Assuming a ranch broker is experienced, educated, and has a deep understanding of the issues related to ranch ownership, the next most important characteristic is having a thorough Understanding of Ranch Values. Knowing what a ranch is worth and making informed decisions related to its dollar value is the most basic, yet commonly misunderstood, skill that a broker can bring to the sales process.
To put it in simple terms: Brokers must fully understand land values in the areas where they represent landowners or buyers. This seems like an obvious statement, but in my experience, it is extremely uncommon to find brokers who can back up their value claims with quantifiable data or a well-reasoned argument. One of the more common phrases I hear is “It’s worth $X, because that’s what I think it’s worth.” Well, that may be the case, but if I’ve got a spreadsheet of hard data that says otherwise, I’ll trust my data over unfounded, emotional hunches; I have a fiduciary responsibility to my client to do so!
Ranches, like all assets, can be valued using a variety of systems and models. Is any system for valuing ranches perfect? No. Is a system that includes hard data, proven and accepted valuation methods, and well-reasoned logic better than pulling numbers out of the sky? Absolutely. Whether valuing a company, a vehicle, a piece of jewelry, fine art, or a ranch, all valuation models are based on quantifiable data and reasonable assumptions.
In the case of ranches, the quantifiable data translates directly to comparable ranch sales information. Unlike the residential or commercial real estate markets, there is no central database of ranch sales, so ranch brokers must work with appraisers, bankers, county officials, and landowners to uncover useful land sales information. At Mirr Ranch Group, we work exclusively with high-value, one-of-a-kind ranches, so finding relevant data can be a very lengthy and time-consuming process. However, we are committed to performing this research thoroughly, because the all-important data can mean the difference of millions of dollars for our clients.
When forming reasonable assumptions about the ranch market, brokers must take all relevant data and make a well-informed prediction of where the ranch market is going. Will prices continue to increase or are we at the market’s peak? Will livestock price trends help or hurt the value of this ranch? How will government policy or potential administration changes affect ranch prices? Are there any impending local/national/global economic issues that may impact a ranch’s value? The reality is that no one knows the answer to these questions with 100% certainty, but an experienced and educated broker understands all of the moving parts and how they play into the value of ranches. The alternative to making data-based assumptions is to predict future market conditions based on emotion, hopes, or desires. Basing an purchase on hope may be a great strategy when buying lottery tickets, but it’s an extremely unwise approach when dealing with multi-million dollar assets such as legacy ranches.
A note on emotion as it relates to valuation: There’s no way around it, ranches evoke emotion from landowners, buyers, and all other stakeholders. Whether it’s a fifth-generation rancher whose family homesteaded the land 150 years ago or an East Coast family looking for a Western vacation retreat, it’s the emotional connection to the land that attracts people to ranch real estate. As I see it, a broker’s job is to be the non-emotional counterweight to a buyer or landowner’s (justifiably) emotional point of view. I’m not saying that brokers should be robot-like killjoys who only see properties from a “dollars and cents” perspective, but they should strive to balance their clients’ emotions with the hard financial realities of the ranch market. Ultimately, a ranch is both an asset and an investment, and no one wants to invest poorly or irresponsibly because they were temporarily blinded by emotion.
In closing, a quick rule of thumb: When quoted a ranch listing price, the simplest and most revealing question to ask is: “Why?” If there’s no concrete answer based on quantifiable data and straightforward logic, take note. More times than not, the ranch will be overpriced. However, every so often a ranch is priced below market value due to the owner or broker’s ignorance of market conditions, which creates an attractive opportunity. In either case, having a thorough understanding of ranch values provides a distinct negotiating advantage and helps to insure a solid and responsible ranch investment.
Check back next week for Ranch Broker Essential Characteristic #5: Professional Network.