Buying Land

If Cash is King, then is Land Queen?

If Cash is King, then is Land Queen?

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.

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  • Marisa I think this article is helpful for prospective buyers. We can’t repeat often enough that the land market is not the same as the housing market. People hear “real estate” mentioned on tv and they think that news encompasses all aspects of commercial, rural, and residential properties. Rural land is different, and seller’s generally don’t “have to” sell. Thanks for pointing that out here.

    • Thank you for the comment Jonathan. It seems now more than ever land especially farmland is definitely not the same market as housing.

  • That’s one of the first hurdles I pass over when talking with a buyer. You have to make them understand that the land market works differently than the housing market. Especially if they happen to be borrowing against the land…I find that sellers respond more quickly to cash offers…even if it does not make much monetary difference, cash can expedite the negotiation process. I put together two deals in the last week that cash offers made all the difference in the world in the seller’s responsiveness and willingness to negotiate though.

    • Thanks Robert and I agree with you about willingness on cash offers but right now in Kansas where farmland has appreciated nearly 10% in the last quarter that willingness is substantially less even if it is cash. Very few parcels of quality farmland are on the market and sellers are just not tolerating poor offers.

  • Great article! I am a purchaser in Virginia and I have often run across individuals that have sentimental attachment to the property they are interested in selling.

    One tool I have found helpful is to go lower on their offer price but in lieu of the money I tell them that the property will be platted and recorded under the family name and the truly sentimental will think that is worth more than cash.

    • Thank you for your comments Jackie. Good point for property that is being developed or split off and that is an option on the naming.

  • Cash is way better than non income producing land. Right now all land is a liability only. Developed lots are so cheap, so there is really no price for land that makes sense.

    • I agree with you Steve for lots and the residential developed land market is a buyers market. However, most landowners here in the heartland own their farmland nearly free and clear and it is producing an excellent income as grain crop markets are doing well.

  • Steve,

    Cash does not make any money by itself. Cash, without some other input…at today’s interest rates, is non-income producing.

    I would argue that idle, developed lots are only a small portion of the scope of Marisa’s article. Income-producing farmland and timberland fit far better into portfolios these days than does developing subdivisions. There’s a great deal of land in between metro areas in this country that is used for more than houses. To limit your analysis of land prices to developed lots leaves out the lion’s share of the markets that we call land.

    Land has intrinsic value. It holds production capacity that remains relatively constant regardless of the economy and how we nominate our funds.

  • This is so true, even here in the small town of San Quintin Baja California Mexica I see this all the time. Thank you for this note.

  • My Great Grandfather moved for Stokes County West to Surry County North Carolina in 1909 bacause the Land was poor and they really did not have the farming technology.

    From 1909 to 1929 my Great Grandfather and Grandfather purchased 18 tracts of Land totally around 900 Acres+/-. Today, every inch is still in our family being passed on to the younger generations. This is very typical in Rural America.

    It is and has been paid for for years. It is increasing in value at the annual rate of 5.5%+/-.

    What else is there but Land.

  • Good points Marisa. Land is gold. Without farm ground, land for raising crops, critters, nothing else matters if you are starving. Or spending too much money on what you eat. Hobby farming on the increase for lots of reasons. Hard work but simple living and outdoor awareness of weather, markets, life. Land is right up there with air, water, shelter in my opinion. Eat off it, heat with the timbered sections.

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