Timberland

Seller-supplied timber values: Trust (a little) and verify (a lot)

Timberland buyers need to figure out what a tract’s timber is worth before they submit a purchase offer.

Many timberland sellers provide different types of documents that “show” the value of their property’s timber. Sellers have given me “timber valuations” that go from oral statements, to handwritten notes on the back of an envelope (Red Oak = $50,000; White Oak = $75,000) to numerical cruises ranging from two pages to more than 100.

I’ve found that many of these documents overestimate the volume of timber that a timber buyer will ever pay for, which, of course, inflates the dollar value of the timber the timberland seller is selling and the timberland buyer is purchasing.

Lots of ways exist for timber volume and value to be inflated.

Here’s my most recent adventure in this Disneyesque world.

A broker provided excerpts from what he described as a “timber cruise” on several hundred acres in the upper MidWest last week. Missing are the first page and perhaps other pages. The timber inventory was laid out in two tables, with one table showing results by acre and the other by the property total. It was presented in this format:

Product (by acre)
Volumes

Pole Timber      Smallsaw       MediumSaw      LargeSaw      Total

Number of trees

Basal area

Quadratic dbh

Arithmetic dbh

Pulpwood (cord)

Scribner

Total (CVib)

Pulpwood…$$$

Solidwood…$$$

Total…$$$

The total tract value of pulpwood and solidwood (whatever that might mean) came to almost $600,000.

No definitions were provided of which tree diameters were grouped into each sawtimber category. No species were provided; the tables were classified as “combined species group.” No cruise parameters were given—number of plots used to make the estimate, number of acres cruised, methods, etc. Nothing was said as to how the forester arrived at a “combined species” dollar value for either pulpwood or solidwood.

It’s possible that the forester provided this information in parts of his cruise that were not sent.

It’s also possible that these cruise numbers provided are absolutely accurate. But neither I nor a consulting forester I showed them to could make heads or tails out of them.

When I contacted the seller’s forester directly, he added details that helped some. But he did not reveal which species were included in “solidwood” or how he calculated a single, aggregated price for “combined species.”

In the form presented, this information is nearly worthless. The buyer can’t determine what tree species are on the tract and what species are concentrated in the larger, more valuable diameter classes. Are the volume numbers in each column based on one plot per 100 acres or one plot per five acres? Was volume counted on inoperable acreage or not? Loggers won’t buy volume on inoperable acreage.

A buyer’s eye will be drawn first to the total dollar values ($$$) for pulpwood and solidwood. They’re easy to understand, though understanding what they actually represent is much harder.

Those dollar values will anchor the seller-buyer discussion in the absence of other information. These values are unverifiable, at best. At next best, they’re unreliable to one degree or another. At worst, they’re inflated to advantage the seller.

Buyers looking at planted, even-age tracts of one species have a much easier time in valuing merchantable timber than buyers looking at natural forests of many species and various ages. Buyers of the second type are usually helped if they obtain a timber evaluation that’s organized more or less like this:

Timber Cruise Inventory

100 acres/150 acres, Jones Farm in ABC County

30 plots, Doyle Scale, FC 78

Top break: first crotch or 10” diameter

September, 5, 2008

———————————————————————————————————

SAWLOG DIAMETER CLASS (inches, DBH)

(volume in 1,000 board feet)

————————————————————–

Less than Total $/1000 Total

12 14-16 16-18 18-20 20-22 22+ Volume bd. ft $ value

Species

A

B

C Sawlog

Veneer

D

This format shows how much timber volume the forester estimates will be found in each diameter class. Different areas and sometimes different mills within a single locale will define a sawlog diameter differently. A timberland buyer needs to know whether sawlogs are defined by the local market as 14” and up or 18” and up; a smaller diameter definition of sawlog means more volume will qualify, which means more sale money.

The forester using this format indicates that in this market all logs larger than 14 inches diameter at breast height (dbh) are considered sawlogs and all such diameters will be priced accordingly. Logs smaller than 14, will be price-discounted as either poletimber or pulp. Veneer is valued separately, because it is priced higher than sawlogs of the same species.

The format also reveals the parameters used – number of plots, number of acres cruised of total, mill-based species prices, among others – which gives a sense of the forester’s methodological integrity and a way of judging the reliability of his numbers.

The subject of cruise integrity deserves far more discussion than I can provide here.

The rules for buyers who are handed a seller’s cruise of timber value are:

  1. Ask your consulting forester to review the information before relying on it;
  2. If your forester thinks the seller’s tract has significant immediately saleable (merchantable) timber value, pay him to do either a walk-through (informed impression of volumes and values) or a cruise (reasonably accurate sampling and projection of volumes and values).

I routinely find that seller-supplied timber “cruises” inflate the actual timber value a landowner would realize in a sale immediately following purchase by ten to 50 percent.

My favorite example is the seller who estimated timber value on his land at between $100 and $300 million when, it fact, it was $0, because the state would not issue a logging permit for his environmentally sensitive property.

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About the author

Curtis Seltzer

Curtis Seltzer is a land consultant, columnist and author of How To Be a DIRT-SMART Buyer of Country Property, available at Curtis-Seltzer.com where his columns are posted. He also does commentary for Virginia public radio. His new book, Land Matters: The “Country Real Estate” Columns, 2007-2009, which includes 14 commentaries on CD.

8 Comments

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  • As a Consulting Forester and Realtor I have to state that buyers need to hire their own consulting forester to make the timber appraisal and the subsequent sales. For instance, the cruise above mentions volumes per Doyle Rule. Doyle Rule drastically under scales smaller timber less than 30″ DBH or so and is in the mills favor on most tracts these days with their smaller diameters. A better rule is Scriber or the best is International. A lump sum price for all timber is one way to remove the log rule factor.

    As far as timber cruises go they are ALL wrong. The question is how much. I strive for +-10% confidence but that is a hard target. Appraising a house is very easy compared to timber. On a typical sale you are dealing with maybe 8 species, with 3-4 products per species so there is 15-20 volume estimates per species/product all with different dollar values. Timber usually changes from the top of a hill down to the creeks, There are man-made changes, planted timber, past cutting practices, mortality, etc.

    Cruise methods can be 100% tally which is not cost efficient unusually to a point sample or a % cruise with fixed plots. Both sample a little and expand to a total tract estimate. I favor point sampling as it tends to sample more larger tress that have more value. There will be an error so better to shift it mostly to low value pulpwood than high value saw-timber. One small sample error can drastically effect the outcome. Cruising timber requires someone usually with a forestry degree plus years on experience in the local area. Make sure your forester has that experience.

    http://www.naturalproperties.com

  • I am interested in timberland or farmland investments, and need a knowledgeable broker to help me decide in waht to buy and at what price.
    please contact us.

  • As a real estate broker and former timber dealer selling timberland and transitional land I understand how important a timber cruise by a third party independent forester is in some cases. Here are some short comments to think about.

    1) Is there substantial marketable timber value on the tract? If the timber value is low compared to the overall value of the property, then a timber cruise may not be needed. If a tract will sell for $3,000 to $3,500 per acre and there is $200 to $300 per acre of timber a cruise may not be necessary.

    2) What is the highest and best use of the property? If it is for growing timber and there is merchantable timber on the tract, then you probably need a 3rd party timber cruise. If the property is transitional and the next use does not require growing timber then a timber cruise may not be necessary. The property may sell for the same price for the transitional use with or without timber. But, if there is substantial timber value the Seller may want to sell the timber before the land sale or use a 3rd party cruise to convince the buyer to pay for all or part of the timber in addition to the value as transitional land.

    3) If there is valuable merchantable timber that can result in a higher selling price to the Seller, then the selling broker should counsel with the Seller about the importance of having the timber valued by a third party registered forester. In our brokerage business we have found the best way we can sell property in the shortest time at its market value is to give the buyer as much information from as reliable source we can find. If timber is involved the information is a current timber cruise and the reliable source is a registered forester who has a good reputation and is knowledgeable about timber utilization and values in the area of the property. Local knowledge is invaluable with all rea estate but is especially important in valuing timber.

  • Thank you George and Fletcher for your comments.

    With respect to the Doyle Scale point: I didn’t make clear that I was simply using this format as an illustration of how to organize information. George is quite correct about the Doyle Scale undercounting, so to speak, volume in the smaller diameter classes compared to the International Scale and some others.
    The point that landowners and landbuyers should understand is this: The consulting forester that values your timber should use the same scale that timber buyers use. If the land-owning timber seller’s consulting forester uses a different scale, the seller will receive sales revenue that is different than what his forester has projected.
    I often come across timberland sellers using the International Scale to value their timber in a market where timber buyers use the Doyle Scale as the basis for their purchase. The buyer of timberland from such a seller will find that
    his newly acquired timber brings in significantly less revenue than he was led to expect.
    I once was handed a timber inventory by a saw mill that used the International Scale on 12,000 HW acres. I asked the company forester, “Don’t you buy on the Doyle?” Yes, he said. I discounted his volume numbers by 25 percent and realized who I was dealing with. This, incidentally, was the same outfit that raised its selling price by $3 million the moment my client and I stepped out of our car onto their parking lot.

    Yrs.

    Curtis Seltzer
    curtisseltzer@htcnet.org

  • Be advised that timber cruises and valuations are based on rapidly changing timber market conditions and care must be taken to use timber information that is consistent and current with the timing of the land sale. Product and mill specifications and especially timber prices are much more volatile than the land market. The timber market is a separate and independently functioning market.

    Timber cruises that are provided must be verified by an independent third party forester, preferably one who has no link to a wood procurement function due to the inherent conflict of interest that such position implies.

    Storms or fire losses, tree diseases or insect infestations and several other issues can alter the validity of even the best timber inventory estimates.
    Information on timber sales that have been contracted or actually cut subsequent to the timber cruise should be known and accounted for when developing an estimate of the current timber value in the sale or purchasing decision.

    Many real estate practitioners and especially some poorly informed land owners think that anyone who is driving a muddy pick up truck with several radio antenna on it is a forester. Wrong !!!
    In the southeastern U.S. many people are involved in the timber business and only a small percentage of those particpants are actually trained and or licensed to practice forestry. An even smaller group of such licensed or registered foresters are consulting foresters who work for the exclusive benefit of their client. Knowing the role of the cruise provider is critical. If the cruiser shows up later with a top price offer to buy the timber that he/she just cruised for your independent value estimate I suggest that you get help fast. Fox in the hen house? Nah!.
    Many general real estate practitioners who are experienced with residential sales are not really competent to handle multiple use recreational woodland analyses or sales but that don’t stop them from trying. Some think a cruise is a five day boat trip to Mexico. A land professional should retain independent forestry advice, if they are no so qualified, when advising a client.
    Seller and Buyer Beware is a good principle to go by when evaluating timber information that is provided by others.

  • I have roughly 150 acres of top Hardwood timber I would like to sell. I contacted and hired a Consulting Forester. He found a buyer , we agreed on a per unit sale price, agreed to the terms and consumated a contract. I was advised that after the contract was signed, to cruise the timber in order to know what money to expect. I was given some acceptable figures but a cruise was needed to get closer figures. I was advise by my CF that we would get a cruise done prior to beginning harvest. I then found out that my CF was the procurement manager for the buyer prior to going in business for himself. My CF now thinks that we need a cruise that’s performed by my CF and the buyers foresters at the same time. I don’t agree to this because it sounds like a “meeting in the middle” when it comes to the cruise. I would appreciate any help on how I should have the Timber Cruise performed.

    Thanks very much

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