For many farm owners, making the decision to sell all or part of their farmland can be a stressful and intimidating process. This is because selling a farm is often the single largest financial decision a person will make in their lifetime, and as such, it requires a significant amount of preparation and organization.
Fortunately, farmland owners can prepare ahead of time by maintaining up to date and accurate records, which will make listing and advertising the property much easier in the future. While every potential buyer will have their own unique interests and considerations, we have compiled a convenient list of documents that every farmer should keep on file for their property. In this article on farm owner documentation, we will discuss three types of documentation you will need when selling land - farm maps, legal documentation of ownership, and production/revenue records.
Useful Maps of Your Farm
An accurate map of your farm is an essential item for any landowner interested in selling their property. There are, however, several different types of maps that each communicate unique information to a prospective buyer.
1) Tract Maps
The most basic farm map is a tract map. This document simply identifies the boundaries of your property and usually includes the area dimensions such as total acreage and the length and width of a field. Tract maps are available from your local USDA Farm Service Agency office or can be created with free online tools such as Google Maps. When using a tract map, it is helpful to indicate the location of critical pieces of infrastructure, such as a well pump, levee, or any structures on the property.
Keep in mind that while free mapping programs are a quick and easy way to share information about your property, you will need a legal description of your property to finalize any eventual sale. Legal property descriptions are contained within the property deed, which is kept on file at the local county assessor’s office where the property is located.
2) Property Surveys
A formal property survey is another type of map that is usually completed before land is sold, divided, or built-upon. A survey will provide property boundaries much like a tract map, but it will more accurately define your property lines in addition to detailing any easements, encroachments, utility service, and zoning information. A formal property survey, while not required in every transaction in every state, can be a useful tool in resolving any boundary disputes with neighbors, and may be required by lenders that finance the land purchase.
3) Soil Maps
Finally, a proactive farm owner should also have a map of the soils on the farm. Farm value and soil quality are often closely correlated, as the productive capacity of farmland is largely bound by the quality and composition of its underlying soils. A soil map should include basic soil classification information, as defined by the USDA as well as any relevant crop productivity indices. Some states have specific systems for measuring crop productivity that landowners should be aware of, such as Iowa’s CSR and Minnesota’s CPR. For states that do not maintain their own productivity index, landowners can use the National Commodity Crop Productivity Index, a tool developed by the USDA.
Maps are a valuable tool for farm owners that can quickly convey critical property information in a single image. The different maps discussed above should be kept on file by the landowner and updated when any material changes occur to the property.
Legal Documentation of Ownership
As the seller of a piece of property, you will also need to establish and document your ownership of that real property. The most important document in this process is a deed to your property, which is a physical document that transfers and bestows ownership to its holder. Deeds are almost always kept on file at the county courthouse or assessor’s office. Deeds should not be confused with the concept of ‘title’ which is simply the state of ownership. When you are the clear and rightful owner of a property’s deed, you also possess title to that same property.
While you’re researching the deed to your property at the assessor’s office, you will also want to obtain the tax records for your land, which will also be on file with the county. Potential buyers of your land will be interested in this information for three reasons. First, property taxes can represent a significant expense in the operation of a farm business and can vary widely from state to state. Learn more about the impact of property taxes on real estate values here. Second, they will want to ensure that you, the current owner, have been paying property taxes annually and that no tax liens exist on the farm. Finally, the tax information on a property will also provide the individual parcel numbers of a farm, which a buyer will want for their records. Please note that your farm may have several different parcel numbers, even if you consider it as a single property.
While maps serve to describe your property well, and deeds provide unquestionable proof of ownership, prospective buyers ultimately will be interested in knowing the revenue potential of the property they are purchasing. Farm revenues are represented by all sales of crops and livestock from a property, in addition to any income from renting of hunting rights, utility easements, or conservation payments. Fully documenting a farm’s revenue and/or revenue potential will allow the seller to lead an informed negotiation on the price for which their farm is sold.
Production and Revenue Records
In order to document past revenues, a land owner will need at least one of several documents. Most important among these is the historical crop yields for a farm. While this can often be communicated verbally, some buyers may require either sales receipts from the end buyer (such as a grain elevator or gin), or a record of Actual Production History (APH) that is typically filed for crop insurance purposes. If a farm is being rented, the land owner should also be prepared to share the current rental rate and any current agreements in place with tenants. All other sources of revenue, such as hunting leases or energy easements, should be documented in a written agreement and available upon request by the buyer.
In preparing these farm revenue figures for a potential buyer, you will likely want to obtain at least five years of historical records. That includes any USDA paperwork that may exist for your property, specifically Farm Service Agency (FSA) forms 156EZ and 578. These two forms serve to establish the “base” acreage on file with the USDA as well as the annual planted acres for each crop on the farm. While these two documents are often overlooked by sellers, they provide useful supporting evidence attesting to the productivity of your property and are available for free from your local FSA office.
While selling any real property such as a farm or ranch is inevitably a complex process, land owners can reduce the stress and time to closing by keeping current and accurate records of their property. Each buyer will have unique requirements or interests when inquiring about a property, but landowners who maintain maps, legal documentation of ownership, and production and revenue records on file will be well-prepared to answer the majority of questions they may receive. Furthermore, these documents help to establish the true value of your property and may give you a marketing edge in a crowded real estate market.
Please note: this article is meant to be a topical overview and, as such, does not include specific financial advice. Every situation is unique, and you should consult with a licensed attorney, accountant, and/or financial advisor prior to entering any written contract or verbal agreement.