How to get the most out of a farmland sale

Farmers who are thinking about selling the farm should start by considering what they want to do with the money.  |  File photo

Selling farmland has changed along with the price. While demand is obviously higher, so are the opportunities to improve the sale price and shorten the period that land is on the market.

In many cases, the value of grain land on the Canadian Prairies doubled in the five years after 2010 and has seen solid increases every year since then. For producers looking to cash in and retire or move on to other careers or investments, it might be the right time to exit farmland ownership.

However, that might not be the only option.

“Standing back at a distance, it looks like this is the time to sell. The market is still rising, but plateauing. However, it is an individual decision and different for everyone,” said Saskatchewan realtor Ted Cawkwell.

“Some analysts say it is still rising. Others, about half, feel it is headed for a major correction.…

“But you need to keep in mind that those opinions are largely regional, and recent crops and weather patterns are important to how optimistic both sellers and buyers are feeling … and how much local competition there is for land.…

“It’s always better to sell after a good year locally.”

Selling into a higher-priced market means that a few percentage points difference in the price can add up to a relatively large number, and that can make a big difference in what can be done with the money.

Cawkwell advises producers to start thinking about selling land by considering what they want to do with the money. Do they need it to retire? Will their kids need land to add to their farm’s land base? Many smaller farms aren’t planning to continue as operating ventures into the next generations, but the attachment to it can be important. And, other than the risk of a large correction, the investment is stable and potentially provides reasonable returns and growth for landlords, while keeping options open to sell at some point in the future.

“Do you plan to travel a great deal? Buy some property to retire on? Pass on a financial legacy for your children? It is best to consider what you will do once the farm is sold, before you sell it,” said Cawkwell.

Once the decision to sell is made, farmers should then consider their personal timing and “get some good advice from an accountant. Those capital gains can be a real issue. You want to get the best value from the land you can, and that is more than just the selling price,” he said.

If the land is rented out, it’s important to review the agreement, whether it is on paper or not. If the agreement has a first-right-of-refusal for the tenant, then that needs to be part of the marketing plan, and other potential buyers should understand that a competitive buyer is in the wings.

The sale should be discussed with children to ensure they understand it is taking place and what will happen with the proceeds. Accountants can provide advice about transfers of assets and the tax implications. The sale can become a group decision if they are to receive funds from the transaction because they could in some circumstances potentially be part of reducing the taxable portion of the gains in value that have accumulated over the years.

If landowners have been absent for a few years already, they should check with several sources of information about the value in their areas, calling neighbours and potentially inquiring with financial institutions and local accountants who might be able to provide further insight into the local price and mood of the market.

Other producers may want to establish a value for the land and then seek out a younger farmer to take on the land, creating a financing arrangement. In that case, a lawyer and a real estate agent should also be hired to ensure the deal finds a fair price and works for, and protects, both parties should their situations change.

A real estate agent is often a good investment because the local market might not be the best source of price discovery.

“We market land to our database of more than 2,000 potential buyers, oversees and regionally,” said Cawkwell.

Real estate agents now employ a variety of tools to market land, including traditional print ads and websites, but in recent years have added social media and multi-media experiences of the property. Satellite images and drone photography provide those critical overviews for buyers.

Farmers who have been keeping digital production records can include yield maps and soil-sample data that highlight the productivity and show off how the land has been managed, including soil sample analysis. While it might not lead to a significantly higher price overall, it can make the land more competitive and add to the price and reduce the time needed for a sale.

Cawkwell said he finds some sellers don’t want to deal with taking offers from their neighbours and family and prefer to leave that to a real estate agent.

“It can be hard to bargain with people you’ve spent your lives with in a community, so handing off those responsibilities to a third party can reduce some of the stress of selling,” he said.

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