Tips for selling your farm
What should I do to the farm before I put it on the market?
You never get a second chance to make a first impression, so attention to a few minor details on the farm could make all the difference in the impression it makes to prospective Purchasers. Here are a few general guidelines:
Have someone else look
If you have lived on the property for a long time, have someone else have a look around as sometimes familiarity stops us seeing things others see straight away. Ideally this would be your real estate agent whose experience may spot things; however any trusted set of “fresh eyes” is better than none.
When do you plan to put it on the market?
The lead time before the property is to be on the market will dictate what is practical to do; eg metaling and grading the front drive might only take an afternoon whereas painting the farm buildings is a longer project.
Cost vs benefit
Be careful how much you spend on preparing your farm for sale, as some things may not make enough difference. Make up a priority list and only do the really important things. Again your real estate agent should be able to help here.
What are the most common ways to sell farm properties?
Places a timeframe around the process (typically 4-6 weeks), giving Purchasers a date to work their due diligence to.
The Vendor determines the terms and conditions of sale including the settlement date under which the property is to be sold.
A transparent process that has potential to generate real competition between Purchasers.
When sold at Auction, the sale is unconditional with a deposit paid.
Places a timeframe around the process (typically 4-6 weeks), giving Purchasers a date to work their due diligence to.
While the owner sets out the terms and conditions in the Tender document, it does allow Purchasers to add conditions to their offer.
Tenders remain open for a pre-determined timeframe after closing, allowing the owner to consider offers under less time pressure.
Useful on complex sales that may involve various parcels of land and therefore options.
Offers Closing Date or Deadline Private Treaty
Similar timeframe structure to a Tender, however offers can potentially be considered by the Vendor at anytime.
Less formal than a Tender with no pre-determined timeframe for offers to stay open after closing.
An asking price is placed on the property with buyers able to make conditional and unconditional offers at anytime.
Benefit to Purchasers as they can see the Vendors expectations from the outset.
No time pressure on Vendors, but likewise on Purchasers.
Correct pricing of the property from the outset is critical to avoid the property becoming stale.
Should I sell my dairy farm with or without its Fonterra shares?
Fonterra’s launch of TAF (trading amongst farmers) in 2012 changed the way the share component of a dairy farm sale can be treated. Prior to TAF Fonterra shares could not be traded on the open market and therefore meant that most farm sales included the dairy shares.
Now that these instruments can be sold and purchased on the open market, via the Fonterra Shareholders Market (as well as other purchasing contracts), there is not the same requirement to have the shares included in the farm sale.
Whether the shares are included is for individual vendors to decide and will often depend on what plans they have and/or what their post farm investment strategy is.
However, like other aspects covered in this booklet, you also need to consider whether shares (in or out) are going to help generate more buyer confidence and demand and ultimately value for the land and buildings component of your business. With the increased value of Fonterra shares, we are seeing more buyers wanting to be certain of the total ingoing cost at the time of negotiation/auction/tender.
While other supply options are available in some regions, most farmers do/will supply Fonterra and therefore retaining flexibility in whether shares are included or not in the sale might be wise.
Please Note - Advice:
Property Brokers are not registered financial advisers and accordingly cannot provide you with “advice” on Fonterra instruments. We suggest you speak to your accountant, lawyer and/or financial adviser before acting.
When is the best time of the year to sell?
Farm sales are relatively evenly spread throughout the year.
The graph shows the seasonal timing of farm sales completed around the country based on sale date (when unconditional) for the past decade. This is for all pastoral and arable farm types and excludes the likes of forestry sales that are not seasonally influenced.
The busiest season for new farms coming on the market is typically spring, followed closely by summer and autumn.
Some will take more time to sell, contributing to the large autumn sale numbers, as deals are concluded before winter.
Annual Farm Sales Increase
The number of farms selling across New Zealand has steadily increased over the past six years. However the latter part of last year saw the market slow. The end of 2014 started to see the rural property market slow down a little, with the last 3 months of the year recording a reduced number of sales compared to the same period in 2013 (down 12.3%)*. Also the REINZ All Farms Price Index slid 0.9% over the period ending December 2014 compared to the 3 months ending November 2014. Notwithstanding that, 2014 saw more farms sold than in the previous 5 years with the total number of sales of farms greater than 20 ha at 1585, almost reaching the peak number of 1661 (in 2008). Also of note was the strength of the sales on a number of good farms across the country with some notable transactions in Canterbury, Manawatu, Tararua district and in the Central Hawkes Bay. Buyers of these properties were looking for good earning potential over the medium to long term and wanted properties with a good standard of improvements.
There has been a lot of commentary about the outlook for the sector given product prices, the current climatic situation and global economic trends. These factors have weighed on the market in the early months of 2015 with currently a lesser amount of property advertised for sale than what would normally be expected. Key areas to note over the coming weeks and months will be guidance on the 2015/16 milk price, weather patterns and offshore influences on commodity demand.
Despite this uncertainty, there have been a handful of very strong farm sales in February with values holding up well. Also many buyers are taking a “through the cycle view” and are keen to purchase good, productive assets.
How much marketing do I need to do?
When you are at the point of signing a sale and purchase agreement to sell your farm you need to be confident that you have done all reasonable things to ensure that everybody that might be a Purchaser knew your farm was for sale.
One way of doing this is to ensure your property is adequately marketed. The amount and breadth of such a campaign will depend on the type and size of the property however there are some key components you need to ensure are part of any marketing campaign:
Signage – ensures everybody driving past knows your property is for sale. Also enables people not familiar with your district to find it if they want to “drive by”.
Newspapers – ensure you have adequate exposure in both local and national publications appropriate to your farm type.
Websites – placing your property on up to five websites will provide another way for Purchasers to find your property. After finding it in the newspaper they can search the web ID number to find the listing and look at more photos.
Agent Database – advertising alone is not enough. Your agent should be able to quote your property to a wide database of prospective Purchasers both of their own as well as via other salespeople working in the same company.
What is the difference between a Sole Agency and a General Agency?
The key differences between these two are:
A Sole Agency is where you contract one company to manage the sale of your property. The appointed salesperson/company will deal with the complete sale process including marketing, property inspections, liaising with your lawyer and accountant to put together the Sale & Purchase Agreement (or Tender documents or Auction documents), keeping you informed of progress with regular updates, negotiating with Purchasers on your behalf and following the transaction through to sale and settlement.
Under a General Agency various real estate companies have an agency to introduce Purchasers to your property and to complete the various activities described above.
Therefore all responsibility and accountability is diluted between the various companies and accordingly in a practical sense is lost.
Under a Sole Agency one salesperson/company will be fully responsible for your property and accountable to you to ensure the process is handled as professionally as possible. You will have one point of contact to keep you informed as to progress.
How do I choose a real estate agent?
Selling the farm will be the largest financial transaction most people undertake, therefore it makes sense to choose the salesperson and company that will do the best job, rather than just the person you know the best.
Here are a few things to consider:
What is the track record of the salesperson?
Ask your potential salesperson what they have sold in recent times so you can assess whether they have the experience and professionalism to direct toward your property. Enthusiasm plays a big part too as a motivated, organised person with “less runs on the board” may be more effective than someone with 15 years of experience doing very little.
What is the track record of the real estate company?
What is the reputation of the real estate company both in the rural sector and the real estate market in general. Is the company sufficiently resourced toward the rural market to support the needs of the salesperson looking after your property.
How many rural salespeople are there in the company?
Purchasers often look over a wide area before deciding on a property. Does the company have a strong network of salespeople that could refer Purchasers they know of to your property?
What market share does the company have?
How much of the rural property being sold is the company actually selling, both in the local region and beyond. This will provide some measure as to how effective the company and its salespeople are in converting words into action.
How Important is the Internet?
Farm Purchasers are using the internet to source information on property more than ever, and it therefore forms an important part of the whole marketing strategy of a rural property. A property could be placed on as many as 5 – 6 real estate websites.
Examples of the way the internet can be used are:
After finding the property for sale in the paper, a Purchaser might search the ID number on the real estate company website to see more photos.
And/or the Purchaser goes directly onto a property website and searches for properties under a certain criteria. Eg. “Wairarapa farms”.
The Purchaser could go onto Google Earth to view an aerial photo of a property or a district – anywhere in the world!
The local district council website will generally have the Rateable Value of a property able to be searched.
We send a lot of our Property Information Booklets out to prospective Purchasers via the internet.
Who else do I need to talk to before I sell?
You may want to talk to your other key advisors to check some aspects of your plans with them. Some questions for some of these people could be:
Are there any loose ends from previous and/or family transactions that need to be tidied up before sale?
Would a certain settlement date be more tax effective?
Would a certain settlement date be beneficial to avoid fixed rate loan penalties?
Early planning around supplementary feed to be left on the farm and herd drying off dates, as examples could make the process smoother later on.
Valuer and/or Forestry Consultant
There may be assets or forestry blocks within the farm business that need to be valued before sale. Your accountant will be able to advise on this.
There may be timing to consider with the sale of capital stock.