One of my standing jokes, a serious one, is that my goal is to sell every property - once. That never fails to bring smiles and gets the point across that I want my people to be happy and successful with their purchase. Human nature being what it is, it’s an impossible goal. The vast majority work out like we all hoped in the beginning. But not all do. There is repeat business. I’ll use my experience with one man to illustrate both sides, buyers’ and sellers’.
Jules Gainsworth showed up in a brand new cargo van, Julia, his girlfriend along with him. She was grandmotherly and I felt comfortable with her right away. Shue sat in a lawn chair while I occupied the suicide seat and Jules drove. He could not marry her as his divorce, a contentious one, was not final. He obviously had a good chunk of change and intended to make a complete change in his life. His marriage had fallen apart, irrevocably, then he’d encountered Julia, an old friend from college and they hit it off, deciding to quit his business and start a farm, all for fun. Once a banker and now an energy supplier, Jules was definitely a businessman. I learned a lot from him.
We had several outings to find the right place. Now to backtrack and talk about the “right”one.
Many years before Joe had decided to sell his farm. A bachelor getting on in years, he’d always lived with his mother and ever since she died, there was little point in staying on there, alone. We showed it a number of times but the price was set too high to make an easy sale. Then he took it off the market. Why? He acquired a mail order bride. I knew of course that this kind of thing happened, but I’d never witnessed it before. She was Russian, good looking, far younger. If Joe was happy, I was happy for him. We took it off the market.
Some years later, I responded to a lead on a farm that might be for sale and called a number in Schenectady. In our phone conversation I realized I knew the farm. It has been Joe’s and it was his bride with whom I was talking. She was living with someone else now and no longer had any use for the property. Joe had died a while back and she’d inherited it. There were no children. At first I was suspicious about her motives, but soon lost them as I got to know her.
Jules was one of those who saw it and he figured it was perfect for him. He could have all the privacy one could ever hope for, raise a few critters, and be happy in his new life. We attended a party he gave and got to meet his neighbors and through trips there to visit could witness the on-going home remodeling.
But Jules’ mind never stopped working. He was still a businessman at heart and he wanted to make money, not just have a hobby. His farm would only be marginally viable as an agricultural business; he saw that. At the same time, his energy business sold. Due to its peculiar location, he never really thought that would happen. This delighted him and made it possible to buy another farm. So he called me and we went looking.
Farm #2 was one I’d sold not long ago for it’s original owners, who’d been there forever. It had a beautiful large brick home and an attractive barn, in an area where the other farms were similar. The first buyer for it was a former professional football player, a BIG guy, who looked funny next to his small Jersey cattle.Cows are supposed to look bigger than their owners. This fellow did well with them, so well he got bored and was looking for greener pastures, as an agricultural writer. He put it up for sale. Jules became the buyer: now he could have a commercial dairy.
With this thought, he placed his first farm for sale. I had a couple I’d been working closely with who insisted upon utter privacy and once Jules’ farm was signed up, I called them. They came up, realized it was perfect for them and agreed to buy, then and there. I knew they would. Sometimes things go right in this business. They are still there and are now thinking of acquiring a second property.
Now Jules had never actually farmed before, not for his living. He peppered me with questions, good ones. Should he keep the Jerseys or instead buy Holsteins like nearly everyone else had? We crunched the numbers and I concluded that in this situation it would not make much difference financially. Yes, he wouldn’t get as much milk or cash from beef and calf sales, but there’d be a bit less feed consumed and due to the higher butterfat and protein from Jerseys, the milk check wouldn’t suffer much. It was a toss-up. He went with the Jerseys.
Now, since he was officially retired, he hired enough help so that he only needed to manage and to pitch in here and there as he liked. He would often call me for advice and to bounce ideas back and forth. I’d hear about the new herdsman he got, how great he was, then, next time, I’d hear about why he was fired and how great his replacement was. Jules was not one to suffer fools and if someone wasn’t going to work out, he had no problem firing them. He also knew how to get new workers. Finally he got Smitty, who turned out to be man he wanted and Jules became like a grandparent to the young couple and their kids. Smitty was not highly experienced or well-educated, but what he learned, he learned right, and he worked hard, with Jules’ success in mind.
Speaking of firing, somewhere around this time, he got rid of Julia. She was not working out; it seems she came with some psychological baggage, the sort of thing you don’t see until you get to know her real well. I saw no sign of it, nor did he - at first. It was the kind of thing there was no sense in putting up with in someone to whom you were not committed to (ie - married to). So he sent her packing - but nicely. They remained friends and he often spoke with her on the phone. I am sure that he made things financially right for her.
Meanwhile, he was growing the farm. He bought another large piece of land, another 200 acres. These sales were all for cash, I might add. Made things easy for me; I have always loved to see cash buyers.
One day, I stopped in and found 2 new Ford tractors setting there. He’d gotten good terms on them and since he needed the power, could not resist the deal. One was $80000 and the other $120000. New tractors are not cheap; that’s why you can often sell one you’d used for many ears and get back what you originally paid.
But I was surprised Jules did that. He liked animals far more than machinery. I told him that for the $200000, he could have bought 20 $10000 tractors. A $10000 tractor would do the same work and if it broke down, well, he could just park it and start another of the 20 he had. Not that I thought anyone would let a $10000 tractor go unfixed - he got my point, and wished he had asked before he’d committed to them. The big one continually gave him problems, something in the computer which he dealer had a hard time correcting. They eventually took it back, but that was a long while later and only after he’d raised enough sand.
By that time, Jules had learned that he was going to keep losing money. On a dairy farm, it’s hard enough to be profitable with family help. His bad knees would not allow him to milk and he saw there’d be no light at the end of the tunnel. So he decided to buy a small farm and just keep some sheep to have fun with.
We put farm #2 for sale and found a buyer who knew enough about farming to know he did not want any part of the dairy business. So I was suprised that he bought Jule’s cattle and machinery. Later the barn burned down, so that ended Farm #2’s dairy career.
What did Jules find to replace it?
Farm #3 was one I’d had a long history with. The original owners retired and sold it to a doctor who had a young man whom he wanted to install there. It took him 2 years to discover that while personable, the young man didn’t really like physical labor. So we found renters - after fixing the small amount of damage the young man had done to the home. We ended up with a tenant who’d had years of experience working for some good local dairymen. This was his chance for his own farm. He was a person greatly influenced by outer appearances: two examples. He told me how much of a come-down it would be to move into this home. He lived in a trailer now. What? “My trailer is new”, he said, as if there was no need to say more. His wife was the splashy kind; I could not figure out why she married him. I’ll bet he didn’t either. Now I know, he was so enamoured with her looks, that he’d forgive any thing she did. She did lots too; expensive things that were neither needed nor affordable, other men… I shouldn’t go on. But they’re still married, after all these years.
Eventually the doctor got tired of him and his troubles and he left the area (for a while). We listed it for sale and in due time sold it to a family with whom I’d worked for years, selling them multiple properties. He bought land for hunting and if it had buildings, he’d rent them out. They owned it for a long time, keeping tenants on the farm until they too got fed up with the process of revolving door tenants. He listed it with the 90 acres on one side of the road and kept the rest, around 200 acres - but with no buildings that needed attention. He would let the crop land there, never that good anyhow, return to trees.
Jules bought the 90 acres of Farm #3. It too had a private setting, with glorious views and a small dairy barn in useable shape but sorely in need of remodeling. But for sheep, it would do. The sheep didn’t last long. Living there alone, he missed Smitty and his family and finally he decided he’d put on cows and give Smitty a job.
He consulted with me about putting a Jersey dairy here. We went through the costs of and the process of remodeling the barn. Then we covered his game plan of buying feed (he wasn’t going to try to crop any longer - that had been a big problem for him in the past, something he was never going to be good at). My conclusion at the end of this process was that this scheme would not pay here. Disappointed, he thanked me for telling him that.
The next thing I knew was that he was remodeling the barn, ignoring my advice. He had moved Smitty in and would soon be milking Jerseys once again. He’d let Smitty and family have the home and he’d erect something small for himself. His needs were small. And it was small indeed, sort of a 10x40’ trailer, one that never had wheels.
Time passed and Jules was having a hard time of it. The barn and cows always looked nice and were well cared-for. But his bank acount wasn’t. He’d borrowed several times by now. Smitty tried hard; he’d been promised to be worked into ownership of the place and it was the one opportunity he’d get in life - he knew. Jules, n working him into an ownership position, allowed him to see more and more of the books and to learn the business part about dairying. This allowed Smitty to realize Jules was bleeding money, keeping afloat by borrowing and that when the time came for Smitty to take completely over, there might not be anything left. So he reluctantly told Jules that they did not see a viable future there for them. The cows were sold and sheep returned, along with honey bees. Jules found many ways to keep himself interested. Though he didn’t drink it, he also made beer.
The cattle were gone, but there was still debt left, so Jules unretired and went back to work. Truck driving didn’t last but a few days. Substitute teaching did, but did not bring in enough money to service his debt and Jules ended up bankrupt. Eventually he paid everyone everything they were owed, but it took a while.
When I listed Farm #3 for sale again, Jules told me that he was a millionaire when we first met and that he’d pissed it all away. Sad. But he’d had fun doing it and he didn’t look back, wishing he had done differently, the “what-ifs”. Once we sold Farm #3, he’d have nothing left of that million. Zero. So his hope was centered upon granting himself a life tenancy to his tiny home. That made sense for him, under these circumstances. But it complicated my job. Few buyers want a farm with a built-in grandfather, one you would have to see every day as he lived 40’ away and used your driveway and your well. And what would happen when he got too old and needed help? Would they have to do all that? Still not completely divorced, he had no family anywhere near, only a slightly-estranged daughter in another state. Parental care is hard to do when you are close relatives, far harder when it’s someone you don’t even know. Would Jules try to tell them how to run the farm? What would he be like to get along with? How would he feel knowing they were essentially waiting for him to die so they could have the farm to themselves? All these thoughts raced through the minds of buyers.
Naturally, it made my job harder than it would first appear to be. The place was priced to sell, only it came with strings attached. We finally did sell it to a very nice family from Connecticut who obviously decided Jules was a hurdle they could get over. Jules tried not to interfere and only volunteered advice when asked. He gave them all the space he could and helped them when he could, but still there were times when the family needed to assist him.
Jules went to Long Island to help an older brother with health problems and a son who had far worse problems. That took a long time, and by the time things were resolved there, Jules began to have his own difficulties. His daughter took him in and cared for him in his last days. I miss him and never got to see him again.
In general, I get along well with my neighbors, partly because in most cases we don’t pal around together. You know, “Good fences…..” But I want to talk about an exception who became one of our best friends. Let’s go back to the start.
Bob. another neighbor, listed his farm for sale with us. I had not met him before as he lived in town and had help run the farm. Bob became a friend as a result. I had gathered that he didn’t have too many of them, so had not gone out of my way to seek him out. Bob had been a downstate lawyer and got interested in dairy farms, so he bought one and moved near it. He was not doing well there and needed to sell it. Partly, his problems were of his own doing. Farms run at long distance are rarely profitable, but he readily admitted that all his life, he’d been a son of a bitch to anyone who he did business with, also his family, which had something to do with the fact that he was on a second marriage and was nearly completely estranged from his children. Too late, he realized his mistakes - too late for his first family and too late to keep the farm going. Creditors were at the door and were not cutting him any slack; they’d never got any from him in the past, I’ll give hipm credit: he admitted this was no way to be and he openly regretted his past and actively worked to keep fences mended with anyone he met from now on. With me, he did. Thirty years later, our families are still in touch.
I had an appointment to show it and was heading down the road with a load of manure to spread before I changed clothes and met my customer. As I came to the corner, a car stopped and hailed me. I could see a ruddy friendly face. The window came down and out of his beard, he asked if I were Roland. It was my customer, early. So I asked him if I could finish this load and then I could be with him. That was fine with him; he understood.
We drove on over and learned a bit about each other. It seems I had met his wife 3 years before. They had operated a farm near the Finger Lakes, one that I’d visited on a wintry day. I remember a blonde ill-tempered tenant lady who was introduced to me as the tenant. She was not in a good mood that day. My customer, Evans, told me why. They thought they were supposed to buy the farm, only the owner had changed his mind and put it out for sale. I was one of the first to see it.
Now, finally, the place was sold and they needed a place of their own. Evans was handicapped, having just one arm, his left. Later on, after we knew each other better Cindy told me about it: he had been picking corn and the picker jammed. He did not shut it off before he went to unjam it and it sucked him into it, slowly eating away at his arm while he tried to pull himself free, the arm came off before his body went it, so he remounted the tractor and drove home, using his feet on the brakes to steer it while his left (ie - as in “remaining”) hand stried to staunch the flow of blood. He got home, shouted for Cindy, and when she appeared, then he fainted.
Although he had a prosthesis, he rarely used it. In fact as the years wore on, he stopped using it. He mostly did crop and mechanic work and let others milk. Milking was the only thing he could not handle one-handed. I don’t know how he managed the other stuff, but he did,
Evans proved to be a great neighbor. First, he liked a good joke, which is always a good start. He told them well and listend avidily when I had one to tell him, his red face breaking into smiles and laughter no matter which of us told the joke. Cindy diid not see the humor and rarely smiled. She made few local friends, was lonely, and after a few years, the marriage was over. Evans made a much better neighbor than a husband. He’d work like a maniac when it needed doing and stop in the house expecting a meal to be ready when ever he found time for a short break, not that she had been warned when that might be. They did nothing together other than work at different jobs in different places on the farm; of course she was lonely. Always ready to help out if we needed help, he treated us better than he treated her. She was his second marriage.
We were always concerned that if he helped us we had to reciprocate in some way. It had to be fair, not one-sided. In the first years, we often choppped together or did things for each other. But the scale of his operation was three times ours and was only to grow in years ahead, so that became harder and harder. He often loaned us machinery to get us over a hump, but rarely borrowed any from us. We each knew that if we broke something we’d return it repaired properly.
The first few years, we shared a set of chisel plows. Neither of us owned them.. It seems Bob had failed to make payments on them (there were several items such as that). We had not idea who they belonged to, but since there were taking up space sitting there, Evans decided to put them to use. And did for 5 years until the finance company finally figured out where they were and came to repossess them.
While plowing with an extra set he had, I busted one coulter, so I went to John Deere to order a new one. They had trouble locating it in their system but we finally settled on what had to be the right one. A week later it arrived and when I went to put it on, it was all wrong. Back to John Deere. The same thing happened with the next coulter they brought in. Now I began to get worried; I wanted that thing workiing correctly in case he needed it. But I had to go with my head hung down and explain that I’d busted it but wasn’t able to repair it, none of the John Deere parts fit.
He laughed and laughed. “That isn’t a John Deere plow; it’s a Ford!” What? It seems he’d once had an argument with a Ford dealer and, pissed off, painted it JD green. So that’s why they couldn’t find the serial number. Well, he was red-haired and prone to short fits of temper, though never to us. Ford had the part in stock.
Another time, I’d hired him to do some Fall plowing for me and he had tractor problems, which resulted in a tractor not working and very stuck. My own tractors would not budge it. So he went home for his 2+2 to pull it out and out of the way so he could get it repaired. A 2+2 is a huge articulated tractor (bends in the mdddle), designed to pull huge tillage equipment. It is too big for much else. But his was leaking oil pretty fast so when he got the smaller tractor out, he asked if he could leave on the lawn for a few days until he could fix the leak. Of course, I agreed.
Then I got an inspiration. This would give him a laugh. I went and got my hay rake, a very lightweight piece of machinery that could be run by a lawn mower, if it only had a PTO. And hooked it up to the 2+2. Wait until he sees that.
I didn’t see him when he fixed and removed the 2+2, so the necte time I did, I brought it up. He told me he’d heard about it before he got to my house. He was at some tractor dealer’s and heard some farmer disgustedly say, “I went by a farm the other day and that dadburned fool had been raking hay with a 2+2. How dumb is that?” Our laugh together was just that much greater. They looked absolutely hilarious hitched together, but I never dreamed anyone would take my joke so seriously.
Since our equipment sharing was gowing more one-sided as he grew his operation, we looked for other ways to assist. Since Cindy was gone, we had him over from time to time for a real meal. Or Janet would bake him a pie. God knows what he ate when alone.
She would always bake a pie when our daughter returned to college. One evening, three hours after she left to return to school, she called, embarrassed. It seems the pie failed to arrive. I asked a couple of questions annd we decided she must have put it on the roof while she was loading the car, then drove off, forgettipng ti ws there. My college roomate did that once withu his entire semester’s notes, so I remembered the incident well. Oon that hunch, I drove down tooo th same corner, where, since there is little traffic, she probably had failed to make a complete stop.
There it was, on the road. no cars had come by in the last three hours. The pie was damaged, no longer pretty, but it was clean, thanks to the plastic bag, and perfectly edible. I look up at the corner and there was Evans’ combine; he’d been combining some of my corn. I took the pie and sat it on the seat in the cab. Just left it there with no explanation. A couple of days later, I went over to pay him for the work and ”happened” to mention that I’d lost a pie. Grinning, he said he’d found a pie plate, but there was no pie in it - any longer. That pie was eaten while he was combining, saving him a trip home for lunch.. I have no idea how a one-armed man could eat a wreck of a pie and combine at the same time, without eating utensils. He did, though - and loved it. Janet makes a very good pie.
We’ll tell the end later on.
We are still in our Christmas doldrums (which is why I have time to write this). The number of calls is way down and the percentage of them that are serious is way up, which is common at this time of year. This past year, I had far fewer calls on my better (ie - more expensive) properties than I expected and I have not been able to tie down whether this was industry-wide, locally-related, or just us. The statistics all deal with houses, so can’t be relied upon for our kind of business.
Right now I am in a state of negotiations on a new standing ad. If I go for it, I can rotate what is featured… but then it costs $2100 and I am not at all sure it will bring a benefit which will exceed that. I am also considering ads in some of the old house sites. I have used several of these sites before, and I like to support them because I really like old homes. But I have, in the recent past, enjoyed a spectacular lack of success with them and having been burned a few times, and more reluctant to place these ads than I once was. These are the kinds of places that should bring results. And, years ago, though it wasn't spectacular, they did.
But we have turned a corner, sociologically, in this country. (Actually, several corners, but we won’t go there now…) The young folks who are buying now, the 30-50 year age group, believe in the throwaway culture, where it’s cheaper to just buy new than repair something. Concurrent with this attitude is one that no longer values old things as much as our generation does. I see it with my kids; they'd rather have a newer house than an old one which is just as nice, only cheaper. I have been told the same thing by antique dealers. Their business is down - some collectibles are doing well, but well-built old furniture? Forget it; the younger generations want new and modern, even if it only lasts a few years instead of generations. They'll just replace it. These are fads and will pass, but they may last many years before that happens.
The print publications which I routinely use are not great fits non-farm properties. When I use them, hoping to surprise myself. I don’t. If there are places that might work, I am all ears and willing to try new outlets. No guarantee that I will take every suggestion, but they will all be carefully considered.
Every seller is interested in rich NYC buyers. We are at the edge of how far they will usually travel (3 hours). In general, these customers have money, but they tend to be hard sells (like Californians). They may have city mentalities and expect things which we don’t have here. And some of the things we have that they lack (scenery, peace and quiet, safety…) are valued more by us than by them. I have always felt that for most city dwellers, the jump to a farm is too wide a step for them. The suburbs is a step better suited and feels less risky to them. That said, of course city folks do buy up here, only not as frequently as they do closer to NYC, where though prices are substantially higher, they are more comfortable in those surroundings.
One thing that I have noticed is that our properties are not cookie cutter similar. Each one is unique and some times it just takes extra time to fit a unique property with a unique buyer. I always keep in in mind that “at the right price, everything sells”. Finding the right price often takes some trial and error. If I was given a time line by which a place had to be sold, I would advise the owner to price it low and, after a month, start dropping the price. No one wants to hear that of course. And many folks can afford to wait until they can get what they feel they need to get. As a result, it usually takes them longer (unless they happen to get lucky).
On acreage, here is a scenario that I often come across. The seller asks what they can get and I give them a range with “fire sale price” at the low end and a “lucky” price at the high end. They will consider this for a while, take the lucky price, then add to it a bit, just enough that I get a lot less calls. Human nature.
On that subject, sellers always feel their property is worth more than buyers feel it is, just as buyers always want to pay less than is asked. When we make sales, we most often meet in the middle and have two parties who are serious about their wants and are committed to making it work.
I feel you are better able to understand nuanced explanations than most people. There is more art than science to this.
After a year of occasional long trips to West Virginia, we had a long weekend coming, the pickup loaded for the long trip south. This particular trip generated a noticeable lack of enthusiasm. Without a single place to look at, all we had was the time to spend. Not one lead, back to Square One, knocking on doors. That, I might add, is not a productive use of one’s time, especially when you must drive so far to get there. Glancing at the mail just before we left, I saw ads from United Real Estate in New York. Hey, their properties looked pretty good this time. But I’d been down that road once before. Grasping at straws, I made a long distance call to the agent and, holy smokes, those places were still for sale and they sounded as good from his description as they had in the brochures. Was that possible? Since the truck was already packed and no one was expecting us at the other end, we decided to find out. We simply headed north instead of south.
I don’t remember the agent at all any longer, but I sure remember his wife. Partway through our conversation she came in, wearing tight pants. Her slacks were not slack, not in the least. They were white, bright white, except at her crotch which had a prominent dark triangle displayed under the white. I had a hard time looking away from that and was relieved when we finally got out of there with the agent showing us the properties we’d come to see.
The one that initially had us excited was a one hundred eighty acre farm for eighteen thousand (no typo). We found the barn stripped of everything, just a shell left. The stable was walls and floor with a loft overhead, nothing else. Well, it seems basically sound. OK, with work and some money, it could be converted to something useable. Work was not a problem for us and at eighteen grand we could expect to have some money available for the extras we’d have to buy. What did anyone expect at that price? We walked out to see the land as a railroad hid it from the road. We weren’t keen about sharing quiet times with trains. Gosh, the land looked pretty flat, too flat. Unless the soil is gravelly or sandy, flat means rainwater cannot get readily leave; it stays too wet to be very useful. This was clay land, which is wet even when it slopes adequately. Bad sign, very bad. But I kept thinking about that low price.
The house looked hopeful, so I hadn’t given up. Actually, it was kind of cute, white, with a roof and trim of green. We went inside and were hit with this sickening odor. It wasn’t dead mice, nothing so nice. When we found the basement, the source became apparent. The septic, if there was ever one, no longer functioned and the people there slowly filled the basement with what the septic should have received. Simple fix, and it holds a lot more than the septic too. In the bathroom, we found the tub filled 3’ deep with used toilet paper. That meant there’d been no showers for the inhabitants in a very long while. That didn’t help with the odor either. On the second floor we found a kid’s single bed with a grayish bottom sheet, no top. It had concentric brown rings emanating from the center. These folks had a champion bedwetter and had decided to stop changing sheets and just let him rip. Needless to say, this was not a good buy at any price. But it got us looking up there instead of West Virginia.
New York had thousands of dairy farms. Heck, most of what was for sale were dairies. Naturally this made our thoughts turn in that direction and I started making plans on paper, which of course led to being bitten by the dairy bug. From my DHIA work, I knew more than a little about the business; I visited dairies every day. If we did dairy, the problem of a job was no longer an issue. We’d receive a check twice a month, which we’d need as we’d have a far larger mortgage with a dairy. Insecurity over our potential income had always been a big strike against West Virginia, one we never made go away. So, we decided that we’d rather work at something we liked for seven days a week than have a regular job and live for the weekend. That changed our options radically. To do the dairy project, we would need to get into debt in a very real way, but our cattle would provide us the means to get out from under it. The rest is history and at times it kept me busy twelve to fourteen hours a day, a story for another day.
When starting the loan application process, one thing you should definitely check on if you have not already done so: do they loan on land? Here’s why this is important. I will take the example of one customer I am working with and use his situation to illustrate. He wants to buy a large property with a stunning new and large home, and a few old outbuildings. He would have nearly 300 acres and that comprises a large portion of the value of the property. If it were 5 acres, he would not be buying it for the same amount. Most of what I call the “Sunday paper banks” will loan on the home and the prime site, the lot on which it stands. For some that is an acre or two; others may go up to five or even ten. But not 300. And everything else, for the purpose of their appraisal, is worth $0. Their appraisers are instructed to ignore the rest of the land beyond the prime site. Sometimes they are told to ignore barns as well. Sometimes these banks are more liberal on their appraisal of the home than the more conservative banks I normally deal with, the ones that do allow the value of land to influence what they are willing to lend.
With this in mind, let's go through some figures to illustrate. Picking some numbers out of the air, let's say the home is worth $300000. His bank needs him to have 7% equity in order to protect their investment in him. If he is buying the entire property for $530000, they can then loan $493000. Maybe they are generous on the home appraisal and give it $350000. That still represents a shortfall of $143000. The land is easily worth that, and far more, so there is no problem IF they loaned on the land as well. But if they don’t; guess who makes up that shortfall? He does. So, now instead of needing only 7% down ($37000), he suddenly needs $180000 down. If they will loan on a few extra acres or the outbuildings (this varies), that number can come down a little bit. On the other hand, if they are less generous on the home appraisal, his down payment goes up correspondingly.
Now, compare a bank that will lend on land. They may require 20 or 25% down. Let's use 25%. In our example; that’s $132500 down. Suddenly the bank everyone rejects looks a lot better. In actuality it is more complicated than this. I have not discussed interest rates and length of amortization. Incidentally, length of amortization usually has a greater influence upon lowering your monthly payments than the interest rates do. It also has the greater influence upon how much you ultimately pay.
The failure of most banks to loan on land initially puzzled me as you’d think it would be the safest. Land does not burn, blow down or collapse under snow; buildings can and do. Yes, land can be clearcut or allowed to grow fallow but that kind of depreciation pales when compared to what can happen to buildings. That’s why no one gets insurance for the destruction of land. But there are other things going on. Big banks are great bean counters, the more so the bigger these banks get. When you get big, you start making regulations and you try to make the art of lending into a science. That leads to fitting square pegs into round holes. Farms are square pegs. The vast majority of real estate transactions are for homes, with businesses a poor second, so you plan for round pegs. Added to this is the fact that their loan officers don’t know or understand farms, nor are they equipped to determine how farming will affect an applicant's ability to service the loan. It’s bad business to loan on something you do not understand, so they don't.
Complicating things and adding to this square peg/round hole phenomenon are Federal regulations, the HUD thing. If a bank is going to sell its loans to another institution, they have to comply with HUD regulations. Farms don’t fit. HUD deals with homes, not farms, so that means a bank has to be prepared to keep any land or farm loans in house. That happens less and less anymore. Many banks sell ALL their loans. They have become mortgage originators not servicers. I think that trend is ultimately detrimental to our banking system, but we won’t go there now; others disagree and they are in positions of power that I sure don’t occupy. I have seen so many absolutely stupid mistakes big banks make, so many great opportunities missed due to the way their regulations tie the hands of their personnel. They are apparently willing to lose out 5% (or whatever) of the time to be right on the other 95%. They don’t worry about being right 100%.
Here is a quick education that you can use to familiarize yourself with the issues.
But first, some specifics. I want buyers to have some skin in the game. I want it to hurt them if they do not do what they say they are going to do. I want them to move Heaven and Earth to do what they need to so they do not risk their deposit. I don’t want to take their deposit money from them; I just want them to make the payments the way we agree upon. It costs money and time to foreclose. While I am prepared to take that step if need be, I always want to do anything I can to avoid that step in the first place.
Owner terms are a very good selling point with many buyers and I like to be able to offer it when I can. Usually owners don’t consider this or their lawyer warns them off. The lawyer’s job is to protect their client and many are more willing to see their client take longer to sell or to accept a lower price than they are have them hold terms. Buyers often like owner terms: it is quick, more sure, and it may be cheaper. Lots of advantages to them and they may be willing to pay more than they otherwise would in order to get any given property. The disavantage to a buyer is primarily one - if they need money in the future, they can’t get it from the old owner. They can get it from a bank, but the bank will want a mortgage to protect their investment - which means you might get paid off far quicker than either of you riginally expected. There may be signifcant tax advantages to you to offer terms, so be sure to involve your accountant in the discussion. I am alway willing to meet with you and anyone on your team of advisors.
With $400000 down as an example, that is an amount no one is likely to just walk away from if things start to go wrong. You can expect they’ll do whatever they need to do to protect that investment. Also, anyone with that much money cannot be too stupid or lazy or naive. You have to have something on the ball to get that much together. Look also for some icing on the cake: anything that gives a buyer additional repayment capability.
Be sure if you offer terms that you like the person and feel comfortable with them as you will have just entered into a business relationship with them, one that will last some years.
How can you have your cake and eat it too? You may not be able to do that, but here are ideas. Remember, the buyer has to go along with them too.
In this business, you will learn that many people use you. You develop what you think is a good relationship, a friendship even, and once you have done all they want, they suddenly won’t even answer a call from you. That hurts as it has often. I’ve observed that if a sale falls through, most buyers will not use you again, even though they know full well that it was none of your fault. Once in a while, one will show some loyalty and stick with you. Those are people to be cherished.
But then there are others you may have even forgotten about who will greet you when they see you, just delighted to see you once again. And that helps make up for the others. Most of the people that I meet in RE are ones that could become friends, and many have. It’s one of the intangible rewards in the business. I like to think I am the “first friend” they had in the area.
Dan an Amishman’s, place just sold to a neighbor, who’d been trying to buy it, directly, for a few years. But they were always apart on the price. I worked on that thing for 4 years, often showing it. Over time, he lowered the price. Finally, I got an offer from a solar company. They make their offers full price so they can get the terms they want, which are not too great if a seller is motivated. Dan let his neighbor know and all at once the guy agreed to pay more. So I lost the sale. He was honest with me and kept me informed, so I have no complaint. He called and told me he wanted to make sure I got something for all my efforts, to show how much he appreciated what I had done for him. And, as promised, he sent me a check - for $50! At first, I was offended, then I saw the humor in it.
One that really hurt me the most was the sale of a friend’s place. It was nice, but odd, with no real bedrooms, just places one could sleep, 2 stories but no good way to get between them. I got a buyer from Arizona to whom I showed it many times. They were also there countless times without me knowing it. These were the kind of people who would become my friends, so I was looking forward to them getting it. Finally, they made an offer, a lowball one. My friend, the owner, could not accept or consider that. Following up, I wrote to Mr. Arizona a couple of times afterward. No response.
Finally I found a young couple who loved it. The gal, very likable in other ways, was too shrewd for her own good and bargained and bargained, not only for the house, but also with the mortgage company. This ate up months of time. I ended up with it under contract with a 48 hour contingency allowing the seller to sell it to a cash buyer should one appear before she got her mortgage commitment.
Then the impossible happened. Mr. Arizona called, precisely as the worst possible time for the buyer. It had been a year since I heard from him. He now wanted it and raised his offer. I explained that we’d already accepted a higher offer and were in the final stages, preparing to close. He still wanted it anyhow and raised his offer above her's. She raised her's and the whole thing went straight down hill from there, with both parties trying to sue the seller. We got that straightened out, after each of them fired their lawyer and got another. The gal and her boyfriend got the place and are delighted with it.
However, at the closing, my friend did not show up and she hasn't spoken to me since, nor answered any of the many emails I have sent her either. Yes, she lost some money in legal fees, but I had reimbursed her fully for that; sometimes you do extra things for friends. Or should I say, “ex-friends”?
Billings had a hard place to sell at the money they wanted for it. Over time, I was able to talk them down to $285000. We got one offer and they settled, happily, for $237000. The folks needed to sell their own home and had that as a contingency. I had a 48 hour clause in the Purchase Contract, allowing me to continue to show it to someone who diid not have to sell something first. There were not many showings, but then there never were. I asked them if they would drop the price, but they wouldn’t, which seemed odd to me - they were perfectly willing to take $237000 but wouldn’t let me advertise anything anywhere near to that figure.
Their buyer had the worst luck I have witnessed. Not one, but three (3) times they had it under contract only to have it fall through. The first two times they agreed to an extension, but after the third fell through, they would not agree, saying that if it was still for sale when the buyer sold their place, they'd still sell it to them at the same $237000. So we filled out a form, dissolving the contract and allowing me to return their deposit.
Or the buyers did. The seller sent me an email with nothing attached. I responded right away that something was missing, but heard nothing from him. I also said that we needed to fill out some paperwork to keep the listing active and never got a response from that either. A few weeks later I had an inquiry from someone who wanted to see it in 2 days. I wrote to all parties saying that I hadn’t received any of the paperwork and told the seller (not the original buyers, I didn't want to rub another showing in their faces) I had a showing coming up. This time, the seller answered, saying that they did not want me showing it again, and that I was to return the key immediately.
They obviously held me accountable that the buyer’s home failed to close. It was listed with another firm, the one with whom I was co-broking, which they knew. Their attitude was like the old days when a messenger came to the king with bad news, he would be put to death as the bearer of bad tidings. I wrote them a carefully considered letter, wishing the good luck in the future - and never got a reply. When I went the next day to return the key and get what was left of the 11 signs they requested I put up, they would not even answer the door. They have closed the door on me, figuratively speaking, and I will not work on it again, even if asked.
In recent years I have not been asked to do as much assistance to folks needing financing as I used to do. If you have never owned your own farm, there is a good Federal program for beginning farmers. I suspect they will loan up to $300000 on real estate and the same for chattels. You need to have a certain amount of recent experience for this. Which is all very nice, but usually not enough in today’s markets.. There are also loans out there for minority farmers. A woman is considered a minority - even though they outnumber men, as farm owners, they don't. You’d have to “hire” your husband if he is going to work with you. Some couples find that funny. There are also crop loans, which last a year. I am talking FSA (Farm Service Agency) money now. There is one in nearly every county and are usually associated with the Soil Conservation Service. Talking with a local representative will get you started.
There are also conventional ag loans, made by banks who lend to farmers. The Federal Land Bank/Production Credit Association are nationwide and makes these loans and there are regional banks who do so as well. Most of what I call the “Sunday paper banks” do not loan on land. If you talk to one of them or a mortgage broker be sure they understand very clearly your intentions and that part of their collateral will be land, cattle and machinery. Expect to pay a bit higher interest rate than the Sunday paper banks advertise - an ag loan is more like a commercial loan than a home loan. As always the interest one pays is inversely proportional to how much you need lower payments, which is backwards until you realize that this is all about risk to banks - someone who doesn’t need money has the least risk. Those to whom they've loaned before, successfully, also have less risk.
In the American West, insurance companies are large lenders, but I have not heard of one such loan being made in New York, but it might be worth inquiring into.
Locally, besides the FSA, there are really just 2 choices who cover my whole area: NBT (Norwich Bank & Trust - ask for the Ag Department, which is located in the Canajoharie office) and Pioneer farm Credit (part of the FLB/PCA system) who has offices in Cobleskill and Sangerfield. In addition there are several local banks who do make ag loans, but cover only a limited area, so it’s hit or miss with them. In general you want a bank which services their own loans and does not sell them to others.
These banks all vary in what they are looking for, but in general they want 25% down. That is not a hard and fast figure. If they want to make the loan, they might do 20%, and if they feel there is more risk than they are fully comfortable with, they may ask for a higher downpayment. If you have off-farm income, that may count towards the repayment capability that you have, but it may not count on a 1 for 1 bats. Here’s an example we see from time to time. Suppose you owned an apartment building that you were not going to sell as you like that $3000/month coming in and figure with the farm you may need it. They may only credit $2500 of this toward your farm loan repayment ability as they know that sometimes tenants leave, creating a vacancy for a period, and sometimes you need to remodel after they leave or make repairs.
If you have a written business plan and have obviously thought through very well what you will need and how you are going to pay it back, your application will receive greater consideration. After all, it’s a business you will be running. It is also a lifestyle and a home, but they are interested in it as a business which is going to make money for both you and them. There are figures lenders use to quickly determine the suitability of a buyer and their purchase. These benchmarks vary from time to time as economic conditions vary, but here are some of them. Debt per cow, the borrower's percentage of equity in that total operation, and the percentage of the milk check which can be devoted to debt repayment are three that used to be widely employed on dairy farms.
Be aware that a lender will not get too far into the process if you do not have a Purchase Contract on a specific farm. They have all done so in the past and then heard from the borrower that while he was doing his bank thing, it got sold to someone else. Or, worse yet, the borrower tells them that the owner wants more money than they “thought” they could buy it for. But you do need to talk to lenders beforehand to see what they feel you “qualify” for, so you don’t waste your time and your emotional energy on something that will never come to be.
Another source of funding, used less often in these days, is owner financing. Most often this is employed when an owner sells to a trusted employee, but sometimes, not often, it is done for relative strangers. In general there are 2 things needed for this to happen. First, the owner should be pretty much debt-free. He can't give clear title unless his debts are paid off first. And his bank won’t let him sell without being aid at the closing. Secondly, at the very least the owner will ask for enough money down to buy his new (to him) home and to cover his closing costs which include various taxes, legal fees, and my services, perhaps more. Almost zero owners will finance the sale of chattels as they all know too well how many things can go wrong with poor or uneven management. They’ve seen it happen to neighbors in the past and are not going there. So you should expect to be able to get these vital components in another way, cash or borrowed. All these things coming together are rare anymore, but it can still happen once in a great while.
What is more likely with owner participation is for them to sell one component to a buyer and plan to sell the rest over time while leasing it to them. That could be cows one year, machinery another, and the farm later on. Or it could be part of the farm now and part later. Often, that’s how he acquired it. He bought a small farm and as his business expanded, added more land, more cows, more buildings, and more machinery. so it sometimes make sense to divest himself of it in the same (reverse) way. A good broker will be able to explore these kind of options with both parties. Beware: the seller’s lawyer will nearly always advise against it. He doesn’t have to sell anything himself and doesn't know how hard it is to do without fire-sale prices, plus they always think of the worse case scenarios; it’s their job.
Robbie and Gerrie had a Jack Russell Terrier. Folks who have them find them immensely entertaining and love them. They are active dogs and Robbie’s certainly was, both fat and hyper. When folks came to see the place, he went bananas and would not let anyone alone with his insistence upon getting all their attention. The way they handled this was to put him up on a high stool. They had learned that he was afraid to jump off the stool; his paws would slip on the smooth surface and he didn’t want to risk a fall. So if one the stool, he would not bother anyone any longer by jumping up and down on them.
The dog was smart. He couldn’t jump up now, but he could still bark - and bark he did. You couldn’t carry on a conversation. So Robbie or Gerrie would toss him outside once everyone got in. Now his barking would not be so loud. Knowing that, the dog began to scratch at the door. That of course pissed off Robbie and Gerrie and they’d bring him in and the cycle would start over. Customer after customer. I suggested tieing him up outside, but there was some reason why they thought this wouldn’t work. This dog RULED.
A couple of weeks before the closing, Robbie and Gerrie invited us over for a meal. We sat in the living room before eating, chatting. The dog decided he needed to be in my wife’s lap and he sailed through the air, to the landing strip. Janet loves dogs, but in their place and this dog’s place was not in her lap, not at this point. Sternly, she told him to “Get down!” He did. And Robbie looked at Gerrie with a “Did you see what I just saw?” look.”
Five minutes later, the dog tried again. (hope spring eternal within the canine chest - they are the most hopeful of creatures), got the same treatment from Janet and again went back down to the floor. This time Robbie could contain himself no longer: “How come he listens to you? He never does what we say!” The reason of course was because they never enforced their rules. Like I said, the dog was smart: he could tell who was going to make him do what they said and who wouldn’t. Janet found a tactful way to say this. Later on, to show she wasn’t mad at him if he behaved, she invited him over for a scratching. That’s“over”, not “up”. He loved that. No more problems with us and the dog that night. But I’ll bet he stopped behaving after we left. He knew he’d be the boss again once the higher authority left.
Roland Vinyard, the James Harriot of Farm Real Estate.