Farm Progress

Selling farmland at a reserved price creates potential for a no-sale, Stock Realty says.

Tyler Harris, Editor

February 2, 2017

3 Min Read
RESERVE VS. NO RESERVE: A reserve is a set price the seller hopes to meet before selling the property. On the other hand, when no reserve is needed, the sale goes to the highest bidder.

You're bidding on a piece of farmland at an auction, and after placing what appears to be the winning bid, you find out the bid still isn't high enough. This is what's known as a no-sale — the property isn't sold, because the reserve hasn't been met.

"There have been several land auctions that do not sell unreserved, and the farm ends up as a no-sale, because the seller has last year's prices in mind. Unless the farm is priced 10% less than last year, you don't get any interest," says Ron Stock, co-owner and CEO at Stock Realty & Auction Co. "We've heard about farms that should have brought $7,500 per acre, and the highest anyone would bid was $5,000. They knew it wasn't going to sell, and the farm no-saled."

Compare that to an auction of two tracts in late January. One, a 112.83-acre tract of productive, irrigated land sold with no reserve that brought $7,700 per acre. Another tract, 157.7 acres of dryland crop ground and pasture, sold for $3,850 per acre with no reserve. Both sold at full retail. Of course, differences in the competitive nature of the area might also explain the differences in the sale prices.

What's the difference between a sale with reserve and without reserve? A reserve is a set price the seller hopes to meet before selling the property — similar to the reserve you're required to meet when buying certain products on eBay.

The challenge, Stock says, is that a reserve sale can deter potential buyers and result in a no-sale. A no-sale may not necessarily mean the land doesn't sell. Occasionally, a bidder will make an offer after the auction, and the seller accepts the offer. However, this is up to the seller. Most often, Stock says, the farm never sells. "No-sales hurt the market because the public interprets them as land prices being down," Stock says. "Realistically, you shouldn't let a no-sale tell you what the land market is doing."

When no reserve is needed, the sale goes to the highest bidder. "The advantage to the seller in an unreserved sale is you're 100% sure you're going to get a check. If the seller is motivated to sell and absolutely wants a check, an unreserved auction is the way to go," Stock says. "Unreserved auctions sold by a company with a reputation for selling unreserved will fetch a higher market value."

However, in some cases, the agent or seller can have high expectations and want to sell for higher than what buyers want to pay. If someone wants a set specific price for a farm, it's probably best to sell private treaty. Stock says most, around 90%, of their sales are private treaty.

Jim Jansen, University of Nebraska Extension educator in northeast Nebraska, notes the landowner should consider his or her goals when deciding to sell property with reserve or without. "Is this an estate sale in which the new owners inherit the property and are selling their investment due to the cost of the final expense of the estate? Maybe the new parties are not interested in owning the property, and simply want to ensure a sale," Jansen says. "If you have a certain goal in mind for the price, more than likely you're going to be looking at private treaty."

Ron Stock contributed to this report. Stock is a licensed real estate broker and has been in business with his brother, Mark, for 32 years. He is licensed in Nebraska, Kansas, Oklahoma, Colorado, South Dakota, Iowa, Minnesota and Missouri. He can be reached at 402-649-3705.

 

About the Author(s)

Tyler Harris

Editor, Wallaces Farmer

Tyler Harris is the editor for Wallaces Farmer. He started at Farm Progress as a field editor, covering Missouri, Kansas and Iowa. Before joining Farm Progress, Tyler got his feet wet covering agriculture and rural issues while attending the University of Iowa, taking any chance he could to get outside the city limits and get on to the farm. This included working for Kalona News, south of Iowa City in the town of Kalona, followed by an internship at Wallaces Farmer in Des Moines after graduation.

Coming from a farm family in southwest Iowa, Tyler is largely interested in how issues impact people at the producer level. True to the reason he started reporting, he loves getting out of town and meeting with producers on the farm, which also gives him a firsthand look at how agriculture and urban interact.

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