Starting Your Farm: Chapter 3
The Small Farmer’s Journal has decided to run editor and publisher Lynn R. Miller’s book Starting Your Farm as a serial series. Below is Chapter 3.
“Men stumble over the truth from time to time but most pick themselves up and hurry off as if nothing had happened.” – Winston Churchill
Measuring and Researching
In the last two chapters we discussed “Who wants to farm” and “The cost of farm acreage.” In this chapter we will discuss finding and learning about your future farm property.
WHERE TO LOOK FOR FARMS FOR SALE
After you have decided upon an area or region the all too simple way to proceed is to read real estate advertising and talk with local real estate agencies. It is my personal experience that to limit your search to listed advertised properties is a mistake. Especially if you have made a firm decision on just where you want to settle. Often people new to this process will make the mistake of going to one real estate office, describing their needs and accepting whatever agency offers, by way of information, as a complete view of just what is available. My wife and I knew we wanted to settle exactly where we are and asked local real estate agencies for help in locating available properties. We were laughed at and sent away time and time again. We were told there was no such property available- period. We almost gave up when an out of town realtor returned our call and suggested we come by and pick up a map to a remote, barely accessible, ranch property EXACTLY in the area we wanted. He said it wasn’t listed YET but thought it would come available soon. With is help we made an offer the very day it was listed and the rest is history.
Besides checking the ads and listings, drive the back roads, meet and talk with local folks, and visit the county seat and ask about acreage that night come up for auction sale because of unpaid back taxes. You are looking for people who MIGHT be selling soon, who are selling PRIVATELY without a real estate listing, who may be holding on to an abandoned farm property with the idea that no one would be interested in it, or who tried for a long time to sell and have tired or given up on the process. You need to leave your name and address with local banks and lending institutions with the information that you are looking to buy. You need to post little ads of your own stating what you are looking for. You need to snoop around.
You might find a farm or farms which are listed with real estate agencies. You might find farms which are for sale by private individuals who prefer not to deal with real estate agents.
You might find abandoned properties which belong to absentee owners including banks or holding companies who would be willing to sell or trade. Etc, etc… And each may require a different approach.
You may in your inquiries find realtors who have no listings that match your needs but who are quick to offer their services to you in finding a property. That is okay, HOWEVER if the realtor should ask of you that you sign a contract designating him or her as your agent I suggest it would NOT be in your best interest to do so.
Once you’ve found a farm you’re interested in, the work really starts. Now it’s time to research it and measure it against your needs and circumstance. Buried in this chapter is a master checklist which will hopefully ease what can be a trying process.
AFTER LOCATING A FARM PROPERTY
WITH A REALTOR
If the farm you’ve found is listed with a real estate agency you might be able to have them assist you in your work. But remember: REALTORS, and Real Estate Agencies, WORK FOR THEMSELVES, not for the buyer, not for the seller. They will almost always push to close a sale as fast as possible whether it’s to you or someone else who happens along. If you end up buying the wrong farm, or the right farm the wrong way, and find yourself in difficulty the realtor will still get his or her commission. Your best interests are not necessarily theirs. The honest, easy-going, intelligent real estate agent is rare. Be on your guard.
So first, let’s proceed as though a realtor were involved:
1) Get a copy of the listing agreement.
2) Ask if a recent title search has been done on the property and, if so, get a copy of the results.
3) Name and address of owner if somehow missing from listing agreement.
WARNING: DO NOT LET A REALTOR TRICK YOU INTO A PREMATURE ‘EARNEST MONEY AGREEMENT’ BY SUGGESTING IT’S THE ONLY WAY THEY CAN RELEASE THE ABOVE LISTED DOCUMENTS. SIGN NOTHING WITHOUT A REVIEW BY A KNOWLEDGEABLE THIRD PARTY (preferably a lawyer).
If a realtor is unwilling to provide the above information, suspect a problem with either property OR realtor OR both. (A good realtor will understand the necessity for this information and will work aggressively to anticipate all the questions you might have so as to be prepared. This is to the realtor’s best interest because it expedites the inquiry process and can speed a sale without undue hassle. If you get lucky you’ll find such a realtor and cut your “investigation” time way down.
Assuming you’ve got the documents, look for the answers to these questions:
A) Who actually owns the listed property? What is the asking price? Does the seller require cash in full? Will seller allow a percentage down payment with owner financing? What down payment amount is required? What nature of owner financing (i.e. land sale contract, deed of trust, etc.) is acceptable and sought? Is there an existing mortgage against the property and is it assumable or transferable?
B) What is being bought? Exact acreage? Some paper evidence or any conditions as in guarantees of production levels or statements as to “sold as is” (more on this later). Improvements specified? A complete listing of all items to be included with purchase as well as those not going with property (i.e. portable outbuildings, irrigation equipment, above ground storage tanks, etc.)
C) Is anything currently owed against the property? What manner of contract security is involved? Are there any liens currently held against the property and by whom? Any collateral pledges as guarantor for other transactions? (Later, we’ll talk about STATUS of above.)
D) Any easements recorded? (more later)
E) Any rights withheld? (i.e. mineral or timber rights not transferring or transferrable and easements related to same)
F) Water rights recorded and filed? Age of same (more later)
G) Property taxes? Any in arrears?
H) Relevant districts? School, etc.
I) Any conditions for viewing property and improvements? (i.e. lengthy advance notices and restrictions on subsequent revisits during purchase negotiations.)
In a few paragraphs you will learn the significance of the above questions. Just because you have some paper evidence of this information you will be careful not to bank on the veracity (or accuracy) or it. This is why you will insist on escrow closing with a fresh title search and title insurance when, and if you close the transaction (complete purchase of the farm).
After reviewing this information return to the realtor and request these additional facts:
4) Pertinent local zoning restrictions, (i.e. dust, noise, livestock, restrictions). Now is the time, NOT LATER, to discover that your dream of a broiler or dairy operation would not be allowed by local ordinance due to dust, noise, manure, and fly concerns.
5) Neighborhood information: Churches, Schools, distance to markets, fraternal organizations, proximity to fire protection, etc. Now is the time, NOT LATER, to learn whether or not the general community might be at odds with your religion, value structure or appearance.
6) Cost of utilities, (especially if electrical service is required for some important aspect of the existing or proposed farm operation such as irrigation, refrigeration, etc.
7) Current fire insurance coverage. (If the conditions of the buildings or the absence of a fire district rule out fire insurance coverage you should know this in advance especially if third party financing is required. Often a lender will require fire coverage to protect the security interest, if none is available it MAY result in financing falling through. It is always best to understand this limitation at the beginning of application processes as it may save a lot of headache and expense down the road. We have no fire insurance coverage on our ranch because we have no fire district, however, we were able to finance the purchase with a lender because the borrowed amount was far below the full value of the property.)
8) Wells tested for water purity. (Contaminated water source(s) can make a particular farm seem farm less attractive and even hazardous to your family. It’s a good idea to get this information early on. The tests are usually inexpensive.)
Many realtors will baulk at above requests often for no more better reason than because they are lazy. If the information is provided you casually (as in “oh, sure yeah we checked all that and it’s fine…”) doubt it and require the realtor to verify it in writing.
That done, you will have to dig up a little more. Research the answers to these added questions yourself by talking with the seller, neighbors, experts, and local business people (i.e. farm supply companies and feed store owners).
9) What are the resident soil types? Most recent soil type analysis? When was the last soil fertility test taken and by whom? (This information will be valuable to you in determining what crops may be initially suitable and the degree of soil rebuilding you will have to plan for.)
10) History of serious livestock contagions? (Make a point of checking with the local veterinarian to find out if there have been any serious contagious livestock disease outbreaks in, on and around the farm in question. It could be disastrous for you to move your valuable breeding stock to the new farm and have them all die of an avoidable or preventable disease.)
11) History of farming practices? Nature and extent of agri-chemical applications over last three years? (You will benefit from learning whether or not this farm has been organically, biodynamically or chemically farmed and to what relative degree. Even if it is your choice to farm chemically it is still important to know if large amounts of certain substances have been recently applied and what that might mean to your future plans. And if your plan is to farm organically, chemical residues will have a negative effect on those plans whereas a history of poison-free practices will be worth money to you.)
12) Structural conditions of buildings? (Will you be faced will some immediate and expensive repairs?)
13) History of orchard, woodlots, ponds, physical hazards (i.e. dumps, abandoned wells, etc.) [Any and all information about the farm or ranch in question will be useful to you. And learned early may have an affect on your decision to purchase and acceptable purchase price.]
The information you gather with this list will explain itself for the most part. Early in the process you may find out things that rule this or that farm out of consideration.
Often even good realtors (and there are many) will need to make a determination as to whether or not you are a serious qualified buyer. Why waste time with you otherwise? There are a lot of lookers and dreamers out there with no intent of ever purchasing. Having the money doesn’t automatically put you in the category of a qualified buyer. Coming with a clear idea of what you want and a shopping list of intelligent questions will put you there. If you are a “qualified” buyer the good realtor will want to provide you will all the information you require no matter the outcome. Because the “good” realtor will recognize in you someone who’s prepared to buy that “right” place. Someone they can sell to eventually, especially if they earn your trust.
WITHOUT A REALTOR
Now, if a realtor is not involved and the farm is being sold by the owner you still need more of the same information and it may be more difficult for you to get it. Above, you’ve gone through a list of things to ask for. Below, in the same order, is the identical list but worded, rather, as what you need to know. Use it as your master check list.
1, 2 & 3) Is the property listed, contractually, with any real estate agency?
(Sometimes the owner is given, or takes license, the opportunity to sell his property himself even though a listing with a realtor exists. It is important to know this as it could certainly gum up any purchase process.)
Does any person, company or entity (i.e. estate or attorney) control or stand to gain from the sale? If it is listed you will find on the listing agreement answers to most of the questions under A). If it is not listed you will need to dig up these answers.
A) Who owns it? Asking price? How many acres?
Of course you need to know the name and address of the person (or company) selling the property. It doesn’t hurt to know something about them. For instance, does the owner live on the farm and receive any income from it (valuable to know)? Does the owner rent it out, and for how much? Does the farm belong to a bank or insurance company? Did they get it through foreclosure? Are they interested in carrying a contract for the purchase? Their personal or business circumstance can have an enormous effect on the purchase of the farm (i.e. does it belong to a bank that is burdened by foreclosures and MUST sell?)
How must it be sold, all cash, % down, assumed balance?
B) What is being sold?
What goes with the sale? What does not? Do not assume the irrigation pipe and portable hen houses are selling. Find out if they go with the deal, and in writing. Find out what DOES NOT go with the sale. Find out if any rights or easements are being reserved. Don’t wait until after you own the farm to find out some company has the right to pull their drilling rig into your field and start pumping gas or oil.
C) What is currently owed against the land? Is it assumable?
“Assumable balance” might mean that the seller still owes money on the land and you can step in and take over the payments if you wish, and if you are eligible. This can be most advantageous in structuring a purchase. It can also be deadly. Understand this because it is critical! For instance, if there is a Farmer’s Home Administration (FmHA) loan against the property will YOU be eligible to assume its balance, will they (FmHA) allow it? Before putting any money on the line understand these things and KNOW them to be true. UNDERSTAND ALL CIRCUMSTANCES and get legal council before signing to assume someone else’s debt! When looking at what is owed agains property, it’s important to discreetly determine the status of that debt. If the seller is near foreclosure and faced with the imminent possibility of added liens being placed against the property (i.e. back taxes, etc.) best intentions may be foiled before a transaction closes. And worse you may find yourself saddled with a nightmarish process of lien and foreclosure started some time ago and which only actually commences immediately after you THINK you are the proud new owner. An attorney and a title company can be valuable in helping to untangle such a situation to provide a clean transfer.
On the same subject: be wary and well informed of any secondary operational agreements you will be expected to conform to if you do assume existing financing especially with some sort of federal or quasi-federal farm credit program or agri-business production credit company. You may be signing a contract with fine print that stated you must grow and sell only corn and only to BIG-SHOT CORN INC. or you might be setting yourself up as a “cooperator” with a government program that stipulates you must do what the friendly bureaucrat says or else.
D) Are there questionable easements?
An easement is a titled right to some person or entity to cross or access your property usually for a specified purpose. For example, it’s common for a power company to have an easement to work on the power line. Those are standard and not a problem. Question easements across your property to access landlocked holdings. They might legally become deeded roads in some cases. If an easement seems suspicious don’t accept it until it’s been clearly understood.
E) What rights, if any, are withheld? Are there any stated Deed restrictions?
Ideally you want to purchase the land with all rights intact. Sometimes a seller does not hold a mineral or subsurface right to his property – or wants to keep them. What this can mean is that someone else may be pumping gas out in the middle of your lambing pens!
This can be such a complex concern with land purchase that specific variables have to be reviewed with knowledgeable council. Talk with an attorney and BE CAREFUL!
F) Are there any registered, recorded, proven water rights?
Recently this has become the subject of nightmarish concerns in arid states where irrigation is critical. It is possible to have a recorded water right which has lapsed for lack of use in which case it is sometimes stated that the right is no longer “proven”. It is possible to have a proven water right but be denied by the state access to the water because drought or environmental concerns limit the amount of water to be taken and your water right is “younger” than neighboring farms. Older rights take precedent. There is a lot to learn about this critical issue. It is enough to say you should research the subject for your area and make sure you understand the situation where you choose to buy land.
G) What are the property taxes?
Are they behind? What is the likelihood of a substantial increase?
H) What districts does the land reside in?
In some areas there are jurisdictional districts for irrigation, land use, schools, etc., that can have very specific effect on the landholder. Find out about these.
I) Will the seller, or realtor, allow you access to view the property without undue restriction?
4) Are there local building and use restriction zones (county, city and state) which will affect your plans for this property.
Currently many states are drafting “right to farm laws” which may build into regulations designated buffer ag lands around high-density suburban areas with restrictions against dairying, nighttime field work, manure storage, chemical applications, etc., etc. Find out if it applies to you. Also building restrictions may surprise you when you go to put up a second house for your family or help.
5) How far is it to church, schools, markets, etc.?
How strong a community is it? Do the farmers appear to share your philosophies and values? Are there lots of attractive small farms? Are there only one or two neighbors? Personal considerations figure very high here.
6) How much to the utilities cost.
Any legal restrictions to producing your own power?
7) What is the current fire insurance coverage on the farm buildings?
This can be useful information in determining conventionally measured building replacement values.
8) Is the water good?
This is important. Get samples of the drinking and irrigation and pond waters tested. This can save a lot of grief and hardship later.
9) Have the soils been mapped?
Check with appropriate county offices to find if the soils on this farm are classified and mapped. This will help you determine suitability for certain crops. Also find out if there’s been any recent soil tests and the results. You may want to have some done to help in your determination.
10) Has there been any serious, contagious livestock diseases on the place in 10 years?
Check with local veterinarians and extension agents. There may be an important reason those poultry houses are empty.
11) What has been the farming history of this place?
Find out what has been expected of the land. Has corn or tobacco been grown forever? Any conservation practices? What chemicals, if any, have been used? What has been the rotation? Livestock history?
12) What is the structural condition of buildings?
Examine foundations, roofs, wiring and plumbing for big future surprises. Know NOW what the problems might be.
13) What is the history and specific identities of the orchard, woodlot and pond?
Also the same of any physical hazards like dumps and abandoned wells. It will be helpful to know age and varieties of fruit trees. Also helpful to know any maintenance history on the ponds (if any). It may be critically important to know what was in those barrels now stacked in the farm dump and where the abandoned wells are.
Well, that’s the master list. It may not include everything, but I guarantee that answers to these questions will send you a long way towards a decision about whether that farm or ranch is right for you. And remember, it may be right for you but just not something you can buy.
There are some remaining considerations but they can be so various that a list is impossible. They include your likes and dislikes. But more important they include your actual system design and expectations. You have to decide if this farmland will work for your mix of crops and livestock. You have to decide if it will work in your master plan.
Next chapter we’ll cover financing, bankers, realtors, offers, purchase agreements and contracts.
Again, please don’t let this morass of information discourage you. This is meant to help you avoid pitfalls and succeed with your dream of buying a farm.
Copy the checklist below and take it with you when you meet with a realtor or seller or both. Ask these questions and, even if answers are promised in writing later, listen carefully to the verbal answers.
- Is the property listed for sale with an agency?
- Who owns it?
- Asking price and terms?
- What exactly is being sold?
- What is currently owed against the land? Is it assumable?
- Are there questionable easements?
- What property rights are being withheld?
- Are there any water rights?
- What are the property taxes?
- What districts does the land reside in?
- Any restrictions to viewing the property?
- Are there local building and land use zones?
- How far is it to community services?
- How much to the utilities cost?
- What is the current fire insurance coverage?
- Is the water good?
- Have the soils been mapped?
- Has there been any serious, contagious livestock disease on the place in 10 years?
- What is the history of farming of the land?
- What is the structural condition of the buildings?
- What is the history and specific identities of the orchard, woodlot and ponds? And hazards?