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5 characteristics of record-high land sales

Land Values: Illinois farmland hit a record-high sale of $23,100 an acre this fall, and an Iowa farm went for $30,000. What do these farms have in common? And what’s next?

December 12, 2022

4 Min Read
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It seems like you can’t turn around these days without seeing another headline touting record-setting prices for farmland. At least that’s what comes up in my newsfeeds, the most recent one being for $30,000 an acre in Sioux County, Iowa, which lies in northwest Iowa. Just what do they put in their water in Iowa?

This sale beat out other recent sales of $26,250 per acre in adjacent Plymouth County, also in Iowa, and a sale of $27,400 per acre in Richardson County, Neb., located in the southeast portion of the state.

How do recent Illinois farmland sales compare?

A quick survey of various members of the Illinois Society of Professional Farm Managers and Rural Appraisers revealed a couple of notable sales.

Matt Wyss and Kevin Birlingmair with the ag services division of Heartland Bank and Trust Co., Bloomington, Ill., recently celebrated the sale of a Sangamon County tract that brought $22,600 per acre. This 42.3-acre Class A tract of ground had a productivity index of 141.7 and sold to a local farmer with 1031 exchange money. It was a hybrid auction, so it included a live cry with the option to bid online.

“The final two bidders were the local farmer and an online bidder,” Wyss reports. “Potential development opportunity may have added some value, given the tract’s location near Springfield.”

A local investor purchased the remaining two tracts of lesser-quality farm ground and recreational ground, which brought $15,700 and $9,000 per acre, respectively.

But that wasn’t the high. The top-dollar sale so far this season was secured by Ray Brownfield, owner of LandPro LLC, who sold two tracts in Putnam County in November. One 52.7-acre tract brought $23,100 an acre. An adjacent tract of the same size brought $17,400 per acre. This was also a hybrid auction, but the final two bidders for the first tract were investors who were bidding online.

The same buyer bought both tracts, which means the average for both farms is much lower. Regardless, I figure if someone was willing to pay $23,100 an acre for Illinois farmland not knowing if they’d get the adjacent tract, that makes it a record sale.

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Red thread

What are the characteristics of a record sale farm? Here’s what we’ve seen:

1. Smaller size. Record sale farms tend to be on the smaller side. All of the tracts mentioned above are less than 80 acres, which makes sense. Smaller tracts are more affordable to more people, which generates more competition, which plays on the strength of the auction format.

2. Auction sale. Each record sale this season took advantage of the auction format. As an appraiser and broker, one of the most challenging aspects of an upwardly moving market is to determine what a farm will sell for. Everyone has their own thoughts on what a farm is worth, and in this type of market, there is one opinion that matters the most: that of the highest bidder.

3. Hybrid auction sale. Not only were all the record sales for all the farms mentioned sold at auction, but they were also sold at a hybrid auction. Not every potential buyer can take the time to travel to the auction venue, and not every potential buyer is fully comfortable buying a farm through a computer. The hybrid auction format brings together both groups to compete for ground. Then it’s simple economics: More competition pushes prices higher.

4. High quality. Record sales tend to occur on high-quality farms. High-quality farms produce good income year in and year out. If you’re going to spend this much money on an asset, it’s going to lighten your cash reserves and you want the best chance to turn a profit every year. That’s the premium for less risk, and that shows up in record sales.

5. Location. Land professionals learn early on that the three most important factors that affect value are location, location and location. This is also true for farmland. Even though much of farmland’s value is in its productivity, in a situation given equal productivity, land value will be most affected by location. That ideal location can include proximity to end markets, transportation to end markets, availability for manure application, pathway for residential or commercial development, neighborly competition or animosity, and ground that is in tightly held communities.

Beyond those market highs, we’re seeing more volatility in the market. Quality ground is holding its own, but lesser-quality ground seems to be weaker. Fewer faces are showing up at sales. Investors are still in the market but are searching for better returns. Higher interest rates are squeezing how much money can be borrowed.

Overall, the farmland market trend for the end of 2022 seems to be plateauing, but there is a higher range between high and low prices, as prices for lower-quality ground seem to be falling off.

Lauher owns Rolling Acres Ag Solutions and is a member of the Illinois Society of Professional Farm Managers and Rural Appraisers. Email questions to [email protected].

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