall is erected between seller and buyer. Some think it’s useful to keep the sides apart with no face-to-face communication.

With country property, I’ve found it’s invaluable for the sides to meet, talk things over, build a relationship, find common ground and learn things that only the other knows. The seller has more information about his property than any agent, no matter how diligent.

Sellers can distinguish their properties from others on the market by distinguishing themselves. Providing an opportunity to meet in person, talk on the phone and email is the way to reach a deal in troubled times.

Talk is cheap; trust is dear…and invaluable. Build it…and benefit.