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Small Farmer's Journal
PO Box 1627
Sisters, Oregon 97759
800-876-2893
541-549-2064
agrarian@smallfarmersjournal.com
Mon - Thu, 8am - 4pm PDT

Starting Your Farm

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 4.

Chapter Four

“If a man would enter upon country life in earnest and test thoroughly its aptitudes and royalties, he must not toy with it at a town distance; he must brush the dew away with his own feet. He must bring the front of his head to the business, and not the back of it.” – Donald G. Mitchell, 1863

Boy on Horse

MONEY CHANGING HANDS

As we suggested at the opening of this book: Some of you will find this writing simplistic, but evidence is that we need to attack these questions at the most basic level, not just because we have new people looking for introductions but also because many of us can benefit from having our motivations and knowledge questioned and reevaluated.

The price of a farm starts a process that can lead to a greater or lesser total cost. You have a lot of control over the outcome. But you need information. Hopefully you will find some here.

I strongly advise anyone new to these pages to read the first three chapters of this book. Also, as wide and varied a subject as this is, it is impossible to include all elements. Although we’re going over specifics, it is the tone of doubt, inquiry and insistence that is most important to communicate.

Because of the Small Farmer’s Journal we hear from a number of folks buying their first farm. Far too often we get sad stories of tragic mess-ups in the final stages of money changing hands. Can we learn from our mistakes? Yes.

Last chapter we covered some critical preliminary ground covering the researching of properties and listing agreements.

Assuming that you’ve found a farm you want to buy, next you’ll need to determine if you can buy it. If you have sold your property, and/or saved your money, and have the means to buy the farm you are sitting pretty. Best of all possible worlds — congratulations. However, don’t stop reading. There are plenty of pitfalls that can surprise even you. (Perhaps especially you, since unscrupulous people may identify you as a more likely culprit.) Piece of advice: How much money you have, in what form, and where, is nobody’s business but your own.

If you do not have the full price of a considered farm, in cash or any other form, you will likely have to look for financing (or borrowing — and they are not necessarily the same.)

But before we get into that, there is an important- in betwixt- option, trade. If you have property that you want to sell, but haven’t yet, consider trading it for or towards the farm. It isn’t necessary that the farm owner want your property. A realtor with some intelligence and hustle will have the information and means to possibly locate a third property (one the farmer wants) that can tie the deal together as a three-way trade. Oft times the values are different and money also changes hands. But it can work out quite well. It’s too complicated to go into great depth and detail but trading is an important option worth looking into.

FINANCING and/or BORROWING

If you need financial assistance in order to buy the farm, here are some basic rules which vary some from region to region, and with differing particulars.

1) Real Estate Mortgages are usually long term. Long term real estate mortgages are usually written for 10, 15, 20, 30, and 40 year contracts with 20 years being most common. Often contracts can be written with a payment schedule amortized (calculated) for 20 years or so but with the contract maturing at 10 or 15 years. What this means is that you will have a balloon (or considerably larger) payment to pay at the end of the contract. Some big banks prefer this program because it gives them the opportunity to gain interest points and fees if, and when, you choose to rewrite the mortgage to extend its term. For you it’s a device to keep payments lower for the first years. An important procedural tool.

2) Interest rates on long term mortgages can be fixed or variable. Fixed means that you pay the same rate for the duration of the contract whether it’s 9% or 20%. Variable means that the rate goes up or down by a formula usually tied to fluctuations in the prime rate. If you have an opportunity to get a mortgage at 10% or less it may be wise to go fixed. If the prevalent rate is 18% at the time of your purchase it may be wise to go variable. You’ll have to do some math to get the answer that’s right for you.

Interest rates can be a strong bargaining point in contract negotiations. If you’re willing to offer 11% rather than ten, the seller, or the banks, may be willing to extend the term for more years, reduce the price, or throw in some equipment. The opposite might also be true. If you insist on a lower interest rate you may have to accept some other change that might raise the price or cause you some inconvenience.

3) I am of the opinion that a well crafted purchase contract directly with the seller is far superior to dealing with any bank or lending institution. A careful review of banking news, relative to farmlands, over the last 15 years will show a trail of stupidity, greed, avarice, fraud and vulgarity on their part. There are exceptions but they’re becoming fewer and farther apart. With what we out west call, a “land sales contract” (or seller financing) both the buyer and seller can be rewarded.

4) You, the buyer, must either have your own attorney draw up the contracts or at the very least have your own attorney review the contracts BEFORE SIGNING or MONEY TRANSFER!! Do not use the seller’s attorney, the bank’s attorney, or the realtor’s attorney! You want professional help in your employ and on your side.

5) Understand the important differences between an “earnest money agreement and offer” and a “contract to purchase”. (more later)

6) Federally guaranteed loan programs for farmers (i.e. FmHA) were originally conceived to assist beginning farmers who could not get funding elsewhere. They became, and evidence suggests they still are, a money tree for wealthy cronies of elected officials. The extent to which these programs have hurt farmers is evidenced by the long hard hours of legal advocacy work they have generated. Our advice is to stay away from these programs. (We’re not able to speak from experience about G.I. loans. You’ll have to research those.)

7) Insurance companies and fly-by-night mortgage companies make loans to purchase farmland. Their rates are not competitive and their motives are suspect.

8) Lenders usually loan 50% to 75% of the land value.

To summarize: Go for a “land sale contract” with seller. If not possible, be very careful dealing with the other options. Go for a 20 to 30 year amortization with a 10 or 15 year balloon at the lowest possible long term rate of the day. Have your attorney involved.

REALTORS

You’ve hopefully read the previous comments about realtors. It is enough to say here that they are human-beings in a pressure situation selling land for a commission. Unscrupulous or not, they get paid a percentage IF the property sells. They are NOT working for you, the buyer. They are working for themselves. Remember that at all times.

When you find the property you want, you have to get aggressive and take the initiative away from the realtor. Take charge! Read last chapter’s piece on preliminary research. Know what questions to ask.

Then, when you are ready to make an offer, understand that this is the most important stage in the negotiations to buy. It will be difficult or impossible for you to make any significant changes in what you offer (price, terms, interest). You should be prepared to put up some money, to be held in escrow, as a show of your good faith. This is called earnest money. Commonly anything from $500 to $5,000 is offered. This money accompanies an “earnest money agreement and offer to purchase.” In this document which is usually drawn up, on forms, by the realtor (but which can be drawn up by your attorney or can sometimes be purchased as a blank form at larger stationery stores) you will state your purchase offer including:

  1. How much you are willing to pay.
  2. How much down payment you offer.
  3. How it’s to be financed/ what % rate/ length of contact, etc.
  4. What you want included with purchase.
  5. That this offer is subject to the contingency that a title search will show clear title, that review of applicable local regulations show no restricted use, and that financing be forthcoming (if other than seller contract).
  6. That this offer is subject to sale and purchase of said real estate being accepted, completed, and closed by a certain date.
  7. And any other specifics that are germane.

When this is drawn up make sure that the realtor gives you a very receipt for the earnest money check you give over. But first it is important to have your attorney review the earnest money agreement before you sign and transfer any funds.

I have, in the past, had realtors try to tell me how to word the offer and what price the seller might take. Remember who the realtor works for. The realtor gets more money if the price is higher. You INSIST on your amounts and that the offer be made. The realtor can get into real legal trouble if he or she refuses to submit your offer.

And perhaps this is a good place to insert yet another insistence that you get an attorney to help you. An attorney familiar with real estate contract law can breeze through some of this paperwork in no time at all and $150 spent might save your entire life’s savings. Remember if you hire an attorney to represent you, that attorney represents you.

After the offer is submitted the seller, of course, has the right to refuse or make a counter offer. Once you’ve reached agreement on price and terms I strongly suggest your realtor be involved in the drafting and at least the review of the purchase contract.

Remember that this document, the Purchase Agreement, will be your primary tool of enforcement for any breeches, non-compliance, or enclosures.

If the purchase of the property includes appliances or farm equipment, or crops, be sure that all is spelled out in appropriate addendum to the contract. If the seller is supposed to have something done prior to your occupancy be sure it’s spelled out.

I once made an earnest money offer on a ranch property that was accepted. As we waited for the drafting of the contract, I went out to the property for a picnic to find a big crew cutting down every tree and loading log trucks in a hurry. They were told by the seller that they had 10 days to log it off before the contracts were signed. The earnest money agreement protected me, and we backed out of the purchase- disillusioned but without monetary loss. Next make sure that the escrow company to handle title search, insurance, closing and possibly contract collection is legitimate. Your attorney may be able to help you here.

While waiting for the contract get a copy of the preliminary title report and go over it with your attorney. It may save some surprises later.

Escrow is a special, legal, “third party” service provided so that critical negotiations, contracts and transfers between two or more parties can be transacted without problems.

Closing is a term, in the case of real estate, used to describe that time frame and process during which paperwork, monies and transactions are all enacted.

I recommend that CLOSING always be done in ESCROW!

Title insurance is what it says. A company going business providing insurance on titles will research and provide the ownership status report on a piece of real estate and then be willing to insure that what they report is accurate.

You must get TITLE INSURANCE!

A man I know gave someone cash for 40 acres and was given a written deed. No contracts, no closing, no escrow, no title insurance or reports. Soon after someone came to him claiming he owned the land. After months of investigation it was found out that the land had been sold three times by the same seller and actually belonged to a bank which held security against it for a loan. All three people had to individually sue to get their money back. None ever did.

And don’t be surprised to find out that all these steps and precautions cost money. Normally the buyer and seller share, 50/50, the closing costs which include contract drafting cost, title search and insurance, plus escrow and collection. If there were any back taxes owed against the farm they are usually cleared up within closing. Be careful that someone doesn’t try to stick those, or half of them, on you. Remember, it’s the seller’s obligation to provide you with unencumbered property. Well, we’ve covered a lot of ground in a hurry. There is just no way we can talk about every possible detail. What we mean to do with this is give you the kind of background that will improve your chances for a successful purchase.

The purchase of your farm, a difficult and sometimes confusing process, can and should be completed in a clear, straight forward, and honest manner. Don’t build regret into every future day’s farm labor by allowing yourself to purchase a farm in a questionable process of procedure. Buy it right, buy it clean and then move on to making it work for you.

Buggy

Spotlight On: Book Reviews

One Seed To Another: The New Small Farming

One Seed to Another

One Seed to Another is staggering and bracing in its truths and relevance. This is straight talk from a man whose every breath is poetry and whose heartbeat is directly plugged into farming as right livelihood.

Starting Your Farm

Starting Your Farm: Chapter 5

You might think that your new farm is fenced all wrong, or that a certain tree is in the wrong place, or that a wet area would be better drained, or that this gully would make a good pond site, or that a depression in the road should be filled, or that the old sheds should all come down right away. Well maybe you’re right on all counts. But maybe, you’re wrong.

Training Workhorses Training Teamsters Driving Junipers Training

Driving: Juniper’s Training

A final sneak peak at the Second Edition of Lynn R. Miller’s “Training Workhorses / Training Teamsters.” Today’s excerpt, “Driving: Juniper’s Training,” is from Chapter 11, “Starting and Training Older Horses.”

Timing the Bounce

Timing the Bounce: Resilient Agriculture Meets Climate Change

by:
from issue:

In her new book, Resilient Agriculture: Cultivating Food Systems for a Changing Climate, Laura Lengnick assumes a dispassionate, businesslike tone and sets about exploring the farming strategies of twenty-seven award-winning farmers in six regions of the continental United States. Her approach gets well past denial and business-as-usual, to see what can be done, which strategies are being tried, and how well they are working.

McCormick-Deering No 7 Mower Manual in English & French

McCormick-Deering No. 7 Mower Manual in English & French

Instructions for Setting Up and Operating the McCORMICK-DEERING No. 7 VERTICAL LIFT TWO-HORSE MOWERS — Instructions pour le Montage et le Fonctionnement des FAUCHEUSES A DEUX CHEVAUX McCORMICK-DEERING No. 7 À RELEVAGE VERTICAL

McCormick Deering/International No 7 vs no 9

McCormick Deering/International: No. 7 versus No. 9

McCormick Deering/International’s first enclosed gear model was the No. 7, an extremely successful and highly popular mower of excellent design.

Farmer Pirates & Dancing Cows

Farmer Pirates & Dancing Cows

From humor-filled stories of a life of farming to incisive examinations of food safety, from magical moments of the re-enchantment of agriculture to the benches we would use for the sharpening of our tools, Farmer Pirates & Dancing Cows offers a full meal of thought and reflection.

Making Buttermilk

The Small-Scale Dairy

What kind of milk animal would best suit your needs? For barnyard matchmaking to be a success, you need to address several concerns.

Starting Your Farm

Starting Your Farm: Chapter 4

Assuming that you’ve found a farm you want to buy, next you’ll need to determine if you can buy it. If you have sold your property, and/or saved your money, and have the means to buy the farm you are sitting pretty. If you do not have the full price of a considered farm, in cash or any other form, you will likely have to look for financing.

Audels Gardeners and Growers Guide

How to Store Vegetables

Potatoes may be safely stored in bits on a well drained spot. Spread a layer of straw for the floor. Pile the potatoes in a long, rather than a round pile. Cover the pile with straw or hay a foot deep.

Work Horse Handbook

The Work Horse Handbook

The decision to depend on horses or mules in harness for farm work, logging, or highway work is an important one and should not be taken lightly. Aside from romantic notions of involvement in a picturesque scene, most of the considerations are serious.

Horse Sense for Plain Farming

Horse Sense for Plain Farming

Book Review – The New Horse-Powered Farm by Stephen Leslie: Working with horses is not something you can learn exclusively through watching DVD training videos and attending workshops and seminars. These things and experiences can be very useful as auxiliary aids to our training, but they cannot replace the value of a long-term relationship with a skilled mentor.

Art of Working Horses Another Review

Art of Working Horses – Another Review

by:
from issue:

One could loosely say this is a “how-to” book but it is more of an “existential” how-to: how to get yourself into a way of thinking about the world of working horses. Maybe we need to explain what a working horse is. A working horse is one, in harness, given to a specific task. So, in that context, the book illustrates the many ways Miller has worked with his equine partners over the years – helping them understand what he wants them to do, as both work together to create relationships that help achieve desired goals.

Retrofitting a Fireplace with a Woodstove

How to Retrofit a Fireplace with a Woodstove

Because the venting requirements for a wood stove are different than for a fireplace you need to retrofit a stainless steel chimney liner. A liner provides the draft necessary to ensure that the stove will operate safely and efficiently.

Chicken Guano: Top-Notch Fertilizer

Whoever thought I’d be singing the praises of chicken poop? I am, and I’m not the only one. Chickens are walking nitrogen-rich manure bins.

Honoring Our Teachers

Honoring Our Teachers

by:
from issue:

I believe that there exist many great practicing teachers, some of who deliberately set out to become one and others who may have never graduated from college but are none-the-less excellent and capable teachers. I would hazard a guess that many readers of Small Farmer’s Journal know more than one teacher who falls within this latter category. My grandfather, and artist and author Eric Sloane, were two such teachers.

Haying With Horses

Haying With Horses

If the reader is considering the construction of a barn we encourage you to give more than passing thought to allowing the structure of the gable to be open enough to accommodate the hanging of a trolley track. It is difficult or impossible to retrofit a truss-built barn, which may have many supports crisscrossing the inside gable, to receive hay jags. At least allowing for the option in a new construction design will leave the option for loose hay systems in the future.

Small Farmer's Journal

Small Farmer's Journal
PO Box 1627
Sisters, Oregon 97759
800-876-2893
541-549-2064
agrarian@smallfarmersjournal.com
Mon - Thu, 8am - 4pm PDT