So, you’re thinking about selling your land, but not sure if you should have an auction or list the farm.
Selling land is a huge process and you only really get one chance at it. Should I start with an auction first or listing? This decision is important to make sure you get the most money for your land and done correctly the first time.
From my experience of helping landowners, I would recommend an auction first. Does the word auction scare you? Do you feel that it is a last resort option and your land will sell for cheap? What price should I list my farm at?
I’m going to lay out the key differences between auctions and listings to give you a better idea of why you should not feel nervous about having an auction, and why I think they produce the best results for you.
How Land Auctions Work
When I was younger, I would picture the word auction as people gathering in a room and eating donuts and drinking coffee while getting ready to raise their hand and bid when the auctioneer started chanting. Today though, I picture auctions differently.
Online Land Auctions
I think of bidders competing against each other bidding to their maximum potential and producing incredible sale results. Not necessarily done in-person. Online land auctions are becoming more popular than ever before! When done correctly they are the most powerful way to sell land.
Be careful! When deciding what auction company to use, make sure you are choosing someone who has done online auctions for several years. With the world pandemic and the chaos of 2020, several auction companies have switched to online only auctions. Which is totally okay, as long as they understand how to properly conduct online land auctions.
Land Auction Company
Tip – look for a company that has several past sale results from online land auctions, own their own software (don’t use a third-party bidding platform), and have testimonials from previous sellers who have decided to sell their land by online only auction.
I have helped sell thousands of acres online and work with a team of auction professionals who are truly the pioneers of online land auctions. If you are curious how online land auctions work, I can send you a video of what your land auction would look like on our online bidding website!
Whether you decide to have a live in-person auction, or online only auction, these key features apply to both.
1. Auctions have a set date
Unlike a listing, auctions have a set date and time where bidding will either begin for a live auction or when bidding will end for an online timed auction. This can give you and the bidders an idea of when the farm will sell and create momentum to get bids in.
I know if I were a seller, I would prefer to know what day my land was going to sell instead of waiting around for an offer to come in for a listing which can take up to several months depending on buyer’s urgency. We all live busy lives, and by setting a certain date and time for your auction you know exactly when you need to be available to watch your auction and accept the bids. Offers for listings are not planned and can create stress if you are planner like me!
2. Let bidders’ price your farm
How much is your farm really worth? What if your listing price was lower than what a bidder would actually pay for it? When you put a price on your farm you are creating a cap of what you are wanting for your land. With an auction, bidders can go beyond the price and can produce results you wouldn’t have even dreamt about! How do you know what others think your land is worth? Maybe they have had an eye on your farm for several years and would pay 2x as much as what you think it’s worth. This is why auctions are the best at determining what your land is really worth and letting bidders determine how much they are willing to give.
Prime example – I witnessed an acreage consisting of 19 acres and a house sell for $70,000 more than what the sellers thought it was worth and what they would have listed it at. They had no idea bidders were willing to go that high. Iif they did a listing, they would have shorted themselves $70,000! I don’t know about you but that’s a lot of money! The sellers were extremely happy with this online land auction that I helped coordinate.
Auction Ladder
They way auctions work is similar to climbing a ladder. You start low and work your way up. Every time someone bids the next person has to be higher – next step on the ladder. Bidders can only work up and never back down to $0 which can happen with listings. Listings, a buyer can offer a price anywhere on the ladder and other buyers have no idea if they have to be higher or if they can submit a lower offer. If you as a seller decided to reject an offer on your listing – you start back at $0 until someone comes in with another offer.
You also have the right to accept or reject the last bid on your land auction and to confirm the sale. This is another hefty topic though, and I wrote a separate blog dedicated to this topic, “5 Secrets to Setting an Auction Reserve”.
3. Terms and Conditions of Auctions
One of my favorite parts of auction is – sellers get to set the terms and conditions. You decide everything from how much earnest money is due, the closing date, auction date, selling as-is where-is, possession of the farm, and more! With a listing, buyers can present all of the terms and conditions and often have contingencies attached that you either have to accept, reject, or counter offer as a seller. An auction lays it all out on the table of what you are willing to accept from a bidder. You make the rules.
Terms and conditions are extremely important and protect you as a seller. Experienced auctioneers like myself, understand what needs to be included, and how to tailor set terms and conditions to your land.
4. What if no one bids on your auction?
It’s highly unlikely no one will bid. If for some reason you don’t agree to the highest bid on auction day, I ask my sellers to move into a 60-day listing to achieve the price you are looking for. This is why having an auction before a listing is critical. Remember how I said auction dates create bidder momentum? We now have a better understanding of how the rest of the world sees your land and who is interested.
Negotiating with Bidders
Even if no one bids, or the last bid is too low for you to accept, I now have a list of people who have expressed interest and have called with questions. It’s my job to work for you, and reach out to those who had sparked interest. I will continue to negotiate with potential buyers to reach a sold price.
The majority of farmland I have helped sell doesn’t reach this point. Sellers often confirm the sale of their auction even before bidding ends. The farm trades hands to the highest bidder on auction day. There are secrets to how this works in your favor to achieve top prices. You can read more in my blog, “5 Secretes to Setting and Auction Reserve”.
How Land Listings Work
What do you picture when you hear the word listing? Is it different than the word auction?
I bet you are imaging driving by a For Sale sign in the yard with a number to call or seeing a piece of land on a website with a price listed.
1. Choose a Licensed Real Estate Land Agent
If you read, How Land Auctions Work, you should have an idea of why I recommend choosing to have an auction versus a listing. I do want to mention some of my past sellers have used a listing. I’m licensed to do so in Iowa. Be careful – some auctioneers are not licensed real estate agents and don’t have the ability to sell your land by listing!
2. Who Buys Listings?
The buyer pool who most likely is interested in seeing listings, is investors and 1031 exchange buyers. Now this doesn’t mean they don’t bid on farmland auctions. Some investors calculate their return and cap rates based on the listing price and what they are willing to offer.
3. Record Breaking Results!
Something to look at is what land has been selling for in the county your farm is located in. Are auctions producing the best results or listings? It’s rare you will see record breaking results from listings – they are simply set by auctions.
4. Why it’s not a good idea to have a listing first
Many sellers believe they can list the farm on the market for a few months to see how it does. Then switch to an auction. By listing land first, you price the farm and people will bid with that figure in mind creating undesirable results for your auction. By selling at auction first, bidders are allowed to truly discover the fair market value of your land with no preconceived notions.
Choosing a land auctioneer or farm real estate agent
Once you have decided the route you want to take, reach out to several auctioneers or real estate agents and get to know them. Still not sure if you should have an auction or listing? Schedule a free consultation with me! Being a land auctioneer and land real estate agent in Iowa, I can help answer any questions you have about either method.