The Old gymnasium buzzed with talk as farmers and investors strolled in and sat on the bleachers. The smell of chicken and noodles wafted through the air. A land auction for 2,842 acres of Conservation Reserve Program (CRP) ground was drawing a crowd last fall to this small town in eastern Colorado. Even a local community group got involved; it raised funds for its activities by selling food.
Haswell, CO, probably hadn't seen this much activity in months. And land buyers probably hadn't been much interested in CRP acres until the recent boom in land prices. About 30 people signed up to bid on the land, with many of the bidders from out of the area.
Orchestrating the auction was Murray Wise, CEO of the Westchester Group, a land auction company out of Champaign, IL. Wise and his team were staging four land auctions within three days in the wheatland of Kansas, Colorado and Nebraska.
A total of 8,400 acres (about half CRP ground) in 34 different tracts were to be sold in the four auctions. Normally, the tracts would be auctioned off one at a time. But the Westchester Group features a different type of auction that uses combination bids and whole bids to give buyers the best opportunity to purchase a piece of property. In the process, the seller receives the “maximum dollar per tract,” reports Rex Schrader, Westchester partner and auctioneer.
The auctioning method relies heavily on a unique computer program that Schrader helped write over the past couple of decades. The software has been patented and copyrighted and remains a big benefit of a Westchester auction. The group has staged hundreds of auctions over the years, including some complex deals like the sale of 36 lakefront lots on Lake Michigan with a couple of hundred potential buyers. The computer and software seamlessly keep track of all bids, all combinations and all totals.
“It is a fair and equitable way to sell multiple parcels,” Schrader says. “It would take days of running up and down the road getting bids from people [to do the same job].”
The multi-parcel auction has been around for 30 years, but members of the Westchester Group believe they have perfected it. Both buyers and sellers are treated well, including small buyers who want only one or two parcels. The Haswell auction proved that point.
The bidding started with auctioneer Schrader going down the list of tracts, asking for opening bids on each. A computer projected a map of all the tracts on a large screen for everyone to see during the auction. Each bidder was assigned a color, and as that bidder made a high bid, the tract was highlighted in the color. Seven different bidders gave opening bids on the tracts totaling $730,000.
Next, the auctioneer asked for combination bids. Buyers began putting up offers for multiple tracts. The bids were kept in the computer and the tracts highlighted on the screen according to high bid. To help the crowd keep track of the different bids and potential combinations, the Westchester crew used white boards. On the boards they wrote running totals of combination bids and of whole bids on all tracts. The crew also was available to coach bidders about what price it would take to be the high bid on different tracts.
The bidding started to speed up. One buyer was on a cell phone with a Texas investor trying to buy the whole parcel. As he bid on the whole, an individual would then offer a higher bid on just one tract. Yet another bidder would trump both with a bid on three tracts. Wise told the audience that if a particular combination bid was raised by a few thousand, it would beat all the bids. This type of activity went on for an hour and a half.
The whole bid climbed to $840,000. A bidder then offered a higher price on one tract that raised the combination total to $845,000. The Texas investor raised the whole bid to $850,000. Another combination bid raised the total to $855,000. The tight bidding continued for several minutes. Then, after two minutes of no response from all bidders, Wise closed the auction.
The final bid came as a combination bid. It included seven individuals who put bids on eleven different tracts of land. The total was $870,000. Included among the bids in the winning combination was a bid from a local farmer who put up one bid on just one tract. This bid remained the high bid throughout all the combination bidding. The bidder was all smiles when making the 10% down payment after the auction.
Wise also felt good about the conclusion of the auction because his client received a good price for the CRP land. The buyers were a mix of farmers and CRP investors.
Scott Potthoff, a CRP investor from Carroll, IA, bought one of the tracts. He says he likes to find CRP ground that offers a 7 to 8% return on the purchase price. With CRP payments in the $25 to $29/acre range, he met his goal on the land he just purchased outside of Haswell. Potthoff hopes that the land will increase in value so he can make a profit selling it when CRP payments end in 2009. “I think that improvements in seed technology will help make growing crops out here more profitable,” he says.
Wise says there are a number of farmers and investors who seek land with short CRP contracts. Like Potthoff, they hope to sell the land in a few years when the payments are done and earn a profit.
Home for cash
Land prices in these areas still cash flow, Wise says. This may not be true overall as the price of farmland continues to climb in the Corn Belt. Iowa State University recently announced that the average price of Iowa farmland has risen to $3,908/acre.
“In the last 18 months, we've seen a lot of interest in auctions,” Wise says. “There's a lot of cash in America looking for a home.” He estimates that 60 to 70% of the people buying at Westchester's auctions pay in cash.
Wise is optimistic about the future of farmland, due in part because farmers are financially stable. He cites statistics that show, in 2002, 76% of Iowa farms had no land debt. Twenty years earlier, that figure was 62%. “It is a fun, fun time to be involved in agriculture,” he exclaims.
For more information about the Westchester Group's auctions, contact the company at 2004 Fox Dr., Suite L, Champaign, IL 61826, 217/352-6000, or visit www.westchester-auctions.com.