The State of the Land Market – Part 1

Tuesday, September 29th, 2009

These days, there is so much speculation and misinformation about what is going on in the land market. I just read this article by Robert King and was impressed by how accurately he sums up so many of the questions I've been getting asked lately. Here is part 1 of the article - enjoy!

Everybody that I see, that knows what I do, asks the same thing these days. “How are land and farms selling?” Consequently I ask ALOT of agents with AlaLandCo and other companies the same question. The short answer is that land and farm properties ARE selling. Now I want to examine it a little further by posing a few more questions and giving you my prospective on the answers.

1. Are market prices for land as high as in the lead up to the residential real estate downturn and how do these prices relate to listing prices?

2. What are buyers looking for in today’s market?

3. What can sellers do to increase their chances of putting their property on the SOLD list?

4. What general trends exist in the market today?

Are market prices for land as high as in the lead up to the residential real estate downturn and how do these prices relate to listing prices? Market prices that land has actually sold for have declined somewhat. Sellers that NEED to sell are in the market these days…which is a stark contrast to the market of a few years ago. During the “boom” most of the land market was made up of transactions where the buyer with immediate needs had to buy from a seller that really did not care if he sold or not. Simply put, the seller was willing to sell only if the buyer was willing to pay what everyone considered a “retail” price. In today’s land market, buyers have many choices.

The market does not move as fast. Sellers need to sell. This creates downward pressure on sales prices. I use market and sales price interchangeably. However, listing prices differ dramatically from these. Which gets to the second part of the question. Listing prices both then and now are drastically different from sales prices. A few years ago, land was taking 6 months to one year, on average, to sell once a seller decided to part with a property. My best estimate of today’s market is 9 to 16 months.

Now, relating this to price…During the “better” market of a few years ago, sellers would list a property at what he thought was a high price, because he did not want to leave money on the table. During the next 6 to 12 months, market prices would tend to catch up with the listing price. I saw that trend occur time and again. Today, I see sellers begin trying to sell a property much the same way…by pricing a property at what they believe to be high retail.

The problem with this is that the market is edging down, not up as it was before. It takes most sellers about 3 to 6 months to come to the realization that the land is not going to bring those high retail prices, and to begin looking at moving the price down to a more reasonable goal. Today’s buyers are not even willing to consider something that they don’t think is a good buy. Market prices have gone down in the neighborhood of 10-15% while listing prices have went down around 20-25%.

Tags: land investment, land prices, land resource, new land buyers, owning land