Buying and selling rural land requires in-depth understanding of a number of unique factors. If you are in this market, hiring a real estate professional with this knowledge and background will be key for a successful transaction. Here are some basic terms and key points to be familiar with in this specific market.
Farmland versus Recreational Land: There are various types of rural land. In our region the two primary types of rural land are Farmland or Recreational land. Rarely do we see parcels of land that are 100% recreational land but rather a combination of both in varying degrees of each. Most often the farmland will be 100% (or close to it) farmable crop land with some waste ground that consists of waterways, streams, rivers or small areas of timber or tree lines. Occasionally, though, there are parcels of land, especially along the Loess Hills of Southwest Iowa, that have poor soil or are too steep or heavily wooded to be used for row crops. Lands such as this are often used as pastureland and/or recreational/hunting lands.
What is CSR?: CRS II, or Corn Suitability Rating, is a method used in Iowa to determine the productivity of farmland based on a variety of metrics including the type of soils, the percentage slope of the land, and the degree of erosion that is likely with those soils. The soils are rated on a scale from 1-100 with 100 being the most productive soils and 1 being the least productive. All rural land in Iowa has been mapped and the soil maps show the makeup of the land by soil type and quality and then a weighted average of the entire parcel is calculated for an Average CSRII rating. The higher the rating, the more valuable the farmland is considered to be due to the ability to produce more bushels of corn.
What is CRP?: The Conservation Reserve Program is a Government program that was developed to encourage landowners to place poor quality and often highly erodible land into the program and take it out of row crop production. To encourage owners to place this land into the CRP, they must enroll the land and the Government must accept it into the program with terms usually ranging from 10-15 years. The Government pays the owner an agreed upon annual price to seed it down to acceptable cover crops and to agree not to harvest the cover crops or use it for grazing throughout the term of the agreement.
How farmland and recreational land is taxed: Farmland and recreational land in Iowa is taxed on a formula that takes into consideration the estimated productivity of the parcel of land and determines a “Taxable Valuation” which is usually just a fraction of its actual market value.
What are Gross Acres, Net Taxable Acres, and Crop Acres: In rural areas, landowners own the land to the middle of the road that runs along a property, and that is the Gross Acres. However real estate taxes are not assessed on the portion that is in the road right-of-way so the Gross Acres minus the road right-of-way is considered the Net Acres. Crop acres are the acres that can be farmed, so start with the Gross Acres and subtract road right of way, ditches, timbered area, streams, ponds and any non-farmable land.
When are Surveys used?: Many rural acreages or rural building lots have been split from adjoining farms that were once owned by the same family. There are specific County guidelines that need to be met to split a parcel of land or acreage from a larger parcel of farmland and having knowledge of these guidelines and the process to accomplish these objectives is something most agents do not have working knowledge of.
Buying or selling rural land
What is a Farm lease option & what are the terms: Farm leases can vary by landlord, but in Iowa most land is rented on a “Cash Rent” basis meaning the tenant pays the owner a set dollar amount per acre per year for the right to farm the land. The tenant pays all of the costs of fertilizer, seed, herbicide, labor, and equipment associated with producing the crop and receives 100% of the crop in return. The landlord pays the real estate taxes on the land in exchange for the cash rent payment.
What are Hunting leases?: Hunting leases are becoming more common on Iowa land that is conducive to deer and turkey hunting. Many hunters are willing to pay significant fees to “Lease” the land and its wildlife for the opportunity to exclusively hunt a property for a specific time-period which may be anywhere from a few days to a few weeks.
What does FSA and NRCS stand for: The FSA (Farm Service Agency) and the NRCS (Natural Resource Conservation Service) are two government agencies that oversee Farm or Land programs, subsidies, and Conservation programs funded in part or in whole by the Federal Government relating to all rural land.
What are Terraces and Tiling: Terraces are man-made, earthen structures built to prevent erosion and water runoff from agricultural farmland. Terracing has saved valuable, highly productive topsoil from eroding and running into creeks, streams and eventually rivers making them uninhabitable for fish and marine life. Tiling is a practice that is used to drain wetlands and marshy areas of excess water to make that land into highly productive row crop farmland.
What is the Forest Reserve program: The Forest Reserve program is a State sponsored but County run tax credit plan where property owners may defer paying property taxes on a large part of the timbered land on an acreage or farmland. The acres being “deferred” need to meet specific guidelines regarding the density of mature timberland and Landowners must agree to limit the harvesting of mature timber beyond density guidelines and maintain the timber in a similar condition. There are two ways for Counties to calculate the tax deferral. So, knowing which method a county uses requires expertise in this field.
If you are unfamiliar or lack expertise in these elements of buying and selling rural land, find a knowledgeable professional to help you with the transaction. There are many advantages to rural land ownership but make sure you are working with someone who has specific expertise in this field.
Written by: Byron Menke, Broker & Auctioneer, Licensed in Iowa and Nebraska, Menke Auction & Realty, 124 E. Main St, Treynor, IA, 51575, 712-487-3542, Byron@MenkeAuction.com
