I talked with him on Saturday morning. We agreed on what I should do and the pay. He struck me as a decent, knowledgeable individual in his mid-50s who was looking for a place to retire in a few years. He lives about eight hours from the property in question. I live about a three-hour drive away and knew some folks in that county.

I started immediately, reviewing the legal documents and timber cruise the seller’s broker provided. I saw nothing in the deeds that were yellow lights—the minerals conveyed with the surface; no easements; no problems with boundaries; no acreage issues or disputes. Most of the property was covered by a recorded survey; a small parcel had been tacked on five years ago.

The timber cruise was different. The seller’s forester had counted all the volume in 12 and 14” diameters as fully priced sawtimber. The majority of sawtimber volume was in these two classifications. The cruise showed about $65,000 in merchantable value. Deducting the phony value of the 12s and 14s, I came up with maybe $30,000 as the real merchantable value of the property’s timber. I asked this forester whether local mills paid full value for 12s and 14s and which specific mills they might be. He did not respond to my email, which answered my questions.

I checked out the dirt with the USDA NRCS soil scientist in the county. The dirt would easilyperc if things came to that. The site indices for the timber dirt were between 60 and 80 for red oak, as the marker species. This was fair to good productivity, and better than I expected. The site’s characteristics fit my client’s long-term timber plans.

I put a phone call into the county’s sanitarian to determine whether the house was hooked up to an approved septic system, and, if so, its capacity, age and design. A cess pool or a pipe straight into the creek are not approved septic systems.

I looked into comps, to see whether the property was priced at market. The seller had about $250,000 in the property over ten years and was asking about twice that. I checked out tax-assessed values, adjusting as necessary. The asking price was in the ballpark, and the client and I talked over an offering price.

On Monday morning, my client phoned the broker. He was informed that another offer was coming in. My client then called me and said that he wanted to get an offer in too. He asked me to help pull the offer together.

I found a local lawyer. I liked the guy. Lawyers hate getting cold-called from people they don’t know and asked to start doing work on the assumption that the client will pay. But I provided enough information to make this lawyer comfortable. The broker used his own contract that was, the lawyer said, heavily biased in favor of the seller. We came up with a contract that protected the buyer.

I emailed the broker at 11:34 a.m. on Monday. I introduced myself, telling him that I was a consultant, not a broker or agent, working on an hourly basis and had no claim on his commission. In addition to asking him some questions, I wrote:

[My client] has hired me to help him research the [property]. In your conversation with him this morning, you indicated that an offer had been submitted.

[My client] would like to submit an offer as well. That is what we will be working on today and tomorrow.

We need to know the time limit on the other offer so that we can get ours in front of the sellers at the same time. So, the first question is, how much time do we have to submit an offer?

…[my client] is prepared to submit an offer without a financing contingency….

I followed this email with several phone calls, all of which went unanswered. My client and I were puzzled. The broker did not seem interested in seeing a second offer. I emailed the broker again, later in the afternoon. He said by email that he would respond at 4:30 p.m.  That deadline passed. I phoned again, asking for him to contact me that night.

I phoned again the next morning. The broker informed me that the seller had accepted the other offer on Monday. He did not say whether the seller had been informed that my client’s offer was being prepared on Monday [and was ready on Tuesday morning]. His reason for not communicating with me or my client on Monday was that his secretary, he said, had the swine flu.

What conclusions might be drawn from this broker’s behavior? I don’t know the facts on his side, only that he knew my client was getting an offer together and that he stone-walled that effort until it was too late.

My client’s lawyer had seen similar behavior from this broker in the past.

We were angry. My client’s offer was close to the asking price and would have contained a vanilla house-inspection contingency and a timber contingency. We already had a good sense of the timber value.

An all-cash offer close to the asking price with a buyer who would have paid the asking price was blown off by a broker who was supposed to be acting in the best interests of the seller. While the buyer got screwed, it’s likely that this broker also screwed his own client, the seller. Two offers would only put the seller in a more advantageous position.

A buyer in this position can complain to the state’s real estate board or the seller directly.

But few of us like to get mixed up in something that’s likely to be a big, time-consuming mess. So my client moved past.

This broker pulled a fast one, in my opinion. And I’m still grumbling about it.

1. Bring copies of documentation for your property. A listing agent will need a copy of the deed of record, a plat map, current survey, timber cruises, mineral or hunting leases, tax records, septic system permits, and other assorted documents which provide information about your property. Other items that may be helpful are harvest records of wildlife and pictures of game taken or observed, enlarged aerial maps of the property, timber stand maps, documentation about historical structures or occurrences on the land.

Recently I met with a landowner at his property, and he had already filled out a sheet with all of his contact information, age of the home, number of food plots and shooting houses on the property. He listed the names of all of the utility companies that serviced his land, the bank through which the land was financed, and several other helpful pieces of information. This was a pleasant surprise and has proven to be very helpful at recent showings.

2. Be prepared to show the property to the agent. It is helpful if the owner, who in many cases knows more about the land than anyone, can help the agent identify key areas of interest throughout the property, boundary lines, and information about the age of timber, etc… All of this allows the agent to have a better understanding of your property and will be able to present it well to prospective buyers.

3. Finalize the asking price and terms at which you are offering the land. A good agent will generally not give you a hard listing price over the phone, but may suggest some ranges of what land in your area is selling for. You can decide in advance whether you want to offer owner financing, retain mineral rights, reserve an easement if needed, and other issues such as these. The agent will provide you with an Estimated Net Sheet to provide an estimate of the amount you will walk away with after the completion of the transaction. I generally try to figure a “worst-case scenario” of closing costs on the net sheet to give a more realistic expectation of monies to be retained.

4. Keys to outbuildings, homes, and gates should be given to the agent at this time.

5. Sign the listing agreement. The listing agreement generally gives the brokerage company the exclusive right to sell and market your company. A land agent earns their money by marketing your property and bringing a buyer to suit your needs. The listing agreement gives the agent a reasonable expectation of being able to recoup the money he is going to invest in marketing your tract. The listing contract on land will generally be 6 months to 1 year, as land takes a little longer on average to sell than residential property.

Land brokerage companies will generally charge a commission fee of 4% to 10% depending on the size and sale price of the property. A discount broker may charge you less money, but the marketing of your land may suffer because the agent does not feel like they can afford to outlay much money on it. 10% seems a little steep, but on smaller parcels of rural land an agent may legitimately feel they need that much to make it worth their time. Commissions may be negotiable with the agent, so feel free to ask if they will move on the percentage. All of my personal listings are at the same percentage of commission because in order to provide the best service I cannot skimp on the quality of marketing, so that each property has the best opportunity to attract qualified buyers. Landowners can be sure they are getting my best deal and best effort on each property they list with me.

By preparing for the listing appointment and having helpful information ready for your agent, the land agent will be able to provide you with better service and potentially a quicker, more successful sale.

How should a timberland buyer use his own forester’s accurate cruise information with a seller who has provided inflated volumes and values?

The answer depends on how interested the buyer is in buying the seller’s property. A buyer can get huffy about the seller-supplied misinformation. This usually leads to a confrontation with the seller in which the words “liar” and “fraud” appear. When that occurs, negotiations end. It’s unlikely that a seller who has been called a liar will end up reaching terms with his accuser.

In some cases, the seller’s overstatement of timber volumes and values is so great that no timberland buyer will want to continue the pursuit of that property. Rather than belittle a seller, it’s usually better just to say “No thanks.” But the buyer should remember the name of the forester who prepared the bogus cruise.

Let’s consider the case of a timberland tract where the merchantable timber value has been inflated by a factor of two. The property’s asking price is $100,000 and the bogus timber value is $50,000. The buyer’s consultant forester puts the actual merchantable value at $25,000.

The buyer could write a direct — but polite — letter to the seller that explains where the two cruises differ and why the buyer’s appears to be more accurate (don’t use the word, truthful). A copy should be sent to the seller’s forester.

Individual states and professional forestry associations may have procedures for handling complaints of fraudulent work. If the inflation is clearly egregious and flagrant, I might file a complaint. The buyer should consult with his own forester on this sensitive matter.

The buyer, in this example, has one market “fact” in hand: the current merchantable value of a selective hardwood cut 16” DBH and larger in a marked, sealed-bid sale conducted by his consulting forester is likely to bring in $25,000 gross.

The buyer might suggest to the seller that since the seller’s cruise shows twice the value of the buyer’s cruise that they jointly fund a third cruise to establish value. A variation on this arrangement can provide that the losing party — that is, the party whose value is farthest from the third cruise’s value — pay the full cost of the third cruise. But the buyer in my opinion is likely to be advantaged in these circumstances by sticking with a straight 50-50 cost split. My guess is that most sellers don’t want to see the results of a third cruise and will decline the buyer’s suggestion.

The buyer might also suggest as one option that his price for the tract will be that number where the third cruise value represents, say, 60 percent of the gross sales price. If the third cruise estimates $30,000 in timber value, that would put the proposed sales price at $50,000. A buyer should develop a percentage formula of this type to reflect the value of the bare land, other property assets and his own financial circumstances and objectives.

The seller has priced the property with his own formula: asking price is twice the inflated cruise value and three times the actual cruise value of $25,000. The buyer can propose to the seller: I’ll pay twice the cruise value of $25,000, which is the accurate value of the merchantable timber. If the land is timberland, not second-home land, this formula is usually more than fair to the seller.

Formulas of this sort also gain negotiating traction when a buyer can find out what the merchantable value was at the time the seller bought the property in light of its then selling price. If the seller’s formula was 50 percent of sales price in merchantable timber, the buyer can argue that the same formula should be applied to the current sale when the former buyer is now the current seller.

To the extent possible, a buyer should try to move the discussion away from personalizing the conflicting dollar values — “My number is right; yours is baloney.” — to a timber value that both sides understand (even if the seller does not want to concede its accuracy).

The buyer should ignore the seller’s bogus cruise in negotiations, because its numbers are cooked and nothing is to be gained by debating them. The seller will lose credibility within the negotiations by protracted blustering about how his numbers are right and the buyer’s are wrong.

Even the most diplomatic buyer may not be able to work a deal with a seller who has only marginal interest in selling at a realistic price. Sellers who are able to wait for their price, will. Buyers are well-advised to move on to the next property when they find a seller stuck on an inflated price based on a bogus cruise.

A buyer’s first line of defense is to become broadly familiar with the tools and concepts that consulting foresters use to estimate the merchantable value of a property’s timber.

The second — and stoutest — line of defense is for a timberland buyer to hire a full-time consulting forester who has long and broad experience with private-sector timber sales in the area where the target timberland is located. Your forester should have a four-year degree in forestry, at least ten years experience in the area and work primarily in private-sector sales. Retired state and federal career foresters are not as likely to be as knowledgeable and experienced in private-sector sales as those consultants who have been working the private side of the business.

Names and contact information of foresters who work in a particular geographic area are available from the Association of Consulting Foresters, Society of American Foresters and state rosters. A buyer should ask the forester about his experience and credentials. Ask the forester to disclose any conflicts with particular sellers or properties. Ask for current references, and fees for consulting, walk-throughs and timber sales of different types. The timberland buyer needs a forester who is both competent and loyal. Your forester must be riding first for your brand, not any other, including his own.

Timberland buyers should pay for conversational advice from a forester who works in their target county or area before they start looking at properties. This counseling should cover local market conditions and idiosyncrasies, trends in stumpage prices and product demand, sales methods, timber-health issues (blight and/or infestation), timberland prices and related matters. This information is priceless…and buyers should not expect to tap into for free.

If a property seller has provided a cruise, a buyer should ask his consulting forester to review it, to verify the methods used and determine whether the information is timely and credible. Experienced consulting foresters are familiar with many of the timber properties in their counties of operation. This boots-on-the-ground knowledge will provide benchmarks against which any seller-supplied cruise can be measured.

Ask your forester to recalculate an inflated seller-supplied cruise. From that inexpensive effort, you can decide whether there’s enough likely merchantable value to justify the expense of a walk-through or a cruise.

A very broad rule of thumb that I use with many timberland investors is that merchantable timber value in current market conditions (based on an honest cruise) should represent at least 60 to 70 percent of purchase price. The 60-70 rule can be adjusted depending on the specific characteristics of the property, its immediate and longer-term timber potential, the investor’s time-frame and whether the property has other assets that can generate sale revenue and annual income. The rule, of course, does not apply to recent clear cuts or pine plantations that have just been planted back. The rule should not apply to all investor and all properties. Investors who, for example, are looking for a 25-year timberland investment to hold in an IRA could use other formulas.

Experienced foresters have peer networks. They can check out a forester they don’t know through those they do. They can scope another’s reputation within the profession.

My experience has been that a straight-up forester can look at a cruise for mixed hardwoods and determine within 30 minutes (or less) whether it’s inflated or not. If there’s a question, get the forester on the ground with the seller-supplied cruise. A quick walk-around may be all that is needed to judge the cruise’s integrity. On large tracts, a buyer-paid for cruise, or a mini-version, may be warranted.

For the most part, I like consulting foresters as a group. They’re sensible, practical folks who will be your best friend in a timberland purchase and beyond. The ones I don’t like are the information spinners, and buyers need to understand they are out there.

My experience over the years with seller timber estimates in all formats is that they always need to be verified, and, at worst, they are frauds. Of the seller-supplied estimates I’ve seen, I’d guess that at least half inflate the volume and/or value of the seller’s timber beyond what timber buyers would pay for. Inflation has ranged from a modest amount to, literally, $100 million, on a tract whose timber was without any commercial value owing to regulatory constraints.

I have also seen buyers work the same game with sellers by handing the seller a cruise that underestimates the seller’s timber resource and its current market value. Of the two, a bogus seller-supplied estimate is the far more common.

Different ways exist to estimate timber volume in the field, referred to as stumpage. A timber cruise can be done with various methods according to property specifics, but, generally speaking, the most common is a procedure that samples the property’s timber characteristics in a systematic way and then projects tract-wide totals to indicate volumes by species and size. The dollar value of each category (of species and size) is calculated by multiplying the aggregated volume by the current market price for that type of stumpage. The forester gathers current market prices from area timber buyers. These prices are expressed in units, such as $/board foot, $/ton, $/cord, or $/cubic yard. The forester derives a single price multiplier from this research and applies it against the aggregated volume for each species to get a current market value.

While cruises use different formats, 50 acres of mainly hardwoods might be presented in a very simplified form like this:

Timber Cruise for Mr. Johnson’s 50 acres

3 miles west of Tranquility in Peaceful County

July 21, 2009

Diameter classes, DBH (diameter at breast height, 4.5 feet above ground)

Doyle Scale   25 plots

45/50 acres cruised for merchantable volume

1000s bf

<12”     12-14     14-16     16-18     >18   Total      $per       Total value

Vol.    1000/bf

Red oak                5                                5             5                        10       300           $3,000

Sugar Maple      10                                             20           8        28       400             11,200

Chestnut oak       4                                                             10       10        75               750

Black birch        15                                              10                                    20               200

Pine                      15                               10          15          30       55        50               2,750

Misc. HW           10                                10                                     10        60               600

Veneer

Cherry                                                                           5         5     1,500             7,500

Pulpwood

HW  500 cords @ $7 cord                                                                                3,500

Pine  400 cords @ $6 cord                                                                              2,400

——-                                                                                                   —–                      ———–

59 (premerch)                                                                             113 (merch)*        $31,900

*  Excludes 5,000 bf of veneer.

Volume summary:

Premerchantable volume, <12” D:   59,000 bf

Merchantable sawtimber, >12” D:  113,000 bf

HW veneer:                                                5,000 bf

Pulpwood, HW and Pine                        900 cords

Sawlog volume per tract acre  113/50 = 2,260 bf/acre

Sawlog volume per cruised acre  113/45 = 2,511 bf/acre

Veneer per tract acre   5,000/50 =  100 bf/acre

Merchantable timber value = $31,900

Merchantable timber value per tract acre    $31,900/50 =  $638/acre

Premerchantable value estimated at $20/1000 bf = $1,180

Premerchantable value per tract acre   $1,180/50  =  $23.60

This cruise confines itself principally to merchantable sawtimber volume, which is stumpage that, simply put, is timber for which timber buyers will pay a sawlog price.

Timber volume that has no commercial value is not considered merchantable, even though there may be “a ton” of it on the property. Non-merchantable timber might include volume in small-diameter trees, or tree tops above, say, a 10”-inch diameter in the stem (that is, logs with big ends smaller than 10”) or trees that are located on inoperable acreage (which might be too steep or too wet to allow logging by local, conventional methods).

At 12” DBH in this market, timber buyers redefine trees for a different end product.

With stems smaller than 12” DBH, the uses are confined to relatively low-value end products such as ties, pulp, pellets or firewood. At 12” DBH and above, timber is reclassified as sawlog. Sawlog stumpage is much more valuable, because these larger logs can be milled efficiently into high-value end products, such as lumber and flooring. Veneer sawlogs are the most valued trees, and they fetch premium prices.

In this example, 12” DBH is the threshold between small-diameter timber used for low-value products and sawlogs. That threshold is referred to as the in-growth point. Above that point, the value of timber volume in all species increases substantially. I’ve seen in-growth thresholds as small as 10” and as large as 16”; it depends on local market conditions.

Some cruises will also estimate premerchantable volume (small-diameter trees) by species and diameter class so that projections can be made about when each premerch asset (say, red oak in the 8-10” cell) will achieve the threshold diameter of 12” and be reclassified as sawlog volume and fully valued at sawlog price. In this example, the forester put $20/1000 bf on the 59,000 bf of premerchantable volume. Premerchantable sawtimber represents future economic return much more than present value.

Each species grows at a different rate, and growth is also determined by the productivity of the site where the trees are growing. The timber-growing productivity of a particular spot is expressed as a site index–a number.  In simple formulation, the higher the site index, the faster trees will grow. The county’s soil survey (available from the local office of the USDA’s Natural Resources and Conservation Service) maps all the soils in a county and provides site indices for each soil type and location.

The next several columns will discuss ways that cruises can be manipulated to increase (or in the much rarer case, decrease) merchantable timber volume and its value.