Value of land between neighbouring farmers

gigino

Ye know the way a piece of land often goes a bit higher at auction ( than it would otherwise ) if the bidders are each a farmer immediately beside it ? ie if bidder A is neighbouring the piece of land on one side and neighbour B is next door to the land for sale on the other side. An auctioneers dream;)

Suppose the land for sale goes to auction, the 2 neighbours get carried away and it makes say 60% more than expected, as each of the 2 farmers desperately wants it out of pride and to expand their own holding. To everyone else its not worth as much. My question is : what should a lending banks valuation be - the price paid at auction or the price other bidders stopped at / the price it would have sold for if the 2 immediate neighbours did not want it ? If it went back on the market it would then not be worth the 60% premium ?


Thanks for any replies, someone must have come across this.

Bodacious

gigino wrote: »

Ye know the way a piece of land often goes a bit higher at auction ( than it would otherwise ) if the bidders are each a farmer immediately beside it ? ie if bidder A is neighbouring the piece of land on one side and neighbour B is next door to the land for sale on the other side. An auctioneers dream;)

Suppose the land for sale goes to auction, the 2 neighbours get carried away and it makes say 60% more than expected, as each of the 2 farmers desperately wants it out of pride and to expand their own holding. To everyone else its not worth as much. My question is : what should a lending banks valuation be - the price paid at auction or the price other bidders stopped at / the price it would have sold for if the 2 immediate neighbours did not want it ? If it went back on the market it would then not be worth the 60% premium ?


Thanks for any replies, someone must have come across this.

Id say its common enough .. i went to college with a lad that bought a strip like this privately and proceeded to play farmer A off of Farmer B and made a killing out of it - probably not nice and doubt if he was very popular with either at the end of it.

Have also seen a case where guys met up before and agreed not to drive it up on each other but split it 50/50 after the auction.

As for valuation of land should it return to the market id imagine the original underbidder would give the same for it.. just IMO

keep going

most banks are valuing land at 6 to 7 thousand an acre and will lend 70% of that so if you want to go higher you must have the money in the ass pocket:p

gigino

Bodacious wrote: »

As for valuation of land should it return to the market id imagine the original underbidder would give the same for it.. just IMO

He would not have to bid as much for it though. I saw a bit of land going back on the market ( farmer A in financial trouble, long story ) and Farmer B getting it for almost half price, six months after A bought it. Should the bank - who lent the money to farmer A - have valued it, and loaned the money at what farmer A foolishly paid for it ? Farmer A put put the rest of his farm as security, so he is regretting the bank ever lending to him, but he thought it was a once in a lifetime opportunity to buy land next to his at auction and he got carried away in the moment.

keep going

gigino wrote: »

He would not have to bid as much for it though. I saw a bit of land going back on the market ( farmer A in financial trouble, long story ) and Farmer B getting it for almost half price, six months after A bought it. Should the bank - who lent the money to farmer A - have valued it, and loaned the money at what farmer A foolishly paid for it ? Farmer A put put the rest of his farm as security, so he is regretting the bank ever lending to him, but he thought it was a once in a lifetime opportunity to buy land next to his at auction and he got carried away in the moment.

Wasnt farmer B lucky because he thought it was nearly worth it too.in that case the bank uses all farmer A farm for security so they would have lent him possibly more against the whole farm rather that peice of ground depending on perceived repayment capacity.you have to ask do fellas understand what they are doing

Bodacious

Jees,

You have to feel for farmer A too though.. id say many a sleepless night there.. every possible avenue explored to raise cash.. poor devil.

I worked for a large tillage farmer in the South East Uk, absolute gentleman, told me one night on the combine some of the sacrifices he had to make to survive, their dad died when he and brother were 17 and 15 respectively not long after neighbouring farmer was selling out, banks would give him very little/nothing so he done a list and sold everything around the farm, down to bare basics like 1 tractor and few breeding animals, landed up to neighbour with all the cash he could manage... he accepted and it was a massive turning point in his life, his brothers etc

bob charles

Tough luck on farmer A. somedays you win some days you lose. Its not the banks fault that farmer A secured his whole farm which he may now stand to lose over a bit of bloody ground. Maybe thats hard to hear as you sound close to Farmer A. farmer B had a lucky escape and now luck is on his side. I play a siimilar cat and mouse game most days of the week buying animals, sometimes you win, sometimes you lose, just dont bid any higher than the amount you are able to afford to lose, just like gambling. Sorry for being straight. I never understood the lengths guys go to buy a bit of land next door, all tractors can do 40k nowadays and we no longer have to walk everywhere. I think between 5500 and 6000 is the current magic number banks will lend to most of their clients

gigino

bob charles wrote: »

I think between 5500 and 6000 is the current magic number banks will lend to most of their clients

correct... so in a hypothetical situation would a bank be correct in lending a purchaser say 15,000 per acre when the real value of the land to anyone else would be say less than half of that?

bob charles

gigino wrote: »

correct... so in a hypothetical situation would a bank be correct in lending a purchaser say 15,000 per acre when the real value of the land to anyone else would be say less than half of that?

my figure of 6000 is if the land would be the security itself. If the potential buyer had allot of security and accounts to show that they could meet repayments capacity to service the new loan then a bank would lend up to any amount. also my 6000 figure is what currently available. go back a few years and this figure would have being much higher or probably didnt exist depending on the client. Yes it maybe reckless lending but it takes two to tango. All borrowers (myself included) have to take responsibility for or actions.