A Guide to Selling or Buying Agricultural Real Estate
The following discussion is intended to assist you in buying or selling agricultural real estate. It is not intended as legal advice, and should be considered only as general knowledge relative to the subject. Our intent is to help you understand portions of law, standard practices, and general concepts. You should seek competent legal advice when completing a specific real estate transaction.
An Agent is one who acts on behalf of another, usually paid to perform a service and work for the best interest of that principal. Agency is the relationship between these parties, created by a contract or by state law. In recent years, almost all states have implemented new laws concerning Agency, and Agency Disclosure. Although there are differences between individual states, there is one common thread throughout. This common thread is that the real estate Broker is the Agent of the Purchaser. Be sure to read further, as this agency status can change rapidly! Prior to enactment of these new laws, the Broker in most every state was the Agent of the Seller. There also were no laws requiring disclosure of Agency. Because of this, almost all Purchasers developed the feeling that the nice real estate salesman was working for them. Not so. He was paid by, worked for, and owed his allegiance to the Seller. State laws now require the written disclosure of the Agency relationship. In Nebraska, state law also dictates that the real estate salesman is the Agent of the Purchaser – unless there is a written contract to the contrary. That written contract is the listing of the property for sale. State law also dictates that an Agency Disclosure form is signed by the Broker, Seller, and Purchaser, detailing the Agency status between the Broker and other parties. Although we sometimes represent the Purchaser, Agri Affiliates is typically the Agent of the Seller. A competent, professional brokerage company provides many services to the Seller, and simultaneously assists the Purchaser in most aspects of the transaction while acting as Agent of the Seller.
Real estate brokerage companies have differing personnel, geographic areas, knowledge, abilities, strengths, and weaknesses. Agri Affiliates limits their service to agricultural properties. To provide superior brokerage service, we incorporate the management and appraisal functions. Real estate companies and personnel are licensed and governed by the Nebraska Real Estate Commission. The Commission enforces many Rules and Regulations designed to protect the public. To maintain their license, each licensee must complete annual continuing education, and must have Errors and Omissions Insurance. All monies paid to a real estate company, such as earnest deposits, must be placed in a real estate trust account governed by the Real Estate Commission. These accounts are audited annually by the Commission to enforce the rules and regulations, and to protect all parties to the money. The Commission also enforces requirements of both the Agency Disclosure and the Seller’s House Disclosure.
Property for Sale
When a property is placed for sale, the Seller is offering the farm or ranch for sale on specific terms, such as: price, date of possession, personal property included/excluded, growing crops, and legal description of the property offered. The sales brochure should identify not only the price offered for sale, but also the associated terms and conditions. It should specify the price for cash or contract terms, the exact real estate and personal property offered for sale, the date and factors for possession, and any other items that are part of the offering at that sales price. The brochure offering a property for sale should identify all factors related to that potential sale. If the property includes a house, the Seller must provide a House Disclosure. As a Purchaser, you also need to understand your agency relationship with the Broker.
Purchaser’s Offer to Buy
The Seller has the right to offer the property for sale under the Seller’s terms. A Purchaser, although they may not buy the property, has the right to make an offer on the property according to the Purchaser’s terms and conditions. To protect yourself, you should be very specific in your offer. You should seek competent legal advice if needed.
The Purchaser’s offer to buy a property may be different than the Seller’s offering to sell, and should include such items as the following:
– exact legal description;
– dollar offer and terms of cash or contract;
– date of closing and possession;
– personal property to be included/excluded (growing crops, irrigation equipment, water rights, machinery, livestock, or household items), permits such as BLM or Forest, and leases such as State;
– oil, gas, or mineral rights;
– factors of warranty and title insurance;
– delineation of payment of taxes and fees;
– condition of the property at closing;
– possible contingencies to the offer such as:
“subject to financing”
“subject to sale of a property”
“subject to well tests or environmental screens”
“subject to a more thorough physical inspection”
“subject to operation of irrigation equipment or perfection of water rights”
“subject to a 1031 Tax Deferred Exchange”
This is your offer to purchase, a counter offer to the Seller’s offer to sell, on your terms and conditions. Remember, the Seller owns the land and you will have to get close to the desired offer, or you will be unable to buy the property.
Agri Affiliates is the Agent of the Seller, but will assist you in understanding the property, understanding the Seller’s offer, and in writing and presenting your offer to the Seller.
So, if I make my offer to purchase exactly equal to the original offer to sell – does the Seller have to sell to me? No, the Seller owns the bundle of rights and cannot be forced to sell you the property on any terms. (The Seller may owe the Broker a commission for services according to the listing agreement, but cannot be forced to sell you the property).
Seller’s Counter Offer
If the Purchaser’s offer to purchase is not suitable to the Seller, a counter offer can be made. If there is a large difference in opinions, the Seller may elect not to counter offer. However, many times a sale of the farm or ranch can be achieved only by the Seller agreeing to terms other than the original offer to sell. The real estate Agent is communicating with both Buyer and Seller, and usually advises the Seller as to terms of the counter offer. A counter offer can be as simple as changing the date of closing or the personal property included.
Under Nebraska law, verbal agreements concerning real estate are not legally binding. However, an offer or counter offer is a legal document once it is signed. Once you sign an Offer to Purchase and place the earnest deposit, if the contract is signed by the Seller, it becomes a legally binding contract. If necessary, obtain legal advice before signing any contract. However, you can also rescind your offer at any time prior to the Seller’s acceptance. Likewise, if the Seller makes a counter offer, it also can be rescinded up to the time you sign. Once signed, the broker must then communicate acceptance of the contract to the other party, which then creates a legally binding contract.
Until about 1980, a Seller provided proof of ownership to a Buyer by way of Abstracts. An Abstractor created the abstract by reviewing records at the courthouse. The Buyer then hired an Attorney to review the Abstracts and provide an Opinion of Title. All of this was to determine if in fact the Seller actually owned the real estate you desired to purchase.
After 1980, this process has been converted to Title Insurance. A Seller now provides evidence of merchantable title by way of a Title Commitment. The Purchaser now employs an Attorney to review the Commitment, and possibly require corrections to the Title Insurance. The basis of the Title Insurance is still the process of abstracting county records. However, the Purchaser receives much more value from the Title Insurance than from an Attorney’s Opinion of Title. Title Insurance is provided and guaranteed by an Insurance Company. A Purchaser is protected by the Insurance Company that in fact there is good title to the property. The cost of Title Insurance is a one time premium based on the purchase price of the property. The cost is governed by the Nebraska Department of Insurance. The policy insures good title to the Purchaser for as long as the property is owned. The cost of Title Insurance is often shared by the Seller and Purchaser 50/50.
Most Purchasers obtain some amount of financing when they purchase a farm or ranch. To provide financing, the Lender typically requires first security position in your real estate. As the Purchaser/Borrower, you are usually required to provide a Deed of Trust to the Lender for that purpose. The Lender always requires that you have title insurance on the property, and will require a Lender’s Policy to insure title in the amount of the loan. Although Seller financing is somewhat rare today, the above requirements should be expected.
When discussing financing possibilities with your Lender, there are several factors that influence the desirability of a loan. Everyone is concerned about interest rate. However, the inter-relationship of several other factors are of equal importance. Some of the factors that you should investigate include:
– amount of this or additional real estate required as security
– variable or fixed interest rate; fixed for how long
– options to adjust interest rate at a later date
– type of repayment – principal plus interest, or level amortized
– length of repayment period, including any balloon payment
– prepayment options or penalties
– costs to obtain the financing
The word Closing refers to the legal process of completing the requirements as set out in the Real Estate Purchase Agreement. This includes delivery of the purchase price, and delivery of the Deed, Bill of Sale, lease assignment, etc., as specified. Many times the loan documents are also completed at the Closing. Prior to Closing, both Seller and Purchaser should receive most of the documents for their review, and possibly their attorney’s review. The Purchaser’s closing documents will reflect the balance of the purchase price due, a copy of the proposed Deed and Bill of Sale, and other items specific to the land purchase. The Seller’s closing statements will be similar to the above. They will reflect all expenses of the sale, the balance to be received by the Seller, and any special documents that will be signed at Closing.
Historically, Real Estate Brokers have acted as the escrow agent to close a real estate sale. With the advent of Title Insurance, the modern era often utilizes an Insured Closing which warrants that all documents and procedures utilized in the Closing are correct. The Closing is conducted by the Title Insurance Company since they will finalize the Insurance Policy only if the Closing is properly completed. Thus the Title Company provides an Insured Closing, records all documents at the courthouse, returns originals to the Seller, Purchaser, and Lender, and issues the Title Insurance Policy. Cost of the Closing is usually nominal, and is shared by Seller and Purchaser 50/50.
Thanks for reading our discussion on Selling or Buying Agricultural Real Estate. We hope the article has been of service to you. Please contact us if you have questions or comments. Good luck with your farm or ranch.