Is there too much hype in reporting land sales in per acre pricing? Almost all farmland sales are reported by auctioneers and appear in articles as per acre pricing. Land auctions bid up in per acre increments and it seems everyone talks or tweets about how much land sold for in per acre terms. However, as more investors and younger generations buy farmland, the “per acre” pricing model is not necessarily the standard. One poor soul squashed an entire auction sale because of confusion on bidding.
An important detail that is often overlooked in per acre pricing is that not every property has an even number of acres. Most parcels vary in actual acres. For example, a parcel might be 158.42 acres or maybe 41.3 acres but less the right of way easements that total 1.3 acres. So what happens to all those decimals and details? Are they included in the final price or do they round down or up? Take a hypothetical piece of cropland listed for sale as a quarter section of nice highly tillable. A quarter section being 160 acres. The property goes to auction and “sells” at auction for $2500 per acre. But the actual acreage amount is 161.42 acres. So what was the final sale price? Was it $400,000 or was it exactly $403,550? Or was it $500,000 because there were also buildings. What do you think?
Another important factor usually skipped in marketing hype about per acre prices is the structures on the property. If a sale is reported at $6900 per acre for farmland and no details are given and most of the land in the county is going for about $2500 per acre then you might think that the seller struck gold. However, with closer inspection the sale was reported as a total sale on the entire parcel and included a nice country farmhouse plus three outbuildings. Adjust those structures out and the land sold for about $2600 per acre. So is the reported $6900 per acre hype or actual value?
So the next time the buzz starts in about how ‘ol Farmer Smith got a fortune for his land take a moment and stop and do some research. Find out:
- Actual acreage. You need to know the actual acreage of the tillable land because most of the time there is at least a few acres of wasteland, timber or possibly pasture so the true per acre price of farmland is not usually the entire tract as a whole. Sometimes they list the tillable at a higher per acre price and take out the other remaining land in the calculations.
- TOTAL Sales Price. Most of the time the actual sales and the price per acre price do not match. Likely the total sales price of the parcel is much less due to either buyer paid auction fees that are tacked on or they have made adjustments for easements, non-tillable land or buffer acres. Find out the total sales price of the tract and then find the exact total acreage from the county record and only then will you have the true sold value.
Per acre pricing is useful to know for comparison purposes. However, when it comes to a real estate contract you need a total purchase price. That total sold price is then reported to the county appraiser and the taxes are based on it not any averages or per acre pricing. The actual total sale price of a parcel affects values for the whole county on similar properties. So, when you get your next tax statement that per acre hype might not be so fun to talk about when you are paying the tax bill.