Archive for June, 2020

4 Types of Easements to Be Aware of When Buying or Selling Land

Monday, June 29th, 2020

When looking in the fine print for a piece of land, you may see one or more types of easements listed. These easements dictate who else is able to access your land, for what purpose, and for how long.

It’s important to have a firm grasp on easements both as a buyer and as a seller. For buyers, understanding easements is crucial for setting the right expectations about land usage. And sellers will want to know about any easements on their land so they can accurately market their property.

Not fluent in legalese? You’re not alone. Here are four common types of land easements you may come across.

1. Utility Easements

These are the most common types of land easements. Cities and towns often require easements through private property in order to run utility lines, and if you have this particular easement on a property that you own, you won’t be able to interfere with the utility’s placement or functioning.

Utility easements are listed on property deeds or certificates of title (or both) and specify what the utility is and who owns it—usually either the municipality or the utility company. For the most part, these types of easements don’t interfere with usage of the land, so long as the utility lines are left alone.

2. Easements by Necessity

Depending on the location of your land, you may have a neighbor who needs to pass through it in order to access their own property. This is called an easement by necessity, and is granted when a nearby property owner has no other route to get where they need to go. This type of easement doesn’t impact your use of the land—it just means that your neighbor has a legal right to cross through your land when they have no other choice but to do so, and that you cannot interfere with their access.

3. Private Easements

Land owners are able to grant private easements to others. For example, an easement for an uphill neighbor to run their driveway through a privately owned property. Private easements can complicate sales, since once granted they’re rather difficult to get rid of (if you’re able to get rid of them at all).

As a seller, it’s your responsibility to fill in any potential buyer regarding private easements on your land. And as a buyer, you’ll want to do some digging through a property’s easement documents to see which—if any—private easements have been granted and how they might affect you.

4. Prescriptive Easements

Prescriptive easements can refer to a lot of different things related to access to and/or use of your land from someone who is not you, with the main differentiating factor being that they expire after a set period—generally about 10 to 20 years. The regulations around prescriptive easements vary by state.

You may be able to work around a prescriptive easement by granting written access to the party in question. This allows them to continue accessing your land for a designated purpose, but strips away their legal allowance to do so. It’s always a good idea to have an attorney look over any easements related to a property you want to buy or sell. This way, you can make sure you know what you’re getting into so there are no surprises later on.

Impact of Interest Rates On Farmland Values in 2020.

Tuesday, June 23rd, 2020

With average 30-year home mortgage rates falling to an all-time low of 3.29% on March 5, the markets, economists and investors were hardly convinced that COVID-19-induced market swings were over. If you’re thinking about borrowing for existing operations or acquiring farmland, you’ll need to watch the market very carefully in the coming months.

The virus is still spreading at an increasing rate in the U.S. at the time of writing, and the only certainty in the debt markets is uncertainty. Lenders responded to being swamped with refinance applications and rates quickly increased by about 50 basis points over the past several weeks, a hint of what can be expected in the debt markets in the coming months.

Interest rates and farm borrowing

Interest rates are one of the key components in determining farmland values. High interest rates increase borrowing costs and suppress crop yields, farm investment, and farm income. Farmers who have limited experience or who are cash-strapped may have difficulty providing sufficient collateral for borrowing. Many large banks have stopped lending to farmers amid the U.S.-China trade wars and falling commodity prices, making it even harder for farmers to get a line of credit.

One good sign for farmers is that on March 15, the federal government slashed interest rates by a percentage point and committed to purchasing $200 billion in mortgage bonds – a strategy known as quantitative easing (QE). This suggests that enough liquidity will remain in the market to keep borrowing costs low throughout 2020.

Consumer disruptions

Despite the prospect of lower interest rates, the QE is a response to massive economic disruption. Economists are forecasting a 25% reduction in GDP for the U.S. economy based on year-over-year and 2020 Q1 data. The January trade agreement with China is also likely to have a negative impact on crop demand and, consequently, farm values as China will not meet provisions to purchase U.S. farm products at levels equal to or greater than those of 2017.

Prior to the outbreak of COVID-19, the outlook for farmland values across the nation was fairly strong due to the combination of three factors: low interest rates, relative scarcity of available farms for sale, and robust buyer demand. Now, in addition to the effect of COVID-19 itself, there is concern that investor confidence may weaken. Falling crop demand from trading partners, along with a weak U.S. economy, may also exert downward pressure on crop prices, in turn squeezing margins and profits for growers.

Going forward

The solid market fundamentals that preceded the coronavirus outbreak – demand, low interest rates, and limited supply – will somewhat mitigate broader economic challenges. Food supply and health care are at the top of critical supply chain priorities for the country, and the government will be forced to ensure that the food supply is stable and that farmers remain solvent through the current crisis.

Farm lenders may find themselves struggling in the next several quarters. If liquidity starts to dry up, or if some lenders elect to exit the farm market, it may make borrowing for farm operations and farm acquisitions more difficult for the balance of the year.

Bearing in mind that there are still operational challenges for farmers with regard to crop yield, weather disruptions, and ongoing concerns about trading partners, there may be opportunities to enter the market that otherwise would not have existed.

Compliments of Halderman Real Estate and Farm Management.