Book Publishing Specialists
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Finding, Buying, and Developing a Ranch in Texas Hats Off Books, October 5, 2005 ISBN: 1587365197
Trim: 5.5 x 8.5 Business & Economics
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Description
With greatly varying weather, inhospitable flora and fauna, and a hardscrabble citizenry that has learned to endure and thrive, Texas is the romantic stuff of legends. Driving a pasture road at sunrise or sundown is the best time to appreciate it. Midday it may be 110 degrees, a time when Man is the only animal dumb enough to be out. But when the sun is waxing or waning, the abundant wildlife begins to stir, either heading out to feed or heading for daytime shade. Colors that were bleached in direct sunlight become vivid, and the breeze that dehydrates you at noon carries a bit of moisture and the musty smell of a fecund ecology.
It is this complex living puzzle that draws its human inhabitants. The romance and the belief that this land will produce abundantly for whoever has the gumption to take it on, declares Jim Mullen, is why people buy property here. In Finding, Buying, and Developing a Ranch in Texas, Mullen outlines how to do exactly that, exposing the prospective ranch buyer to the basic principles of buying and developing rural land in this great state.
Excerpt
The written prospectus, or “package,” is a valuable tool in looking for a ranch. Well before you get in the car to take a look, you should have a pretty good idea of what is being offered for sale. The prospectus should be more than pretty pictures of big deer and clear, blue lakes. In my opinion, the written package should include, at a minimum, the following items:
Location. This paragraph should include, among other things, distance from towns, and type of access to the ranch (paved, deeded easement, recorded easement), size of neighbor ranches, and their management history. This information should be gleaned by the listing broker from maps and from the seller. Normally the buyer does not contact neighbors, since the offering may not be public knowledge. Alerting the neighbors, and any ranch staff, that the ranch is for sale may aggravate the seller and taint the transaction. Be cautious, on the other hand, of a seller who specifically demands that you not contact the neighbors. There may well be something suspicious about that.
Description. This is the meat of the package and should fully describe the soils, vegetation, topography, surface water, and dimensions of the ranch. This paragraph tells you what you are really buying, since these factors determine to a large extent what you will be able to do with the ranch. Normally mentioned here is the management history of the place with regard to brush.
Maps—either aerial photos or topographic maps—should indicate where on the ranch brush has been cleared or treated, and when. Any fields on the ranch and what they have been used for in the past should be noted. It is also nice to know what changes there are in elevation across the ranch to give you a feel of the place. Topographic maps show elevation.
A lot of ink goes into the description of “good brush.” While brush is a component of many wild animals’ diets, and some amount of brush is necessary to provide cover for most types of wildlife, 2,500 acres of solid guajillo is not necessarily a better property than one with 1,500 acres of guajillo and 1,000 acres of old field. Certainly, learn the important browse plants (brush) if you are looking for a ranch on which to manage deer, but remember that a variety of brush is very important and that forbs (weeds) and grass also contribute to not only a deer’s annual diet, but to that of many other species as well. Learn to look for diversity in the brush and a good cover of vegetation on the ground. Lack of diversity of woody plants on bare ground is a sign of a problem that may require expensive recovery treatments such as root-plowing. Bare ground should always be a red flag, even if your intentions concern primarily livestock. Unless you are in the ranch parking area, or in a severe drought, you should not see large patches of bare ground.
Water. The catalyst that makes things happen in Texas is water, and the single most important factor in considering a ranch if your intent is to manage for either wildlife or livestock should be a dependable source of water. In the prospectus, this should be addressed fully. Subsurface water sources, or aquifers, are becoming more and more regulated in Texas, and you should be aware of limitations as well as potential production of any aquifer under a property. Existing wells should be described as to age, depth, equipment, production, historic use, and any distribution systems. Descriptions of large-volume wells should also include pumping allowances and limitations, if any.
I have often thought that the presence of surface water is the single most important factor in the sale of a ranch. A ranch can be located forty miles back in there by bad road, grazed off like a Wal-Mart parking lot, with a 1962 trailer for a camp house, and still bring good money if it has several big lakes. It is just part of the romance I mentioned in that a big lake is proof of Man over Nature, a victory over the heat and desolation.
A word of caution here: on one ranch I managed, I was initially hired to develop the new acquisition. One of the features of the new ranch was a large lake, perhaps twenty acres when full. The broker, who shall remain nameless, assured the buyer that the lake had great fishing and was “probably” ten feet deep at the dam. While one of the sales pitches was watching fish swirl out in the lake, perhaps it would have been good to note that the fish swirling were carp and gar, and the “lake” was only eighteen inches deep at its deepest point! It was not until years later that a severe drought allowed us to clean that tank at a considerable expense and restore it to productivity. Be careful of information given as part of a sale. For the most part, information is probably true, but if the seller claims a tank is ten feet deep, then the seller should prove it with a line, sinker, and cork!
Rivers are a separate concern, and it should be clearly stated where the property line is and what riparian rights (the right to draw water from a river) you will receive. In some instances, ranches that adjoin along a river swap sides; fencing down to the water part of the way, then back off the river for the rest, so each ranch has access to water livestock without mingling the herd. This does not change the true property lines. Some rivers can be drawn from with pumps for domestic use, while others are fully restricted. The Nueces River, from its source to the Gulf of Mexico, belongs wholly to the city of Corpus Christi, and water from the river may not be used without permits.
Last, average rainfall should be part of the prospectus. If not, data on average rainfall are readily available for most South Texas towns, and you can extrapolate rainfall on your ranch from that. As discussed, though, “average rainfall” is a joke, and you should always look to the vegetation, creeks, and stock tanks to get a true idea of the frequency and volume of rainfall in the area of the ranch under consideration. Simply looking at the native range in Brackettville and comparing that to the same in Tyler is an example of what I mean.
Improvements. In the prospectus, all improvements that contribute to the price should be described. Buildings; fences (boundary and interior); roads; pens; deer blinds and feeders, if included in the sale; and water systems should all be described. Admittedly, these things do not normally constitute a significant portion of the purchase price, but they do contribute to the overall picture of the property that you build in your head. If the ranch has a house, it is important to know, before the decision is made to take a look at the property, if the house is a two-room shack without power or a three-bedroom two-bath brick house with screened porches all around. The seller should always provide a list of what furnishings, if any, are to convey. Pictures are nice, but may be misleading. If a preview by your broker is possible (where he and the listing broker tour the ranch), it can be valuable to flesh out your idea of the improvements and help you decide whether or not to include a ranch in your list of “possibles.”
Improvements on a ranch can be a double-edged sword. On one hand, having improvements in place means you won’t have to make the expenditures to put them in. On the other hand, if they are extensive, or don’t exactly fit your plans, you may have maintenance costs that you really don’t need. Consider the improvements carefully when reviewing the prospectus.
Management. Past management history is important to know, since it will determine the productivity of your new ranch for several years, perhaps many years. Yet this is rarely mentioned in a prospectus. Except for deer harvest records, few sellers offer any insight into what has been done to a particular tract of land without prodding. Obviously, turning a row crop operation into a deer ranch will be difficult and take a long time. Turning that same farm into a bird operation may take only two years, and turning it into an intensive livestock operation may not take any time at all. Try to learn what it was used for in the past three years, then the past twenty years. If used for grazing, ask how many animal units of what class (cows, sheep, goats, and so on) were stocked, and what grazing system was used. If “managed” for hunting, ask for a copy of harvest records and pictures. One ranch I sold near Pearsall happened to belong to a wildlife client of mine, and I was able to provide five years’ worth of management plans and records to prospective buyers. That was helpful, but more important, it was a critical part of the purchase price, because we had said it was “managed.” If it has been “managed,” ask for proof other than a few pictures.
Intensive farming in the past often involved the use of chemicals that, while legal and widely accepted then, are banned now. If there was any intensive farming on a prospective property, or herbicide treatment of brush before 1990, that should be disclosed so you can plan on a Phase 1 environmental assessment as part of your offer. A Phase I environmental inspection is very basic and involves a search of oil and gas records, aerial photos, and a tour of the property by environmental engineers. I recently sold an old melon farm in La Salle County, and I toured the ranch with an environmental inspector. Rather than look around the property, he spent the day in the trash dump and poking into the old barns and sheds. I asked him what he was looking for, and he replied that if there were any contaminating chemicals used on the place, unless long buried, there would be drums in the sheds or dumps. That inspection, coupled with a review of aerials to find dead spots, and a review of oil lease activity in the courthouse, pretty much constituted that Phase 1.
In another instance, I was representing the buyer, and we noticed a large black spot near the barn. Now, cleaning up is part of getting a place ready to sell, so I asked the seller if that was an old set of pens or a shed he had burned. “No” he replied, “that’s where I pile old batteries and set them on fire to recover the lead.” Needless to say, that whole area had to be excavated prior to closing.
Minerals. Usually, most ranch packages do a fair job of describing what mineral interests are being offered in the sale. At this stage, it is important for you to know what percentage is being offered, what percentage is owned by the seller, if there is currently any production on the ranch, or if the ranch is currently leased. Beware of packages that state that the “mineral interests to be conveyed to be determined by title search.” That usually means that either the seller has very little mineral interest or that the ranch is in an area of little mineral activity. The phrase may, however, be used to gloss over the fact that you will not be receiving any minerals and the seller does not want to stigmatize his property. Again, know what is offered before you take a look.
Price. This is normally the shortest paragraph in the package. Here should be stated the asking price; terms, if any; and if there is a willingness to split the property. The last item, a willingness to split, is perhaps more important to the buyer than the seller, since a buyer will not initially consider a property if it is too large. Sellers willing to sell their properties in parcels should make that fact known to encourage a greater number of prospective buyers.
The asking price has always been a problem for me. I have often wished it were more like shopping in Sears, where the price is clearly marked and that is that. Unfortunately, in real estate, we use an “asking” to start the bidding, often inflated simply to start the bidding higher than the desired sales price. This practice scares off many qualified buyers and limits the field. I do not see it changing, but I suggest that you consider properties 20 percent above your price limit and inquire as to the flexibility in the asking. If the asking is really inflated, particularly if the property has been on the market long enough to “weather” a bit, the seller will say there is a lot of room in the price. I’ll address negotiations later, but for now, know that the “asking” is very seldom the “taking.”
Maps. I love maps and have learned that a lot can be gleaned from a good map of a property. When I started out in this business, Frank Childress, my sponsoring broker, kept a line of kitchen trash cans in a spare room filled with topographic maps from the USGS. When he would take a listing, or get a package from another broker, he would go into these maps, pull out the map (or maps), and photocopy the ranch off the maps. He probably had several thousand dollars invested in those maps, and invariably, a ranch would be on at least two, sometimes three, individual sheets. Today, all the topographic maps are available on CD, with aerials to match available on the Internet. Rather than tape, cut, and copy, we can simply locate the ranch on the CD, draw it out, measure it as needed, and print a map out in color. Following that, we can download the aerial, boundaries already in place, and print that, too. We can mark tanks, fences, roads, fields, buildings, wells, and so on, so you get a better picture. There is no reason a prospectus should not have excellent topographic maps and aerials of the property.
The prospectus should also include a soils map. Again, what are you buying? The dirt. Soils maps are available for most counties in Texas in the County Soils Book Series, published by the Department of Agriculture. The NRCS offices in the few remaining counties that do not have soils books are in the process of putting soils books together, so in the near future, all the counties will have one. I’ll get into soils books later on, but my point here is that the information is available and should be in every prospectus. The Texas Cooperative Extension Service also is a good source for mapping information, as is the Texas Commission on Environmental Quality.
Pictures. OK, everybody likes to look at pictures and every prospectus should have them. Remember, though, that the pictures are taken with a sale in mind and are thus framed for best advantage. A good prospectus will show buildings, wells, fences, and pens, as well as a selection of surface water and brush/fields. In the late 1980s and early 1990s, a wave of video cameras took over the ranch real estate industry. Everybody had a stack of videos of their listings and other people’s listings. We learned, however, that this was counterproductive. buyers were not as eager to look at properties if they had seen the video, and no one was buying a ranch simply because of a well-made movie. Today, the rage is digital photography. A digital camera is a useful tool early in the process of considering a property. I can preview several ranches a day, taking pictures with the buyer in mind, and e-mail them to him or her that evening.
Speaking of previewing: if the listing broker does not provide you with a package containing the above information, or if you have a large selection, ask your broker to go take a look at, or “preview,” the ranches. This cuts down on the number of ranches you will look at personally. A preview takes much less time than a showing, and if the ranch meets your basic search criteria, your broker should have no problem going for a preview, nor should the listing broker have any heartburn previewing it. Avoid looking at or even previewing everything that only vaguely fits your criteria. It confuses you, frustrates your broker, and labels you as a “looker.” Once labeled as such, other brokers will not be as cooperative, thinking you may never buy and are a waste of their time. Some brokers are more particular than others, but all value their time to some degree and can be very selective about whom they show their properties to. Yeah, yeah, they work for the seller, and are obligated to make their best efforts at presenting the property to all prospects, but if you have a reputation as a looker, they may well drag their feet and be uncooperative.
This then, is the importance of a decent prospectus. It allows you, the buyer, to evaluate a property without having to go on a showing and actually look at it, saving everyone time and effort. Get the prospectus for every ranch that sounds interesting. If it is incomplete, have your broker get everything mentioned above to “fill it out,” then study it, asking questions of the listing broker through your broker as they come to mind. Listing brokers are a wealth of information and are usually anxious to talk about their listings. It is a far, far better thing to eliminate a property over the phone than to drive all over it and then decide you are not interested. The very worst are those buyers who say that the property is not suitable after only five minutes of a showing. They should have known before they got to the gate whether or not it had possibilities. A good prospectus will prevent wasted showing time.
A final word of caution here: In a “hot” market, you will not have time to dawdle. Assuming you are ready to start the search process, collect and evaluate the written info in a timely fashion, because quality ranches sell fast!
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