Recently, a 120 acre farm in Sioux County, Iowa auctioned for 16,750 dollars per acre. Considered a record price for farmland in Iowa, this sale follows numerous other sales across the Midwest of over $10,000 per acre. The question to be asked is: how and why are farms trading hands at $2,000, $3,000, or even $5,000 above similar properties in different areas?
An overview of the Sioux County sale recently appeared on the dtnprogressivefarmer.com website (Crazy Sioux County Land Auction Strikes Again). As Marcia Zarley Taylor points out, the ag economy in this part of NW Iowa is unique – grain farmers have been making money, but the livestock sector is thriving as well. Many brokers and appraisers called this sale an abnormality, yet whenever you have several financially strong buyers all looking to purchase land in a specific location, the final sale price can be significantly higher than recent sales elsewhere.
Across the Midwest, all the record high prices the past 12 months have had the same common theme – the farm is ideally situated in an area where at least 2 farmers are willing and able to pay a premium for its location. In many cases, these potential buyers adjoin the subject parcel or have driven their equipment by it for years hoping for the chance to own it someday. In some areas, land seldom comes for sale and buyers know that they must buy now if they hope to buy at all. And sometimes, unusual variables come into play – a farmer wants to expand his livestock operation but must have additional land to spread the waste.
In all the situations mentioned above, location is the most important variable. Move a farm 5 miles in any direction and the sale price may be 25% lower… simply because the neighbors are different. Or stated differently, record prices can be explained by looking at who the neighbors are; and non-record prices can be explained by looking at who the neighbors aren’t. Landowners looking to sell in the next few months should keep this in mind – not every sale will set a record so make sure to set your expectations accordingly.
