Evaluating the Minnesota Land Market

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Evaluating the Minnesota Land Market
By

Bart Waldon

Minnesota, also known as the “Land of 10,000 Lakes”, is located in the Upper Midwestern region of the United States. With abundant natural landscapes, a diversified economy centered around agriculture and technology, and a high quality of life, Minnesota is an appealing place for both residents and land investors. When evaluating the Minnesota land market, it helps to first understand some key details about the state.

Minnesota has a population of over 5 million residents, with much of the population concentrated around the Minneapolis-Saint Paul metropolitan area. However, around 40% of Minnesotans live in rural areas. The state has rich fertile soil, making agriculture a pillar of the economy. Major crops grown include corn, soybeans, wheat, sugar beets, and potatoes. Livestock production and dairy farming are also prominent agricultural activities. With livestock grazing and crop growth opportunities, land prices remain stable in many regions.

In addition to agriculture, Minnesota also has a strong technology and healthcare industry centered in Minneapolis. The diversified economic base leads to steady population and economic growth over the long run. All of these fundamental demand drivers bode well for land prices across various development types from farmland to residential and commercial real estate.

Factors Influencing Minnesota Land Values

When determining fair market value for land parcels in Minnesota, there are several key factors to evaluate:

Location

As with any real estate, location is king. Land values can shift significantly from one county to another and also between rural and suburban areas. Proximity to metropolitan cities like Minneapolis and Saint Paul typically lift values the closest, while rural farmland an hour or more away will sell for much less per acre. Transportation access, schools, and neighborhood amenities also impact prices.

Property Use

Zoning and intended property use also affect pricing. Lands zoned for commercial development will sell for more than raw vacant land. Parcels suitable for building residential homes or rentals also warrant premiums over fields for farming crops. Assess the highest and best use that is legally permissible based on zoning rules.

Size

For raw land parcels suitable for crops, livestock, or rural residential use, the size in acres heavily dictates value. Smaller sub-divided parcels usually sell for more on a per unit acre basis compared to large 50-500 acre agriculture farms, for example. Evaluate price per acre declines at certain size thresholds.

Accessibility

If a rural vacant land parcel does not have direct road frontage and access, the lack of accessibility will hamper prices significantly. Parcels landlocked by other private properties often sell for 50% less or even less without deeded easements.

Improvements/Development

Partially improved lands with some development like gravel roads, utilities access, groundwater wells, etc. will increase valuations compared to raw vacant land. Assess the replacement cost value of any improvements that impact use.

Mineral Rights

Underneath the surface, mineral rights and potential for extractive industries like mining can enhance land values substantially if not already severed. This is very location specific so verify ownership rights.

Determining Market Value of Land

With all those factors assessed, there are several approaches to value land in Minnesota:

Comparable Sales Approach

Finding recent sales of similar sized parcels in similar locations is the most straight forward valuation method. Rural land does not transact frequently however, so search across a few counties for relevant sales then make adjustments for property differences. Target a price per acre or overall price derived from comparables.

Income Capitalization Approach

For land suitable for crop production, estimate the annual income generating potential then divide by a capitalization rate to derive a value. For example, take the likely value of yearly crops minus expenses then divide by 0.05 to 0.1 to convert the annual net income into an overall present value for the land.

Cost Approach

For partially improved lands, factoring in the site improvement replacement cost minus depreciation then adding estimated raw land value can back into a reasonable market value.

Price Per Acre General Rules

Beyond formal approaches, general rules of thumb for average price per acre in Minnesota include:

  • Prime cropland: $7,500 to $9,000 per acre
  • Marginal cropland: $3,500 to $5,000 per acre
  • Pasture/timber land: Below $2,500 per acre
  • Hunting/recreational land: $1,500 to $3,500 per acre

Key Reasons Land Sells Below Full Market Value

In Minnesota, there are certain scenarios in which landowners end up selling properties significantly below achieving full fair market values. Understanding why highlights opportunities.

Difficulty Selling Rural Lands

Marketing rural lands to relevant buyers takes considerable time, effort, and money - typically 6 months to 2+ years to find an interested party willing to pay near market prices. Many owners underestimate hassles.

Limited Buyer Pool

Rural lands have a much more restricted buyer pool than homes near cities. This lack of demand dampens bidding competitions that lift selling prices. Creative marketing is required to capture limited investors and farmers in the market for acreage.

Urgency to Sell

Between death, debts, disputes, and other family or business issues pressing landowners to liquidate properties ASAP, reasonable pricing often becomes secondary to speed. Securing a fast sale takes priority.

Lack Negotiating Expertise

Inexperience negotiating offers, counteroffers, and crafting land sale terms causes many owners to leave money on the table at closing when buyers capitalize on informational advantages. Seasoned investors negotiate more lucrative deals.

In summary, land markets fluctuate more than typical real estate. And those seeking fast sales inevitably forfeit potential value. By understanding the influences on rural land prices and reasons behind underpricing, both buyers and sellers can navigate deals with more confidence through gathering knowledge. For further questions on evaluating land in Minnesota or obtaining land valuations, reach out anytime to our team at Land Boss - we look forward to helping however we can.

Final Thoughts

Evaluating the Minnesota land market requires analyzing various factors from location attributes to property improvements to local market dynamics in order to estimate a reasonable fair market value. Both formal valuation approaches and general rules of thumb have their place when appraising land parcels. While rural lands may transact below full value more often due to difficulties marketing and securing the optimal buyer pool, being an informed negotiator represents perhaps the greatest opportunity to nurture ideal investment returns. Whether buying, selling, or holding land assets in Minnesota, continually educating yourself on market conditions through data analysis and consultations with experts proves critical for making the most of your decisions. Stay curious, as no single article can capture all the evolving intricacies across this robust land of 10,000 lakes.

Frequently Asked Questions (FAQs)

In my experience, factors like exact location and parcel size seem to really swing vacant land valuations in Minnesota. What are some of the other main drivers you watch?

Location and acreage totals definitely impact pricing. Local real estate agents also stress zoning/usage designations, road access, utility availability, mineral rights ownership, and level of improvements already made like wells or gravel drives as other top elements influencing property appraisals in rural areas. Small details make a difference when demand is thinner.

As an individual investor, I struggle to accurately peg values sometimes without many rural comparables. Any practical tips?

Scattering of sales data availability poses challenges. Attending local auctions can help gauge buyer appetite. Network with knowledgeable agents to extract insights from their experiences. Reaching out to appraisers handling lender valuations provides another pulse check. And don't overlook chatting with farmers - they know production capabilities translating to income potential. Piecing perspectives together paints a clearer picture.

What precautions landowners take when marketing land to optimize their position?

Hiring an experienced agent/broker is crucial for pricing insight & maximizing exposure. Preparing legal work/surveys upfront accelerates due diligence too. And perhaps most critically - don't fear negotiating or requesting ascending offers to catalyze competition. Even in rural areas, leveraging demand properly drives top dollar.

Who are constructive experts to engage for further insight on recent land sales or other trends?

Appraisers valuating nearby plots for lenders provide timely data points. Auctioneers also know buyer sentiment. And locally focused land investors like Land Boss track relevant parcels and what offering prices secure deals in current conditions. They lend helpful market clarity as they're actively transacting.

About The Author

Bart Waldon

Bart, co-founder of Land Boss with wife Dallas Waldon, boasts over half a decade in real estate. With 100+ successful land transactions nationwide, his expertise and hands-on approach solidify Land Boss as a leading player in land investment.

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