How to Prepare for a Land Auction

Read Time: 3 minutes

Two men walking in muddy field

Land auctions present exciting opportunities to expand your land base for production or investment purposes. As with any real estate transaction, thorough preparation, research and planning are key to your success. 

Having a plan in place can help ensure you are making an educated versus emotional decision when it comes time to bid on a piece of farmland. By setting a strict limit on the price you are willing to pay, you can also assure your land purchase aligns with your long-term goals and strategy. 

Make the most of your next land sale by reviewing the following buying at auction checklist. 

Get Preapproved for a Land Loan

Prior to the land auction, work with your lender to get preapproval on your land loan. Having a conversation with your land lender about how much you are willing to bid and how much your lender will loan ensures all parties are on the same page. 

Preapproval can also help with the speed of closing by allowing you to sign the purchase agreement and proceed with ordering title insurance knowing that you have financing secured.

Visit the Property

Access, location and suitability influence the desirability and therefore the value of land. If you live in the area where the land is being sold, drive by the parcel and evaluate it.

  • Does the parcel have good access for ease of farming? 
  • Is it located on a well-maintained road? 
  • Is it located by an ethanol plant or grain elevator?
  • Are there any non-tillable areas including timber, water sources, permanent pasture or acres enrolled in CRP? 

It’s easy to overestimate the number of acres suitable for cropland based on observation alone. If this information is not available in the bill of sale, get in touch with the listing agent or contact the local FSA office

Evaluate Soil Productivity

Soil productivity has a strong correlation to land values. Understanding this and how farms with similar productivity levels have sold in the area will help you get an idea of what the farmland is worth. 

Use a local lender or expert to evaluate the productivity of the parcel. Does it need improvements like drain tile or irrigation to maximize productivity? If so, how much do those improvements cost?

Soil productivity is also a prominent factor in determining the cash rental rate or potential revenue generated from a flex or share agreement. This is a key component in calculating the cash flow available to pay principal, interest and taxes as well as determining if the purchase meets your return on investment criteria. 

Consider Farmland Rental Options

Leasing can be a financially rewarding partnership for landowners and their tenants. If you are an investor buying a parcel in a new area, do you have contacts in the area who will want to rent the ground? 

Are you familiar with the various kinds of lease agreements available and understand which best suits you and your tenants’ needs? Farm Credit Services of America provides a basic overview on how to evaluate your farmland rental agreement options

It’s also a good idea to anticipate areas where problems could arise. For more on farmland leasing considerations, check out the following guide on how to improve your farm lease contract.  

Determine the Method of Sale

Before auction day, it’s important to understand how the land sale will take place and the methods of bidding. 

  • Will the auction be open or sealed bid? 
  • Is there a mechanism for online/phone-in bids if you cannot be physically present? 
  • Are there multiple parcels that may get bundled? 
  • Is there a “right of first refusal” in place with another party? 
  • How much earnest money will they require at the day of the sale? 
  • Will you need an approval letter from your lender to be able to bid?

Whether you are attending a land auction for the first time or you are an experienced land buyer, the proper preparation, research and planning will ensure that you are well-equipped and well-informed to make the most of your next land sale.

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