Why Auction

 Current Land Market...

Is land selling in these current economic times?  Are property values softening due to the current devaluation of the stock market and the lower grain prices?  These are the two most common questions asked of me today.

My answers can only be based on what we have experienced at Reck Agri Realty & Auction.  Since September, even with the stock market devaluation and lower grain prices, we still completed 14 auctions to date with a total of 730 people in attendance, with 233 being registered bidders.  This represents a total of 19,453 acres sold with combined minimum bids of $13,904,250 and final sale prices of $16,650,000.  All this being said, the following are observations regarding the current agricultural land market: 1.) Agriculture remains a bright spot in the overall economy.  Many landowners are not heavily invested in the stock market because land is their investment, thus they have not sustained the losses as those individuals who have heavily invested in the stock market; 2.) Quality land continues to sell at a premium, marginal land prices have softened; 3.) Currently, there is not a lot of land for sale; 4.) There is cautious optimism as long as production costs and commodity prices remain reasonable; and 5.) Buyer interest remains strong in land as a stable investment.

WHO IS SELLING?  Since 2002, we have completed 88 auctions with 100 sellers.  Types of sellers we have sold for are:  50 - Owner-Operators; 38 - Estates or individuals who own property via inheritance; 6 - Lenders; 3 - Investors; and 3 - Miscellaneous.  Before the upswing in commodity prices, we saw primarily owner-operators selling to downsize or to retire. When the commodity prices increased dramatically, the owner-operators continued to farm, taking advantage of the higher commodity prices.  Another motivation for selling prior to the end of 2008 was to take advantage of the existing capital gains tax rate.  For years we have talked about the aging population of landowners and when they might sell. We now are seeing this aging population even older and faced with the second to third generation transfer of ownership. Some of the decisions they may now face are:  Should they sell and pay capital gains prior to death; Should they sell to provide money to live on and/or pay medical bills; Should they sell while they still have a say in how their assets are distributed before death; and/or Should they sell now because it might be easier to deal with immediate family instead of heirs after death.

WHO IS BUYING?  At our auctions, landowners in the immediate area continue to purchase the majority of the property being sold.  Of the 88 auctions we have conducted since 2002, we have had 258 buyers.  Types of buyers who have purchased are: 208 - Owner-operators;  14 -  Investors with ties (investors who own land in the area or are purchasing for family or friends to farm); 20 - Investors; 5 - 1031 exchanges; and 11 - CRP investors.  Property owners in the area will continue to pay a higher price because of the following:  1.) Have an opportunity to add to an existing operation; 2.) Already familiar with what the property will produce; and 3.) Previously made a commitment to own property in the area. This remains a positive statement, to have over 85% of the buyers who purchase be from and own property in the immediate area. Outside investors who participate in an auction have the opportunity to purchase the property, but area landowners are still willing to pay a higher price to add to their current operation. We have noticed increased interest for land from investors because of the stable land values. The one segment where we have seen a softening of buyer interest is in recreational properties.  The buyers of this type of property tend to have invested more heavily in the stock market and do not have the discretionary income available to purchase property for recreation purposes with no return.

FORECAST:  It is my opinion land values will remain steady and strong due to the following: 1.) Spikes in values when opportunities arise allowing competitive bidding when adding to an existing operation; 2.) Premium properties will continue to bring higher prices because they are cheaper to operate in the long run; 3.) Marginal properties are more expensive to operate causing prices to soften. With the current lower commodity prices, the buyers will also factor this cost into the price they are willing to pay; 4.) Lower interest rates; 5.) Strong buyer demand with low inventory of property for sale; 6.) Production costs and commodity prices remains reasonable; and 7.) Sellers being realistic in their expectations of value.

It is my opinion this steady and strong market will continue for the next 12 - 18 months.  It creates a prime window of opportunity to sell or buy land, made ever more important because, IT IS NOT A MATTER OF IF, BUT WHEN:  1.)  Capital gains tax rate will be increased; 2.)  Interest rates are increased; 3.) Inflation skyrockets; and 4.)  Events occur beyond our control such as terrorist attacks, skyrocketing crude oil, and fuel prices.  If you would like to take advantage of this window of opportunity to sell or buy, please call Marc Reck @ Reck Agri Realty & Auction @ (970) 522-7770.

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