Episode 30: The Dos and Don'ts of Preparing to Buy Land at Auction with Kelly Guthrie
Let’s say you’re a beginning farmer and 40 acres of farmland is going up for auction next to your grandpa’s farm. You’re interested in buying it. What do you do?
Here’s what to do and what not to do when preparing to buy land at auction:
DO reach out to your lender first
DON’T go in without a game plan
Even if you are slightly interested in purchasing ground, contact your lender first. Your lender will walk you through the steps of getting pre-approved, including the needed paperwork like tax returns and balance sheets. Gathering these items ahead of time will help you avoid application delays, which is critical in the often fast-paced process of buying land at auction.
“We like to have at least three years' worth of tax returns and a 12/31 balance sheet, something current to reflect those assets and liabilities,” says Kelly Guthrie, commercial credit analyst at AgCredit.
These documents are used to provide a projection on the type of loan that will best fit your operation and allow you to go into an auction with a game plan.
DO stick to the game plan
DON’T overbid or go above your pre-approved price per acre
Your lender will “crunch the numbers” and put a lot of thought and work into creating a strategy for you to approach an auction with the best-case scenario in mind.
“A game plan is in place for a reason,” explains Phil Young, loan officer at AgCredit. It could be a specific approach to fill a cash-down requirement, a collateral issue, or a cashflow matter.
For example, if you make an in-the-moment emotional decision and go $500 over your budget, it may feel like you only went $500 over, but really it’s $500 per how many acres you just purchased.
DO give your lender enough time to prepare
DON’T notify your lender after the fact
While your lender might be able to make miracles happen, it’s important to keep the timeline in mind. Simply put, don’t buy land and then contact your lender.
“We always stress contacting your lender as soon as you’re interested in a property because there is a timetable on it,” says Phil.
This will give you and your lender enough time to gather and prepare the information needed to go into an upcoming auction with a game plan so that you know if it’s a good decision for your operation and that you meet the purchasing requirements.
For more tips on preparing to purchase land at auction and things to avoid before, during, and after an auction, listen to the full episode.
Here’s a glance at this episode:
- [01:24] Kelly introduces herself, her background, and her role at AgCredit.
- [02:17] Matt and Phil walk through one of the first steps to take after land may come up for auction that you’re interested in.
- [04:36] Kelly discusses the needed paperwork your lender will ask for and why each piece is important.
- [07:41] Kelly explains what a balance sheet is and what is included on it.
- [11:46] Kelly discusses the differences between a personal balance sheet and a business balance sheet.
- [14:48] Matt and Phil discuss the importance of going into an auction with a “game plan.”
- [16:13] Matt and Phil go over auction terminology and what each means.
- [20:14] Matt and Phil explain the next steps for winning bids.
- [22:59] Matt and Phil discuss some of the “don’ts” of buying land at auction.
- [27:38] Kelly recaps the things to avoid before, during, and after buying land at an auction.
- [28:23] Matt and Phil leave with the benefits of AgCredit’s AgStart program for first-time farmers.
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Guest Kelly Guthrie
Kelly is a commercial credit analyst with the agribusiness team at AgCredit working out of the Norwalk office. She grew up on a small livestock farm in Marion county and was actively involved in 4-H and FFA. Kelly began her career in lending nine years ago after graduating from The Ohio State University.
Host Matt Adams
Matt serves Paulding County as an account officer at AgCredit. He has worked in ag lending for over four years and previously worked in farm equipment sales for 11 years. He and his wife farm in northwest Ohio with their two daughters and son. His favorite part about AgCredit is the people. From the member-borrowers to the internal team at AgCredit, every day keeps getting better. Matt hopes to bring insights into ag lending and some laughs to the AgCredit Said It podcast.
Host Phil Young
Phil is an account officer for AgCredit serving Van Wert County. He’s been in ag lending for over four years but his agricultural background goes back much farther. He grew up on his family’s farm where his father raised a large herd of sheep. Currently, he helps with the family farm raising corn, soybeans and wheat. Phil likes working at AgCredit because he can help people achieve their goals. Whether that is purchasing a new piece of farm ground, updating a piece of equipment, or helping a borrower understand their financials, helping his clients succeed is always his goal.
Voiceover (00:08):Welcome to AgCredit Said It. In each episode, our hosts sit down with experts from all parts of the agriculture industry to bring you insights and must have information on all things from farming to finances, and everything in between.
Matt Adams (00:28):Hey, everyone. Welcome back to another great episode of AgCredit Said It. I'm here with the one and only Phil Young. Phil, how we doing today?
Phil Young (00:37):Good. How are you, sir?
Matt Adams (00:38):You know, it's wintertime. If you're a livestock farmer, you know winter's just your most favorite time of the year.
Phil Young (00:45):Oh, yes.
Matt Adams (00:46):Between mud, to ice, to calving, to frozen hoses.
Phil Young (00:52):Who doesn't love draining hoses in the winter?
Matt Adams (00:53):You just sit back and think, "This is why I do this."
Phil Young (00:56):Yeah. Right.
Matt Adams (00:59):Well, hey, today we're talking about how to buy land at an auction. That's probably in the last couple of years with all the dirt we've seen come onto the market, that's been a huge part for us. So today, we actually have one of our special guests with us, Kelly Guthrie. She is one of our commercial credit analysts for AgCredit. Kelly, welcome. Thanks for joining us today.
Kelly Guthrie (01:23):Thanks for having me.
Matt Adams (01:24):So Kelly, before we get into it, why don't you tell us a little bit about yourself, kind of your background, and how you became part of AgCredit?
Kelly Guthrie (01:32):Yeah. So I grew up in Marion County on a small livestock farm, and was active in 4-H and FFA, went to Ohio State, and got into lending after college. Been in lending for nine years and currently work on our agribusiness team out of our Norwalk office.
Matt Adams (01:49):So Kelly, what we're going to kind of dive into today, is how to buy land at auction. And it's kind of great, we can get the credit analyst perspective on this because sometimes I'm sure you always have questions when the account officer sends you something, you're like, "What are these guys sending me?" And just for our listeners out there, our credit analyst team, they're really the backbone of what we do.
Phil Young (02:15):They're the number crunchers.
Matt Adams (02:17):They're the number crunchers. They're the ones that give us the green light, “hey, this is going to work,” or will come up with maybe different options that we didn't think of as account officers, so that's one of the great things that we have built into our team, is just those different dynamics that at the end of the day, we hope we can get the farm bought and make a loan that's going to fit the operation. So Phil, what is the first thing we should do? If I'm a member, if I'm a beginner, let's say I'm a beginning farmer, there are 40 acres that I saw an auction sign go up for by my grandpa's; what do I need to do to get ready to go try and buy that farm?
Phil Young (02:57):Yeah. I think the first one, even if you're slightly interested in it, maybe you have 50% interest, but that interest could grow, I would say contact your lender. And a lot of the ground, one of the things that auctioneers I hear say all the time is, "This piece of dirt's probably going only be up for sale once in your lifetime, and so be prepared," as the saying goes. So contact your lender, if you don't have a lender, start searching for one. Obviously, AgCredit is a great one to get ahold of. But contact your lender and they'll walk you through the steps of maybe getting pre-approved to buy that dirt. And the great thing is every auction that we have, Matt, we probably have, I don't know, five, six people that are interested in that piece of ground. And so even if you're just a little bit interested, contact them, send them stuff, and do it in a timely manner. Don't wait until the last day to do it, but contact them.
Matt Adams (03:50):So instead of 24 hours, 48 hours before the auction. Right?
Phil Young (03:52):Maybe a little longer, slightly longer. Yeah, and we always say a couple of weeks before is a great timeline. But that just gives you time to gather your information, depending on how large or small your operation is, doesn't really matter. It just gives you that time to gather tax returns and balance sheets. And Kelly, I think you may jump into this here a little bit and chat about what that is. And just explore your options. Maybe you're a first-time borrower and you just really don't even know what options are out there to do a loan. You can kind of explore the terms and programs that are out there. And there's just maybe a lot going on, so it just kind of helps avoid application delays. You don't want to get started on an application and then not get pre-approved because there just were delays in the process, which doesn't happen really a lot, but it's just good to kind of try to avoid them.
Matt Adams (04:36):Definitely. And what you said exactly, Phil, is do your homework. Be prepared for this. So when we collect this information, we get a balance sheet. We get tax returns. We kind of get some estimates on crop production, yields, and what we're looking to farm. We get this all to our credit analyst. Kelly, what are you going to do with this mess of paperwork we just tossed you?
Kelly Guthrie (04:56):Well, when it comes to making that call with the lender, they're probably going to ask for, "Hey, can you send me your tax returns, at least probably three years, and current balance sheet?" We like to have a 12/31 balance sheet, but something current to reflect those assets and liabilities. And then if there are any historical balance sheets that you could provide to just provide some trends for us. Your historical crop production, or if you're raising livestock, you know what your size and scale and how many head you've been raising or selling each year, marketing, just to help us put together that picture, and as we dig into the numbers. When it comes to what we're looking for on the credit side, our first main driver's probably going to be the earnings, so we're going to look at your historical income streams and see what your current debt load is, and see how you're able to service that debt, how much margin you have left after you service the principle and interest payments, family living, and taxes.
Matt Adams (05:52):And that's where that three years of tax return history really comes into help us paint that picture. Correct?
Kelly Guthrie (05:57):For sure. So looking back on 2019, I'm a little hesitant to say 2019 around here in Northwest Ohio, but that was a bad year, and so try to normalize what a normal year of crop earnings would look like, so tag in, let's look at 2020, 2021. Sometimes we might even go longer, but typically looking at the last three years, and then to go off of that, we're going to do a projection, so looking at current crop prices and working on a budget for what those expenses are going to be. A lot of times we work with OSU's extension budgets to put together what the year's going to project for us on what that margin's going to be to service your debt load.
Matt Adams (06:45):And I think one thing that we talk about is those projections, too, and Kelly, you can go into this a little bit if you want, the OSU projection budgets and if we utilize even a lot of times FSA pricing as well, may not reflect the current high prices that we're seeing in the market right now, but it's average. And I think one thing that we can always pride ourselves on is we want to tailor this product, this loan, to the best fit for the operation.
Phil Young (07:15):You've got a special saying for this.
Matt Adams (07:17):Don't base long-term lending on 12 month projection on short-term money. You look at our markets right now, extremely good markets. For the next three years, we can lock in if you play the markets on the green side at least, there's some good money to lock in. We're doing a 20-year note, so you generally own real estate for 20 years. So am I going to have them prices for that 20 years?
Kelly Guthrie (07:41):Likely not, so yeah, going back to that average on prices, on yield, I like to factor that in. Going back to that long-term note, whether it's the 20 or 25-year term loan, just looking at that average helps us, and that's what we use on the credit side to make those decisions when it comes down to it. And then when it comes to the balance sheet, looking at that existing debt load, looking at what are we going to be able to pre-approve you on the loan amount, what that new loan's going to look like on that structure, and how you're going to service that, and looking at different options there.
Phil Young (08:16):And for those that maybe don't know what a balance sheet is, can you kind of walk us through what that is and what's on it?
Kelly Guthrie (08:24):Yeah. So the balance sheet is a snapshot in time of your assets and liabilities, basically, what you own and what debt or payables you have and need to service at that snapshot in time. So we look at the ... We break the balance sheet into four quarters. There are current assets, inventories, prepaid expenses, cash positions, accounts receivable, and current assets. Then we look at current liabilities, so liabilities due in the next 12 months. They might be for the farm operation, the line of credit.
(09:00):They might be pre-paids at the co-op, or payables. And it's also going to include principal due in the next 12 months. Then we look at long-term assets, that's assets that have a longer useful life, such as real estate, farm machinery and equipment, breeding livestock, investments or non-ag-property. And then to mirror that, we'll look at long-term liabilities, so those liabilities that are longer than 12 months. So if you have term debt on machinery and equipment, term debt on a home, or farmland, that's where those will be. So you've got the four corners of the balance sheet, and that's how your lender's going to look at it when you provide those listings for them.
Phil Young (09:47):The one thing, and speaking of special sayings, you had one a moment ago. They always like to say that in simplest terms, it's what you own and it's what you owe is kind of a great way to kind of summarize a balance sheet.
Matt Adams (09:59):I know, Phil, when we're sitting down with members and filling out the balance sheet, a lot of times the first time with new members, there's a lot of pieces we'll be going through that if you've never done a balance sheet before, you may not think of putting on when it comes to personal vehicles, equipment. And people say, "Well, yeah, but I'm buying land. You're not taking that as collateral." Well, you're exactly right. But this shows us that true net worth is when we can list all your assets, and put a value to them, versus your liabilities.
(10:27):So that's one thing, work with your lender and don't be afraid to list things on your balance sheet. It is exactly what Kelly said, it's that snapshot in time. We want to know your current net worth, and that helps us base a lot of things going forward. And also, we do that 12/31 balance sheet, we can do that repeatedly every year. It makes the CAs happy for one because they can start setting, and Phil, you're always good at this, start setting that trend data for long-term lending and that long-term relationship that we're wanting to build with you.
Phil Young (10:56):And the best thing to do is either sit down with your lender and go through it from scratch with your lender, just to kind of make sure you get everything. Or you do it yourself, and then pop in and sit down with your lender and kind of go over it together. That always helps me just ask clarifying questions. And then nine times out of 10, somebody forgot something on the asset side that's really going to help them out, and it's really going to show their true net worth, and so that's always helpful to do.
Kelly Guthrie (11:22):And one thing as the lender that we like to do is to build that trend, so I've got a few customers that each year, they want to come in and say, "Okay. What did my balance sheet do? How much earnings did I retain? What's my net worth? And how did I improve my balance sheet?" And that's one way to start is just meeting with the lender and providing the info upfront. We're happy to do that, and willing to work with you, to start the trend analysis as well.
Matt Adams (11:46):So Kelly, since you're more on our agribusiness side, we look at balance sheets. Do balance sheets really change from personal to a business? Or do we kind of look at still that same information really? It's just maybe a bigger number. I mean, is there a huge difference between a personal balance sheet to a business side? Or is it you still looking at those current assets, current liabilities, and long-term stuff?
Kelly Guthrie (12:09):There are some similarities, I would say. It's still the core concepts of current assets, current liabilities, long-term assets, and long-term debt, looking at that equity position in the balance sheet, looking at the working capital and liquidity on the top side of the balance sheet. I would say there's heavy emphasis placed on we're getting more into when you look at the businesses, the inventory, the AR days, how they're able to turn that, how they're able to finance the inventory AR, and operate more as a business versus personal. You might have some assets in there that are... You've got cash in savings positions, some investments, might have a rental property, might have some assets that aren't directly tied to the farm, and so that's probably where they're going to vary the most at.
Matt Adams (12:54):Got you.
Phil Young (12:55):And I guess depending on regionally, I've seen while working at AgCredit here, that there's a lot of farming operations that have just their individual mom and dad, or husband and wife, kind of structure, or husband and wife, son. And then we just got done talking about LLCs. Are operating agreements important? Do you need to see that for kind of doing approvals and stuff?
Kelly Guthrie (13:14):Yeah. It's always great to provide more detail upfront. So if you do have several entities, or a farm entity, provide any of the operating agreements, or corporation docs upfront for your lender. And that's going to help us determine who's signing on the note and how your operation truly works. A lot of times, I'll see they'll have an equipment entity, a trucking entity, the farm production entity, and then they might have some entities for land. And so just seeing that full picture of how everything ties together and works, it’s great to provide that info upfront.
Matt Adams (13:48):So kind of taking that next step here, we've got you all the information. You've done what we call in our terms spreading the loan. This is the package that we've come up with. These are the terms we think that'll work. When we get that done, goes back to the account officer, and then we're going to sit down with you as the member, and we're going to kind of come up with the game plan. What are we going to do here? So we're going to dive right into that, but we're going to take a quick break, and we'll be right back with you on AgCredit Said It.
Voiceover (14:20):Do you need help getting started with your farm operation? Our AgStart loan program was designed with beginning farmers in mind, offering discounted fees, lower down payments, and extended terms. We all start somewhere, start here with an AgStart loan from AgCredit. Visit agcredit.net to find a branch near you.
Matt Adams (14:39):Hey, guys. And we're back, so getting back here, we're looking at the game plan. So kind of to recap, Phil, we've met with that member.
Phil Young (14:48):Yep.
Matt Adams (14:48):We've collected all the financial data. Kelly, we've had you put everything in and build this package for us. We're ready to sit back down with that member and kind of come up with that game plan to go to that auction. Guys, why is a game plan important when we're going into an auction?
Phil Young (15:06):An auction, I've been to many of them, is kind of a high-stress environment, or it can be.
Matt Adams (15:11):It can be very emotional at times, too.
Phil Young (15:12):Very emotional, yeah. And so you want to have a game plan. You want to know kind of what we call kind of your trigger price, or kind of what that number is, and really know what your lender and you have come up with. What's a good number for your operation to kind of spend on that farm? Because you can kind of get antsy, you can see a lot of people there. You just got the emotion of wanting that piece. Maybe it's close to your farm. And then like the auctioneer always says, "This piece is probably only going to be for sale once in a lifetime," so it's good to know that game plan, and so you don't kind of what I say, color outside the lines. And you've got to kind of just stick to it. And so, Kelly, I don't know if you have any other thoughts on that or not.
Kelly Guthrie (15:51):Yeah. I would say the timeline. So I like to see and know the details upfront if I'm going to go into a large purchase, or make a large decision like that, is knowing that timeline. So going to the auction, and then what happens after that auction? What's it take to get to the closing table? Working with my lenders, all I need to be in contact with is another piece that your lender's going to help you and walk you through as well.
Matt Adams (16:13):So I think one big thing when we start going to auctions, and for a lot of people that have not been to one, there's a lot of terminologies that you may not know going into this. When we talk, for one, a big one for me is when we... And usually, we'll talk about this with the member. And that's one thing. I've always got to emphasize again to our listeners is find that lender and build that relationship. We are here to help you answer these questions and have you prepared for this.
(16:40):So one thing we talk about is earnest money, money down. Generally, with every auction I've ever been to, they require some type of money down or earnest money that night of the sale, depending. And it all varies on if it's a set price, or if it's a percentage. Phil, if I say, "Hey, Phil, I need earnest money," what am I asking for?
Phil Young (17:02):Yeah. So every auction kind of has its own terms, and so it's really good to kind of read through the terms of that auction. There are various auction companies out there. But yeah, earnest money's a part of it, so that's one of those terms if you are the winning bid at auction, there's going to be a requirement for you to cut a check at the end of the night. That earnest money typically is about 10%, so you're going to look about whatever you end up spending on that farm, you're going to have to cut a check for 10% that night. And so just be prepared for that. It's not a, hey, I'll buy it and we'll figure it out later type of situation. It is you're going to have to throw down some cash that night, so just be prepared mentally to kind of write that check.
Matt Adams (17:40):And that's something, like I said before, that we already have those figures in our loan presentation to you as a member. We've already had your earnest money figured into if we do get this farm bought, this is what we're going to have down on all of our projections.
Phil Young (17:53):And the question I get a lot is: Is that part of my kind of quote-unquote down payment when you do the loan? Different lenders have different requirements on how much they'll lend per value of the parcel you're buying, so that is a part of it. That is a part of that down payment.
Matt Adams (18:09):So other terms we can hear, start tossing around sale; and I think it happens in today's market more when we start looking if there are multiple farms, as I call it, or parcels selling on a sale. They start talking, hey, we're ready for a combo bid, a whole bid, individual. They start talking with the combo stuff, it can get very confusing quickly. Now that's one thing I always say, take notes, and pay attention, because you can get lost pretty quickly. But work with those ring men that are out there working the floor. They will answer your questions.
(18:42):When they talk combo bids, so generally, let's just use for example, we have a ... We're going to sell the farm tonight, and there are four fields, there are four parcels on this farm. Generally, they will go through, depending on how the auction is structured, they'll sell each one of those farms off individually. And then they will not necessarily sell them, but they'll lock and that bid. Then they'll say, "Hey, anybody want to put a combo of one and three together, or one and two?" That's where the fun starts happening. Auctions are very entertaining, but as Phil said, they're a high-stress environment. So that's where they'll start putting two parcels together, which may bring more money and knock out your original winning bid holders.
(19:28):And then you can also have a guy come in and say, "I want everything. I want all four parcels." He'll put a bid in just high enough to get into first place. Then that's where it'll go back then to... They'll go back to the combo bid people and say, "Do you want to up your price to get back in first place with this?" Or back to the individual stuff, and it's a back-and-forth game, but one thing, guys, take notes. And just pay attention because you can get lost quickly on this stuff. But like I said, that's where the ring men are out there to help, and most auction companies now, they do a very good job of having TV screens or big screens up, showing you where everything's at and where the next bid needs to be. But a lot of that just paying attention.
(20:14):So then after that, then we'll have generally a purchase. If you are the winning bid, afterward, they'll have a purchase agreement, a buyer, and a winning bidder's packet for you to sign. Phil, I know you as a lender, and a lot of times like to be at the auction to support our members. So your member just got the winning bid. Kind of what's the next step after that, as soon as they drop the old hammer?
Phil Young (20:37):Yep. As they drop the hammer, the next best thing is either, I'm there, I'll come up and talk to you. But if we're not there, if the lender's not there, is to probably shoot them a text message or give them a call. Let them know that you were the winning bid. And as soon as you're able to, provide that purchase agreement to your lender. That kind of lets us know what's next. What are the terms? What are the terms of buying it?
Matt Adams (20:59):Because as you say, the clock is starting at that point.
Phil Young (21:01):Yeah. That's why we always stress, contact your lenders as soon as you're interested in a property because there is a timetable on it. It's not a shrug your shoulders, close when you close type thing. It's a clock. And more often than not, it's 30 days, depending on what it is, but I've seen up to 45 days or even 60 days sometimes. But I would say generally, it's that 30-day clock. And so there are quite a few things that have to happen in that 30 days to be able to close. And one of those is title work on the property, doing a title search to make sure it's clear, an appraisal, and really just time for your lender to gather all those things.
(21:39):What can happen, and hopefully it doesn't happen, is maybe there's a title issue that spurs up or pops up, and that has got to give time for things to get cleared up. And maybe there's ... We've seen everything from maybe a tax lien issue, or an ownership change issue, something like that, or an LLC issue. And generally, those aren't the case, but they can happen. And so it just kind of gives us time to kind of get everything cleared up and closed.
Matt Adams (22:03):So, Phil, I guess one thing I kind of was just thinking, and I know as lenders, this has happened before, for example, I am your member. You told me I can spend up to $7000 an acre to buy this farm. I got the winning bid at $7500 an acre.
Phil Young (22:24):You did.
Matt Adams (22:25):So Mr. Lender, did I do a bad thing?
Phil Young (22:30):I would say from the ... It's a tough one, Matt. I'm going to answer your question with a question. Did you follow the game plan, Matt?
Matt Adams (22:40):Well, sometimes the game plan has to change to get the win. Right? Guys, we're joking about this.
Phil Young (22:46):I think they just answered my question with a question, with a question.
Matt Adams (22:49):And guys, we're joking about this, but this is something that has happened before. And Phil, what's your advice to the member I guess before we get to this point?
Phil Young (22:59):Yeah. I mean, what we just talked about, it's following that game plan. And that game plan's in place for a reason. And it could be multiple reasons. It could be that cash down requirement. Maybe you just don't have enough cash to fill that requirement of the cash down. Maybe you do, but it's going to make your operation tight for the next couple of years. Maybe there's a collateral issue where you just don't have enough value and collateral to make that deal happen. And secondly, maybe it's a cash flow issue. It doesn't feel like a lot of money when you're, "Well, I went only $500 over," well, it's 500 times how many acres you have, that you just bought. And so you don't want to put yourself in a position where you've now, you're heel footed and your operation's heel footed because you kind of made an emotional decision in the moment. And so that's why it's always important to have that game plan because it's not a random thing. Typically, it's there for a reason.
Matt Adams (23:54):We've put a lot of thought into that game plan for you, and this is the best-case scenario for this.
Phil Young (24:00):And like you said, it's not one-sided. It's our game plan.
Matt Adams (24:05):Yes.
Phil Young (24:05):It's not the lender's game plan. It's our game plan. And so we try to have that structure just to kind of protect both sides. Right?
Matt Adams (24:14):And plus, we don't want to have to go back to Kelly, and then she yells at us, throws things at us, and tells us, "Boys, why did you do this?"
Phil Young (24:20):She's been known to do that.
Kelly Guthrie (24:23):Yeah. To kind of go off of that, my response would be, "Okay. What options do we have? How can we make this work?" We understand that this was a very important purchase for you to bid that amount. But what options do we have? Is there additional farm income to be gained, or off-farm income even? Or is there an asset sale that can help with a down payment? Just looking, knowing your options ahead of time if you're going to go to that amount, and have it ready to talk with your lender after that.
Matt Adams (24:54):And that truly goes back to that relationship building that you want to have with your lender, whether it be with AgCredit or another lending institution. So since we're kind of having the fun here now, saying the kind of dos and don'ts, more of the don'ts at an auction, I think one thing we need to really stress is how soon to get in contact with your lender again. I mean, I want to say we can work miracles, but boy, if you give us that 30-day window, it sure is a lot less stress and we can, I would say tailor that package better for you. And now on the other hand of that, I do know as a fast-paced environment, especially with auctions, we have seen some quick auctions come.
Phil Young (25:41):I just got notified of one here recently, where it was announced at the beginning of the month, and it's happening on the 22nd, so that's 22 days before the actual auction happens.
Matt Adams (25:50):So we understand that as lenders, there are certain... And then we will do everything in our power to make sure we have you prepared for that sale. So, guys, we're kind of talking about the don'ts at an auction. Any other ones that you guys can think of to bring up to the listening crowd out there?
Phil Young (26:10):Yeah. The one that pops in my head, and it's happened to me a couple of times, and luckily we were able to kind of make magic happen, is going to an auction, buying the ground, and then the next day, having that initial conversation with your lender.
Matt Adams (26:24):What's wrong with that?
Phil Young (26:28):I don't know, man. No.
Matt Adams (26:30):Sounds like a good plan to me.
Phil Young (26:33):Yeah. There are some nerve-racking things. We've kind of circled a lot of those reasons, is the clock starts, that's the big one. Right? So the clock starts, you only have 30 days to close the loan. And you're in a situation where maybe you haven't taken a loan out in five or 10 years, and you haven't updated your financials, so that clock starts and you've got to get your tax returns around. You've got to do a balance sheet. You've got to maybe update. You've started entities, and so you've got to get your entity information to your lender. And so that just takes time to do.
(26:58):And you're a busy person already. You're in the farming season, maybe you're getting ready to start planting. Now you have to stop what you're doing and get all that financial information around. So like I said, I've had it happen a couple of times, and we've been able to pull it off. But the nervous thing is maybe you can't get pre-approved. Maybe it's not a good decision for your operation, or maybe it's things are tight. So I would try to avoid doing that at all costs, just because you want to make sure that you meet the requirements of the contract. And you don't want to have to maybe go back on that purchase contract, and kind of maybe look silly at the end of it. So definitely don't buy land and then call your lender.
Matt Adams (27:38):Well, Kelly, do you want to kind of go through and kind of maybe just kind of recap for everybody out there, the don'ts on what we don't want to do at an auction real quick?
Kelly Guthrie (27:48):Yeah, sure, Matt. So the overbidding in auctions, sticking to that game plan and not going above your pre-approved loan amount and price per acre. Next would be having enough time to get that lender notified of the upcoming auction, giving them time to prepare a game plan for you. Then it would be making the call upfront and not after the auction, as Phil just talked about. And then lastly is making sure we have a sufficient amount of down payment, making sure that we know where we're sitting financially, and how that down payment's going to work for your operation.
Matt Adams (28:23):Definitely. And one thing I guess we forgot to kind of bring up here, guys, I do want to put a little... I feel one of the great programs that we have as AgCredit is our AgStart program. And what that is, to anybody that doesn't know, we have a program that we have basically designed for first-time farmers. We're able to utilize some different ways we look at things. We have some special programs. And one, we work very closely with the Farm Service Agency. So a lot of times our AgStart programs will tie into a different loan program, or possibly even a direct loan partnership with FSA. There are just a lot of great things that we can do as your lender for that beginning operation.
Phil Young (29:12):Yep. And some of those, to kind of highlight some of those, one of them is extended loan terms. So maybe it's taking that loan out over... A typical loan term's 20 years on farm real estate. Maybe it's taken out at 24, or 25 years. The other great thing too is we're able to waive some of our AgCredit fees involved with kind of a real estate closing. So you still have to maybe pay for title work and stuff like that, but a lot of times, we're able to waive the appraisal fee, and maybe origination to kind of help cut down on those closing costs. And number three is we have kind of some underwriting standards that we look at, and we know that you're a beginning operation. We know that you're not going to have the same financial metrics that a really mature operation has. So we're able to kind of maybe relax some of those typical standards we have for someone who's just starting out.
Matt Adams (29:59):Yeah. That's great, Phil. When we look at the AgStart program, I always kind of look at it as that sustaining ag for the next generation because with higher prices, come higher prices. So getting an operation going now, it's a very unique situation. And that's where, again, I think we come in as lenders that we'll try and build that package to make it the... When we get that first farm bought, I want to see this operation succeed for the long run, so that's where we come in and really try and help you every step of the way on stuff.
(30:40):We're getting close to the old time here, and that's going to kind of wrap it up for this episode of AgCredit Said It. Kelly, want to thank you very much for being with us today. If you guys have any questions on what we talked about today, feel free to reach out to your local branch if you're in our area, and for any information, be sure to look us up on our website, agcredit.net. And always be sure to tell your friends and listen to AgCredit Said It Podcast on all your listening platforms. And we'll catch you next time on another great episode of AgCredit Said It.
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