Is That Auctioneer Giving You The Straight Story? A Lesson From The Darkside

Apr 6, 2021 | Farm Real Estate Company, Farmland Prices, How To Sell Farmland, Iowa Auctioneers, Iowa Land Auction Company, Land Auctions, Land Seller Resources

Jason Smith

Jason Smith

Auctioneer, Land Broker

Jason is an Auctioneer and Land Broker and the founder of DreamDirt, He is a lead farm real estate professional in the Midwest and has pioneered many modern methods of selling farmland. His experience in helping lead families to successful farmland transactions spans 2 decades.  

Email: jason@dreamdirt.com | Phone: (515) 537-6633

I have made a living providing safety for people selling farmland.  I have often talked about the difference in quality of different auction services.  I have often told people, “BE VERY CARFUL WHO YOU ARE TAKING ADVICE FROM”. 

I’ll preface my story with a note to those that are going to send me an anonymous email telling me I should not share stories like this with the public and it only serves to hurt our industry. I disagree with you respectfully.  I strongly believe that bad actors hurt our industry more.  I believe hiding the dangers some may face is reprehensible.  As a person that served as a police officer for 22 years, I believe that attention allows people to these issues make better informed decisions.  I also believe strongly in educating land sellers on every aspect of their potential sale and giving them the knowledge to know what questions to ask.

I try never to write about situations I’ve recently encountered and the lessons I’ve learned from them.  I always prefer to let time pass until the clients involved have graduated through our sales and transaction process.  I never share their identity but as a matter of comfort for me it is always best I let some time pass and let it roll around in my head and fully consider what I experienced.  I happened to be posting a video on the DreamDirt’s TikTok a few days ago and was reminded of a land sale I had conducted.

The video I was watching was a midwestern farmer disparaging the landowners he rents from.  He was essentially saying he has a “scheme” where he’s able to get cheaper rent by “wining and dining them” and treating them to a “lavish weekend”  He said he could get them to come around to “his way of thinking” by doing this.  What a small investment in cheap rent, a few steaks and beers, a feeling of kinship develops and he can save thousands and thousands of dollars year after year.

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A Real Life Experience and Battle of Benefit from Farmland

The video reminded me of an incident that occurred with a client I sold for some time ago.  In fact, the nearly identical situation has occurred multiple times in my career.  A family contacted me.  They at first told me they already had a buyer for their farm but they wanted to ask a few questions.  I could tell they were struggling to accept something. They were kind of coy and reserved but I didn’t pry.   There were lots of short quick one question phone calls.  I was helping for free, just answering questions as they called.  Maybe around the 7th or 8th phone call the question asked threw up a red flag for me.  The question they were asking was “can 5 of the siblings sell their 1/6th, but I keep my 1/6th and be partners with the farmer”. I recognize this as a dangerous situation so I thought maybe it was my turn if I was going to be offering free advice that maybe I needed to start asking a few questions.  I didn’t want to give bad advice and all of a sudden this was starting to sound like something maybe I should not be rendering an opinion on without some professional involvement and engagement so I asked and dug in deeper.  She gladly answered my questions and provided me with lots of information.  She laid the foundation of what was happening and the story went something like this.

 

“Well we wanted to sell the farm but the farmer asked me if I’d keep my share and just be partners with him and he’d keep paying me rent on my 1/6th share like he always had”.  I asked her if she wanted to keep owning it and be partners.  She said, “Absolutely not but he’s so aggressive I just don’t know what to do, he doesn’t really give me a choice, he just says he wants to do it that way”.  I said, “Well you do have a choice, you don’t have to sell it to him, you realize that right”. What she told me next proves my point that you have to be extremely careful who you take advice from.  She responded, “ Well he’s really the only buyer in that neighborhood, the local auctioneer told me it would be better to just sell it to him than to pay him to do an auction for me”. She continued “I hope you don’t talk to the auctioneer there, they told me never to talk to anybody about this other than them”.

Red Flags For The Sellers

All of a sudden red flags, warning lights, audible alarms are all going off in my mind.  I’ve never known an auctioneer that would say “you should sell it directly to him and not bother with an auction”.  This was a good quality farm, no auctioneer worth his advice would say that.  That made no sense to me and I asked her to help me understand.  I said, “Start at the beginning and tell me the whole story”. 

She told me that when they decided to sell, they talked to the farmer because he’d always told them if they wanted to sell to talk to him first.  They told him they wanted to sell and he told them, “Do not talk to anybody else about this, do not call your lawyer, save the money we will use my lawyer and you won’t have to pay a dime to sell it to me, I will make it as cheap as possible for you,” and she loved that idea.  She really thought he was being generous.  They never discussed price so a few days later this started to bug her siblings and they decided to start calling him individually.  He would not commit to a price, he said he would leave it up to his banker to determine the value of the farm.  After all it was the bank that had to lend the money so he could not offer more than they would lend. 

Several months went by and still they had no price but they knew the tenancy deadline was coming up from reading our blogs and they needed to get some answers from him.  Additional phone calls yielded the idea they would meet him at his lake house for a meeting and a couple days of fun and relaxation.  By now the family was really just interested in getting it done but two of the families agreed to meet with him at the bank with his banker.  The buyer agreed to this and they’d set the price for the farm at this meeting.  The family gathered themselves and they agreed to sell it to him for $1.6 million but secretly among themselves agreed they’d go down to 1.5 million if he negotiated.  As it got close, the meeting got cancelled.  They reset the date and the 2nd meeting got cancelled.  They were now past the tenancy deadline and he was guaranteed to farm it another year.  

Putting Their Foot Down

The family now told him, “We’ll call the a the auctioneer again, we just need to get this farm sold”.  At the time two of the family members had cancer, one of them was terminally ill, and the land sale was causing them significant stress in their lives.  Time was very important to them to avoid the estate situation of one of them and the other sick family member really needed the cash to help pay medical bills.  The local auctioneer talked to them about the farm and he agreed to meet with them and go over the potential for a sale but again impressed upon them the buyer they already had was their best option.  

Mysteriously, the original buyer called them later that day upset saying, “I told you not to talk to anybody about this but you called the auctioneer again”.  Apparently the auctioneer had close ties to this buyer, not an uncommon situation as this farmer was what many call a BTO or “Big Time Operator”. He was very well connected and had friends in the right places.  A 3rd meeting was set up with the buyer and banker and a promise was made this meeting would not be cancelled.  

The Meeting That Was More of a Pressure Party

The meeting did finally occur and as the family arrived at the meeting they found themselves surrounded by the buyers attorney, banker and yes, the auctioneer they’d called.  As the meeting started the banker told the family he’d looked over the farm, the bank was only willing to lend $950,000 on the farm.  This was 1/2 a million less than the family wanted, but he apologized, “We have rules they have to follow and we can’t lend more than the farm is worth”.

The family was baffled but had no idea how to respond, how could they argue against the banker and for some reason she told me, “the obvious never came to mind,” when they should have just said, “Well thats too bad, we’ll find a new buyer”. Next up was the auctioneer.  She said, “He told us having an auction was a bad idea since our buyer was going to be the buyer anyway and nobody really would be willing to bid against him and the price would come out lower if it was an auction”. Next, the buyers attorney told them how he would be able to close the transaction and the buyer was graciously offering to pay for the entire closing.  He even conveniently had the paperwork ready to go, the purchase agreement just needed to be signed as he slid it across the table.  Even though everybody was not there he promised they could just sign today and he’d send it out for the others to sign.  Without their agreement he slid the agreement to them with an ink pen and showed them where to sign.  She told me, “we all felt so nervous, we didn’t know what to do”.  They asked, “Do we have to sign it today?” The attorney told them they did not have to sign it but it would be easier than having to chase everybody around for signatures afterward.  Nobody signed, they all agreed to go back and discuss it in private which was the right thing for them to do but it wasn’t without some pushback and additional pressure to sign right now and get it done.  

For the next two months proposals went back and forth, the price came up a little bit but only to $1 million.  The buyer waited and dragged his feet and frustrated the family so much they finally had decided to just take his offer, sign the papers and be done with it.  This was the reason for the flurry of phone calls to me.  In fact, the person I was talking to had already signed the papers and put them in an envelope but had not mailed it yet.  She really was just having a hard time with the final commitment of dropping it in the mail box.  

DreamDirt to The Rescue

She needed help, she was in a bad spot and I could clearly see what was happening.  This happens all too frequently and I’m not pointing fingers because I’ve often said, “A farmer has an obligation to his operation and family to buy assets as cheaply as possible, a seller has an obligation to their family and self to ensure they get the top price”. This is negotiations and if you aren’t familiar with the process, you can easily be taken advantage of.  Some people are stronger than others, some people have feelings of generosity, some are excellent negotiators, and some are just more likely to go along with something they don’t want to, just to get it over.  This is the best case for hiring a professional land brokerage or auction company to negotiate your sale and take you out of the hot seat.

I told her to stop everything and give me a chance to quickly appraise the farm and evaluate what was happening.  She was nervous to not go through with the sale, she was nervous to go through with the sale, but agreed to tell everybody to wait.  I worked the next 6 hours appraising and evaluating it and got back to them the same day.  I met with the entire family that evening and went over the situation.  I asked them to move toward auction with our company.  They were all still affected by the auctioneers opinion and advice he’d given.  I explained possibly the auctioneer had been getting paid by the buyer, a concept that was difficult for them to accept.  I explained when you are buying a farm at a $500,000 to $600,000 discount you can afford to pay the auctioneer the commission he would have earned selling the farm plus still be 1/2 a million dollars ahead.  But if the opposite would have happened and the auctioneer had taken it to auction the buyer would have had to pay them full price and never would have gotten the 1/2 million dollar discount.  All of a sudden and nearly instantly the entire family understood what may be happening to them.  The person they had had allegiance to, the person their dad had rented the farm to, the person they felt they owed “something” for farming the farm all these years had been trying to take advantage of them.  They suddenly realized all of the feet dragging, the lawyer, banker, and auctioneer were all just a part of getting the deal done for the buyer, none of these people were on their side.  In fact, they were all actually against them!  

A Few Lessons Learned

Now, full disclosure as I told them, I have no idea if the auctioneer was taking a fee from the buyer but I know it happens, and I know it makes no sense for the auctioneer to turn down a prime farm for auction and lose a significant commission if its not being replaced in another way.   I know its been offered to me before and I’ve had people whisper in my ear before asking me to represent them in a similar way but I’ve always steadfastly declared I will only work for sellers of farms and will never in anyway be a part of working against them unless I professional represent them as a buyers agent and the relationship is known and understood by all involved.  In fact, Iowa’s license laws dictate that we disclose who we are working for.

To be honest, thats business.  You can’t fault the farmer for trying to get the best deal, thats his job and obligation.  We all know “alls fair in love and war” and it seems today, farmland sales as well.  He did a good job to control them by telling them not to say a word to anybody else but that should always be a red flag to anybody trying to sell something.  That is literally only meant to do one thing, STOP competition and drive the value down, it puts them in control of the price.  Brining authoritative people like attorneys, auctioneers and bankers in to back him up really was a great way to pin the family down and appear to take away their choices and options.  At the end of the day many would call them dirty tactics but here is the clear truth and I can state it in one sentence.  As a seller of farmland it is your obligation to educate yourself, be forward, state your wishes clearly, never agree to limiting factors, and be extremely cautious of who you take advice from!

Most people do not realize the intense demand and competition for farmland or that to realize its full value it must be offer and sold by the best practices available.  Consider for a moment that land is the very foundation of farming and farming is literally the only way all 7 billion of us on earth eat!  Acres are more important than tractors.  Acres are the mumber one need of every farm and become the most limiting factor of any farm operation.  Not all people will play by the rules you have premeditated. Just because you have rarely or never done this, you can be beaten with experience very easily and thats just honesty no matter how confident you are.  NEVER count on good natured honest dealings just because you are a good natured honest person, it can get you in a very bad spot.  Never ever operate under the illusion somebody wants to pay you full price for your farm no matter how many times they tell you that, its simply NOT TRUE! Buyers will not have your best interest in mind, they will have theirs and your best interest is exactly opposite of theirs.  Auctions are a powerful way to sell a farm and their open transparent elements ensure you get full price for your farm.  An auction will bring you more value than it costs and will result in a higher net to you.  Professional Auctioneers are the key to your most successful land auction outcome thats not only stress and drama free, but free of any self interests of anybody but yours!

The Results Compared

The obvious question here, how did our results compare to the nightmare offer they had on the table?  We conducted an auction for the family and achieve a final sold price that was just short of $420,000 higher than their highest offer from the buyer!  That meant an additional $70,000 to each individual heir to the farm and even after our fee was a very significant gain.  For them the burden of having it done and actually getting a check they could spend was a benefit, who knows how long they would have gotten dragged along?

Are you experiencing similar issues?  Considering selling farmland?  There are many risks and pitfalls and it pays to hire experienced professional that know them.  Let us show you the best route for your land sale.  Start your land seller journey at DreamDirt.

 

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