Farm Values: Bargains Possible but Unlikely

For months now the news has been filled with gloom and doom surrounding the mortgage crisis, to be sure it is not a pretty picture. Over 670,000 households have lost their homes in 2006 and 2007 alone and there is likelihood the number could exceed one million once 2008 is over. Regardless of what you believe this is a terrible fate to be faced by any family even if their circumstances could have been avoided or if they truly were victims of predatory mortgage practices. However, it also is alarming for those of us who recently purchased homes or that are thinking about purchasing. The question most of us faced or are facing is whether or not we should purchase now or wait as many reports indicate that home prices will fall. There is one, very important fact about real estate prices and whether or not they are falling or rising and that is not all types of real estate are equal. In any give area one type of property, for example patio homes, can be increasing while other types are decreasing. Furthermore, just because nationwide foreclosure rates have increased 75% in 2007 it does not necessarily mean rates in your area have moved much at all in your area. Rising foreclosure rates are both a symptom and a cause of declining home values. Symptom because if families could quickly sell their distressed property they would, cause because when there are many valued priced foreclosed homes on the market the home values of everyone in the area declines.

However, one must understand there is a distinct difference between home values and farm values. For most of us on this site we are interested in the latter as we have a love for horses and likely would be looking for property to keep those horses. In other words we will be looking for property with acreage for pasture and possibly for crop land for hay. While housing values, at the nationwide level, have either held steady or declined the values for farm land have been steadily increasing. In fact, a report released by the United States Department of Agriculture (USDA) in August 2008 has found that farm real estate values increased by 13.68 from 2006 to 2007! It reported that the nationwide average cost of cropland rose from $1900/acre to $2160 per acre.

Once must consider that demand for both pasture land and crop land has been increasing, the USDA report, referenced at the end of this article, fully illustrates the value of both and at the state level. This is due to many reasons including; the loss of farm land to development, the increasing demand of crops both for consumption and for bio-fuels production, and simply demand for small farms with limited acreage (in other words hobby farms). To be sure the mortgage crisis and associated tightening of mortgages will continue to cause a slowdown in the agricultural real estate market. However, it is unlikely we will see the steep property devaluation being predicted for other types of real estate.

If you are in the financial position to buy then right now would be a good time to be looking. There are a handful of properties out there where the sellers are willing to cut prices simply to move the property. Either they over extended themselves with credit or because they need to relocate, possibly for job reasons. While overall the real estate market is in huge trouble the values for farm real estate is increasing. The only edge a buyer has is that time will be on their side and it is unlikely that there will be a bidding war between multiple buyers. If the seller is not in a hurry then it is unlikely they will sell. However, if they are in a hurry you may be able to convince them to drop their price. I know this from personal experience as I purchased a 32 acre hobby farm from a motivated seller in October 2007. While the sellers initially balked at my offer they eventually accepted it, realizing that there are not a lot of buyers out there. As they both had jobs out of state, they simply did not want to wait for a better deal. However, while they did agree to reduce the price it was not the remarkable “steals” that some have been able to obtain in the general housing market. Then again, the general housing market has been over priced for many years. In short, if there is a place you are interested in then go and make an offer. I would recommend against “low balling” as you will offend the seller and they may simply refuse to negotiate. Be prepared though, if the seller is not motivated and you really want the property, to pay asking price.

CNN. (January 2008). Foreclosures up 75% in 2007. Retrieved on January 29, 2008 from http://money.cnn.com/2008/01/29/real_estate/foreclosure_filings_2007/ind...

USDA. (August 2007). Land Values and Cash Rents 2007 Summary. Retrieved on January 29, 2008 from http://usda.mannlib.cornell.edu/usda/current/AgriLandVa/AgriLandVa-08-03...