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At AcreTrader, we’re often asked by farm owners whether they need to hire a lawyer to assist in the process of selling their farm.
The answer, as with most things in life, will likely depend on your individual circumstances and personal choices.
For many farm sellers, being represented by a real estate professional is sufficient to guide them through a sale transaction. However, in certain more complicated transactions (see example scenarios below), it may be wise to seek legal counsel.
Note that there are some states where the use of an attorney in a real estate closing is required, so be sure and ask your advisors as to whether there is such a requirement in your state.
In this article, we explain how a farm closing usually works and in what circumstances a seller or buyer might want to consider hiring a lawyer to represent them.
The AcreTrader Learning Center also contains several additional articles that a potential seller might find useful in deciding whether to sell his or her farm.
What should I expect when selling my farm?
Before considering the circumstances in which a seller or buyer might want to hire a lawyer, it is helpful to have a good understanding of the farm sales process from start to finish.
Overall, the process of buying and selling farmland is not unlike buying or selling a home.
1. Finding a Buyer; Diligence
The first step in selling a farm is locating a buyer and providing information about your farm to the potential buyer. This disclosure can include maps, title documents, water rights, historical yield data and other information.
At this point, an interested potential buyer will issue a non-binding letter of intent to a seller that describes the terms on which the buyer and seller might “agree to agree” on the farm purchase and sale and then the seller will provide any further requested due diligence information.
If the buyer likes what they see from the seller’s disclosures, they will make the seller an offer and the parties will negotiate a purchase and sale agreement.
2. Title Search
Next, the title company will start performing title research on the farm to be sold and will issue a preliminary title report.
The preliminary title report will list any exceptions to title and any easements that run with the property. The title company may also request additional information about any outstanding mortgages and the buyer and seller (especially if they are an entity).
If the buyer and seller are satisfied with the disclosures in the preliminary title report, then they can start to provide any requested information and ultimately agree that the closing contingencies stated in the Purchase and Sale Agreement have been met. A closing date will then be set.
Closing usually occurs in-person at the title company, although some out-of-state parties may participate electronically as needed without actually physically attending the closing.
The buyer will wire funds to the title company’s escrow account or bring a cashier’s check to the closing. Once the buyer and seller each sign all of the documents required of them by the title company, such as title work, the deed, and disclosures, the money is paid to the seller according to the cost breakdown included in the closing or settlement statement which is provided in advance.
4. Closing Costs
Some closing costs are assigned to the seller, some to the buyer, and some are split between them.
The allocation of closing costs (e.g., title work, property taxes due, recording fees, title insurance policy fees, any mortgage payoffs and/or real estate commissions) will usually be established by the Purchase and Sale Agreement.
5. Other parties
Real Estate Agents: The buyer and seller may each be represented by a real estate agent, but in some cases with selling farmland, the same realtor may represent both sides. These real estate professionals can often guide a buyer or seller through the process and the title company usually retains or has an attorney on staff to review the title searches and to draft any necessary legal documents such as deeds that are needed for closing.
Attorneys: An attorney hired by the buyer or seller may, upon request, help negotiate and draft the purchase and sale agreement, review any tenant leases or other legal documents that pertain to the farm being sold, review loan documents (if any), check the preliminary title work, and review the closing statement with their client. Fees to the attorney are usually paid at the closing. If a farm buyer or seller decides to hire an attorney for a farm transaction, it’s always a smart move to ask the attorney up front what their estimated fees will be so there aren’t any surprises at the closing table.
Why might I consider hiring an attorney?
If the facts and circumstances around selling or buying a farm are complicated, a buyer or seller may want to consider hiring an attorney to assist with the tasks described above. As mentioned, an attorney will review the contract documents for you, review the title policy and negotiate any necessary changes on your behalf.
Here are some examples of scenarios where the closing is likely to be more complicated and a buyer or seller may want to consider retaining legal counsel:
There are multiple farm sellers or buyers
The purchaser is an entity and needs specific resolutions or authorizations drafted
There are environmental contamination issues on the farm site
A complex tax structure exists for the buyer or seller
The title work shows unexpected exceptions or easements
Unpaid taxes or tax liens are attached to the property
These examples are by no means intended to describe all situations in which a buyer or seller might want to seek advice from legal counsel. However, we hope this will help you in your understanding of whether or not you may benefit from hiring a lawyer to help you sell or purchase a farm.
For more detailed information on the process of selling a farm, please take a look at our series on How to Sell a Farm.
If you have any questions, or would like to find out how AcreTrader can help you with your next farmland transaction, please contact us anytime to speak with one of our farmland experts.
This blog post does not constitute legal advice. AcreTrader encourages all potential farm sellers or buyers to consult with their respective legal and tax advisors before entering into an agreement to buy or sell a farm.