Understanding Your Property’s Value Components and Positioning Yourself for a Successful Sale
When timberland investors look to acquire a property, they are interested in two key value components: timber and land. Pretty straightforward – it’s right there in the name – however, the timber component is often overlooked, or at least diminished, by sellers when it comes time to divest. Owners generally know they have timber and that it is worth something, but they often don’t know what that something is in board feet and tons or, more importantly, in dollars and cents.
Too often owners or brokers lacking timber experience will use their best guess or rely on uninformed advisors. In both cases, they might come close to the actual timber value on a short walk through the woods…but then again, they may not. Without a formal timber inventory and valuation conducted by a professional forester, timberland owners looking to sell their property can’t properly assess the value of what they are selling.
So why should this be important to sellers?
- Because it’s important to buyers. Even for smaller properties or ones with a minimal or developing timber resource, savvy buyers want to know what the timber resource is and what future cash-flows they can expect to see from their investment. For the recreational or less-experienced buyer, putting verifiable timber values in front of them may be the icing on the cake needed to close a deal. Regardless of motivation or experience level, an inventory gives all buyers useful information that will assist them in developing an offer.
- If the seller doesn’t hold the inventory, the buyer holds the cards. Most knowledgeable timberland buyers will insist on conducting a timber inventory as part of their due diligence if no current inventory exists. If the buyer’s inventory shows more volume and value than the seller expects, they will gladly move to closing and accept the extra timber they received for free. If their inventory shows less volume than expected, the buyer will expect downward price adjustments. In either case, the seller loses because the buyer maintained the information and the upper hand in the negotiation.
- Transparency gives buyers comfort. When you offer up a professional timber inventory report to a prospective buyer, everyone at the negotiating table can now work from a level playing field with the same set of data. Buyers may still want to inspect the timber during a due diligence period by auditing the timber inventory or conducting their own full inventory. If, however, the seller’s inventory was compiled in a professional manner, material discrepancies in value are unlikely. The seller can call upon their forester to determine why they exist if such discrepancies do arise.
- If financing is involved, the bank demands it. When a buyer’s offer is contingent upon securing financing (often from a local land bank), the underwriters will most often demand a timber inventory before they will loan money. The lending institution wants to know what they are lending against and how they will be paid back. They will want to understand what cash-flows are available from the property to ensure loan repayment.
- It leads to informed decision making. Every region has a handful of expert land and timber buyers that count on buying at below market value based almost exclusively on seller ignorance and desperation. These buyers are opportunistic and look for tracts with a strong timber resource and an owner unaware of its value. Though a timber inventory does not change a seller’s motivation, it does make them informed. When sellers advertise their timber volumes as part of their marketing package, these buyers have lost their ability to turn a quick profit at the seller’s expense.
Although your own “ocular estimate” of timber volume might turn out to be within 10% of an experienced consulting forestry firm’s estimate, informed timberland buyers don’t necessarily value the seller’s opinion. The loan officer at the local land bank certainly doesn’t. Ultimately, the initial investment for a statistically valid timber inventory pays for itself when considering how much can be lost at closing.
LandVest Timberland is a leading timber inventory provider, and our expert brokerage and consulting teams help landowners plan for the sale of their property. We assist owners of timberland and rural properties throughout the entire ownership life cycle. Our goal is to help our clients make informed decisions about their land, whether buying, selling, or managing their assets.
If you are considering the sale of your lands or an acquisition, contact Jon McGrath or your local LandVest Timberland office to discuss how we can be of service to you.