Land market is volatile
By Janet Kubat Willette
jkubat@agrinews.com
Date Modified: 02/09/2012 3:43 PM
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MANKATO, Minn. — Rules of thumb don't seem to apply to today's land market.
The Minnesota Chapter of the American Society of Farm Managers and Rural Appraisers discussed the land market and four surveys done by members of its Land Value and Rent Committee this year at its 83rd annual meeting in Mankato last week.
There used to be reasons a piece of ground sold for more than another, said Leon Carlson of Upper Midwest Management Corporation in Olivia.
Today, those same reasons don't always seem to apply. Instead, pieces of land located close to one another sell for prices that vary by $3,000 per acre. Land sold at one auction brings $4,400 and when resold a few months later brings $8,000.
The No. 1 reason given for selling land now is that it's selling for good money, according to an online survey of farm managers and rural appraisers done by Farryl Kluis of Hoysler Associates in Faribault.
Kluis conducted three online surveys of members of the Minnesota Chapter of the American Society of Farm Managers and Rural Appraisers from mid-October through November. Members of the Realtors Land Institute also participated in one of the surveys.
The No. 2 reason for selling land was to settle an estate.
More land is being sold at auction, which is common when it's in high demand, Carlson said.
An owner can pull the land if the auction doesn't bring the desired amount, Kluis said.
Most of the sales are to local farmers.
The six or seven top buyers are repeat buyers, Carlson said. They buy for themselves or other family members to start farming. The same few investors also keep buying, Kluis said.
There is actually less land turnover now than in years past, though that varies by county. The industry standard is that a piece of land is sold once every 40 years.
Profitability drives land values, Kluis said, and he expects values to remain strong as long as profitability remains. Long-term interest rates are also favorable. If that changes, it will impact land values. For now, though, land looks like a good investment compared to certificates of deposit or even the stock market.
Is land a good investment?
It depends on how much cash a potential buyer has on hand, Kluis said. If a buyer has to borrow to buy the land, it's not as good an investment as someone who has the cash.
Buyers are more aware now than in years past, Kluis said. They know their cost and if it pays to buy ground. Farmers will also travel a greater distance from their home to field.
The volatile land value market makes it a challenging time to be an appraiser, Carlson said.
To a certain extent, he could pick any number and be right, Kluis said.
At the end of the day, they base their appraisal on a gut feeling. Those gut feelings aren't so easy to come by anymore.