Why Renting Farmland by Tender is the Smart Choice
5 December '14
In today’s market for agricultural land, demand remains strong for farmland, most notably for quality crop land suitable for growing grains.
With high demand for land, and with land renting on the rise, it’s no wonder lease rates for renting land are such a hot topic.
This is a particularly hot topic for farmland owners. In fact, over 99% of landowners we speak with share the same question: What is the going rate for rental land? Now if you’re not sure why that question is so tricky, we recommend you read our blog about the key determinants of rental land, but in a nutshell – there simply is no ‘going rate’ that can assure a landowner of the rental value of their own land.
So what does this mean? It means that farmland rental prices can be a very murky area.
Despite being so difficult to ‘find’ a going rate, the importance of a fair price can translate into real dollars and cents for a landowner.
For example, let’s consider a 5 year lease of 100 acres:
A rental rate of $100/acre is a $50,000 lease [$100 x 100 acres x 5 years].
To illustrate just how significantly a lowball lease rate can shortchange a landowner, let’s recalculate with a rental rate that is just one dollar higher.
Here, $101 x 100 acres x 5 years equates to $50,500, or a $500 difference.
Five hundred dollars itself is a noteworthy difference, but when many landowners have no solid idea of a fair market value – we’re often not talking about $1 or even $10. Many landowners who have used RentThisLand.com have determined that the offers on their rental land reflected a considerably higher average rental rate than they expected.
If we rework our example rental scenario with a $50 increase in the per/acre price, we’re talking about an additional $25,000 of rental income. [$150 x 100 acres x 5 years].
For landowners, it literally pays to make sure your lease rate is current and fair!
This is exactly the service that RentThisLand.com provides to Canadian landowners.
RentThisLand.com hosts a simple online tender process to let landowners price-test the market value of their rental land, and, to field offers from the highest quality tenants.
So what exactly is tendering?
Tendering is the process of inviting confidential offers or bids, in this case, for a parcel of land to rent.
- A set invitation period and deadline for offers
- No set asking price (a major plus for landowners who don’t know what to ask in the first place!)
- No ‘pressure of the moment’
- Complete privacy and confidentiality for both parties
- The landowner having the ability to choose or exclude any (or every) offer at all
A tender process is different than an auction process which is public, not anonymous, is subject to intense real-time pressure, and is typically bound by the ‘highest price wins’ rule. When it comes to farming, it is not good to approach farmland values on price alone. A wise landowner will not let the price alone dictate the decision of which tenant to choose. A land rental transaction is not like the sale of land (or any other asset) where both parties make a trade and go their own separate ways. Instead, leasing land is a relationship, and one of trust. A landowner places trust in a farmer, not only to compensate fairly for the land’s value, but to treat the land in such a way as to maintain the asset’s worth in the future (yes landowners – farm practices do impact the future value of your land!).
Tendering farmland for rent is clearly in the landowner’s best interests, but it also offers considerable advantages to farmers.
- It gives every farmer equal footing and a fair shot to submit an offer.
- It alleviates any ‘real time’ pressure of an auction.
- It is private and confidential.
- It gives farmers the opportunity to submit qualitative information about their farm operation, personal features and tenant characteristics to support their offer – in addition to just their offered $/acre.
- And, should the economy ever take a downturn, tendering provides a reality check for landowners. When previous rental rates no longer pencil profit for farmers, RentThisLand.com can help landowners to understand this reality, instead of relying on some archived, outdated, rental rate they found prowling the internet or through the rumour mill.
Ultimately, as opposed to setting a fixed asking price for land rents, or vs. an auction model, a tender process offers the most advantageous process for both landowner and farmer.
RentThisLand.com is the only website available for Canadian landowners and farmers to benefit from a tender process. Our simple, no hassle process has been receiving incredible reviews!
Landowners - contact us today to discuss how you can take advantage of this process for free!
Farmers - have you registered yet? Your free RentThisLand.com account lets you receive custom email alerts when new rental opportunities become available in your area. Don’t miss out!
Are you a real estate agent or broker? If so, contact us today to learn how you can use RentThisLand.com at no cost to provide the best value to your clients!