Whether you’re looking to purchase ag real estate at an auction online or in person, understanding the best practices for preparation, bidding, and closing on that land can make a huge difference in your success.
In this article, we review steps for determining your bidding strategy, how to ensure financing is in place prior to the auction, tips for communicating with the auctioneer and the process for closing on the purchase after the auction.
Know Your Auction Bidding Options
Every property is unique. That’s why it’s important to understand the specific terms and conditions of any land auction
. One of the first things you’ll want to identify is what your bidding options are.
For example, does the auction require you to bid in person or is there an option to bid online? If the auction has an online component, it’s a good idea to log on to the platform early and visit with the auction company or real estate broker to ensure you understand how the technology works.
Once you’re comfortable with your decision to attend the auction in person or online, you can determine your bidding strategy. Some buyers opt to bid online while sitting in the room where the auction is being conducted. Others may choose to sit by their trusted advisor or lender, or towards the back of the room where phone calls with a spouse or business partner can be made.
Deciding when to bid is another important consideration. By meeting with a local lender or appraisal team, you can put together an estimated value range of how much you expect the farm to sell for. Based on that number, you can reserve your bid or bid right away depending on your spending goals and comfort level.
Get Land Loan Pre-Approval
A helpful way to determine the maximum dollar amount you are willing to spend on a property is by getting pre-approved with a lender
. It’s a good idea to get multiple land loan pre-approvals so that you have at least one secured before going to the auction. That way you can be confident you have the financing in place if are the winning bidder.
To get pre-approved, you’ll need to share information about the property you plan to bid on, a balance sheet
listing your assets and liabilities and the last three years of your tax returns. The lender will work with you to calculate your repayment capacity while factoring in the income potential of the land purchase.
Remember, at the end of the day, the decision of how much to spend at an auction is ultimately yours – so be transparent with your lender about how much you are willing to pay. You may also want to have a conversation with your attorney to understand tax implications, liability risk or title work for estate planning purposes.
Be Prepared the Day of Auction
After you are pre-approved and understand your bidding options, you’re ready to place your bids at auction. Here are some tips for communicating with the auctioneer and reminders to help you prepare and know what to expect:
- Plan to arrive or join the auction online early. Give yourself plenty of time to ask questions, choose where you want to sit and enjoy any refreshments being served.
- Carefully review every tract being sold. In larger estate sales it’s not uncommon for one or two tracts to sell under market value while others may go much higher. Pay attention to what land is for sale and how different parcels may be a good fit for your operation.
- Request a break from the auctioneer. Auction companies understand that buying land is a major decision. If at any time you need a break to make a decision, or call a spouse or business partner, it’s okay to signal a timeout to the bid assistants. Just be cautious the signal isn’t mistaken as a bid.
Signing the Purchase Agreement
Congratulations! If you’ve placed the winning bid, your next step will be signing the purchase agreement. By meeting with trusted advisors ahead of time to create an LLC or business corporation, you’ll know exactly how you want the title transferred.
You’ll also want to make sure you have funds lined up to pay the earnest money owed the day of auction. Your lender can help you cover the deposit or have a temporary note in place before closing time.
Pay attention to the closing terms and conditions such as how any leasing income will be treated at the time of sale. Most closings occur between 30 to 90 days after the auction.
Once the purchase agreement is signed, be sure to note all contact info for any business partners, including accountants and attorneys, and share a copy of the agreement with your lender.
And finally, don’t forget to celebrate! Buying land is a major milestone and acquiring it at auction can be rewarding with the right planning and preparation in place.