We drove through acres of subdivisions with newly built trophy homes, most of whose architectural styles were completely out of place with either the old or contemporary West. Many perched selfishly close to neighbors and intruded upon their resources. Others sat on the very tops of hills, visible for miles.
“How often do these folks see their places? What do they do with them?”
“Some people come out for a few weeks a year. Others for a month in the winter and summer.” She pointed at a monstrous multi-million-dollar home obnoxiously sprawled on the knob of a foothill. “That one belongs to Mr. ‘X,’ the chairman of ‘ABC’ company.I don’t think he has been here since it was built.”
I grew quiet and took in the approach. The ranch we were going to see was about six thousand acres. That was a good-sized spread, even in those days in Colorado, and far more difficult to find now. We turned off the main road up a narrow canyon past the occasional big ranch obviously owned by persons other than the original ranch family. Here and there were scattered pockets of subdivision with an eclectic mixture of mostly newer structures. A number of land parcels sported new survey stakes. More subdivisions coming.
The canyon was narrow, and I noted that most of the property lay on the north face, a problem in winter at an altitude of seven thousand five hundred feet. Snow took a long time to melt at this high altitude, access would be dicey and snow removal expensive. The creek we crossed at the entry rushed down a steep gradient, so the current tumbled and gushed over rocks. Very difficult to fish and little or no holding water. Casting would be a nightmare and the fish small. We drove into the front entrance of the ranch, which resembled more of a southeast horse farm than a western ranch. Several ponds, distinctly man-made, were placed for ease and convenience, with no attempt to blend with the land contours. The road was a straight shot, perpendicular to the slope. This meant inevitable erosion and maintenance. Most of the hillsides were steep, unusable for livestock, and the north exposure meant limited winter browse for deer and elk.
Although the listing had stated differently, the property did not back to any state or federal lands, a prerequisite in my land searches. The ranch simply did not talk to me. The energy was that of something out of place, not in sync. Very few worthwhile resource improvements could be made. I turned to the realtor, who gripped the steering wheel with white knuckles on the bumpy entry road.
“I’ve seen enough. I appreciate the tour.”
She pulled the vehicle to a stop and looked at me with dismay. “But we haven’t seen everything,” she protested.
I smiled softly. “Yes, we have. It’s pretty enough, but it doesn’t speak to me.”
Her expression was one of incomprehension. We turned around and went back to her office. We exchanged the perfunctory business cards, and I left.
She did not understand that the energy of a piece of land was as tangible and important to me as the physical properties of that piece of earth. If the energy didn’t flow from the land to me, it wasn’t the right piece of land. This was the universal truth that guided me. Firm goals, desired property attributes and financial parameters, were key to the successful search. But it was the energy that fulfilled the quest for heart and hearth.
You have completed the search for that special ranch, recreational or rural property. Now the real work begins. My long career has involved thousands of property transactions, improvements, acquisitions and sales. I have learned three important things. First, each property, each buyer, each seller and each deal is unique. Second, local markets, local politics (in some cases, state politics), the prospective neighbors and various aspects of the property combine different ingredients to make a one-of-a-kind stew. Third, the recipe must include a professional team and your personal time dedicated to property research prior to ownership, the combination of which will enhance potential success and decrease post-closing risk. Many factors must be taken into account. Assemble a competent local team to assist you and list the team members. Prepare, plan, consider all the details, request disclosure, investigate and research fully. Neglect any up-front steps, and you could end up with a dish of disaster.
It was 2003. A tiny black-and-white ad, stuck in the classified grid at the back of a local newspaper in Wyoming, jumped out at me: “Twenty-eight-hundred acres of pristine mountain land, creeks, secluded, just an hour from Douglas.”
I was looking for a suitable 1031 exchange property (see Section III, Chapter 15) to defer a large capital gain on a pending sale of a ranch in Montana. Owned by long-time partners for more than a decade, the Montana ranch had been enhanced pursuant to a ten-year improvement plan. My firm had been the ranch manager, and I took an ownership position in the group in 1999. Values had increased exponentially. Truly an exceptional agricultural and recreational ranch property, portions of it had been preserved by conservation easements and a myriad of significant agricultural and resource improvements had been made since its purchase in the late 1980s. One of our favorite places, we were sorry to let it go, but all things have their time. My partners instructed me to find a property of equal or better value and beauty. I had a tough job ahead of me.
My search parameters concentrated on certain areas, which, due to macroeconomic circumstances, demographic trends and conformance to our acquisition checklist (see Green for Green workbook), demonstrated superior agricultural and recreational potential, along with realistic possibilities for increase in value via market trends, agricultural and resource improvements and preservation.
It was no accident that I searched the obscure pages of a small-town paper of southeastern Wyoming, home to the little-known but exceptionally beautiful Laramie Mountain Range. This undiscovered area lies just three hours north of Denver and the teeming Front Range of Colorado. I was sure that this location was “going to happen.”
As soon as I saw the ad, I picked up the phone and called the broker immediately. Affable and knowledgeable, he was definitely anxious to make a deal. He persistently pressed for a date to show me the ranch. Although I tried to radiate nonchalance, I anticipated the opportunity with eagerness.
A week later, one of my partners and I met with the broker and the current owner of the property. The seller, a terrific guy, acted very friendly, but he was also cagey and sophisticated. He had purchased the property in a foreclosure two decades prior to our meeting. Even with his reasonable sales price, he stood to make a handsome gain. I gleaned that family issues motivated the sale. The remote property had been on the market for some time. It had obviously not enjoyed the high-gloss marketing that larger real estate firms were affording their listings in the days prior to the internet taking off. The broker and his seller had apparently been friends a long time.
We toured the spectacular ranch that day by foot and ATV. We saw five different drainages, including a major creek that meandered through miles of the land. Wonderful historic structures begged for restorative attention and preservation. The spread had senior territorial water rights for over one hundred and sixty acres of irrigated land. Game trails, browse lines and giant rub marks indicated superb deer and elk populations. The larger creek teemed with trout. The other drainages consisted of small perennial and seasonal creeks and large springs that promised significant pond and upland water development potential. Better irrigation techniques meant room for significant improvements in the hay crop. The ranch didn’t talk to me—it shouted. My partner heard the voice too.
Later that night, he and I met and decided to make a run at the property. We took out my contract checklist. Knowing something about the seller’s wishes, we decided to ask for seller financing. We discussed other important contract terms that tied into our long-term goals for the property, which were to enhance, hold, enjoy, operate it as a working ranch, preserve it and add value.
Next we discussed the assembly of a long-term team to assist in this and other transactions in a region with which we had little familiarity. The next day we began to negotiate the contract. I spent hours on the
phone canvassing my network as well as our few local contacts. We needed to find a reputable surveyor, an excellent real estate attorney, a competent title company and a water rights specialist.
The property was located in the North Platte drainage, which in water rights lingo is considered a “closed basin.” The North Platte River and the Colorado River are likely the most litigated waters in the United States. Whether “neighbor vs. neighbor” or “state against state,” litigation over more than a century has complicated the seniority, use and diversion of water rights. We could not proceed without proper consultation with a local water expert.
The final critical component of our team would be a local rancher with a good history in the Laramie Mountains to advise us on growing seasons, crops, local politics, water commissioners, neighbor history and viewpoints, and nearby cattle operations as potential markets for pasture and hay.
Within days, I narrowed the selection to two surveyors, three possible legal counsels, one particular water rights guru and one local ranch operator. I researched the attorneys on Martindale-Hubbel (www.martindale.com). I uncovered several larger surveying jobs where each of the survey firms had performed work and talked to the landowners. I dug up the name of a potential rancher/ranch manager through the network and drove slowly by his place. It was neat, organized, cared for and obviously productive. His home and barns were clean and freshly painted. His horses and livestock were in superb condition.
The next two days flew by with work on the contract draft and the cell phone glued to my ear as I drove to Cheyenne, Douglas and Wheatland. I visited the rancher’s homestead one evening and had a cup of coffee. The water wizard and I met at a local saloon for a burger. In the early morning before the survey crews left for the field, I stopped by the Cheyenne headquarters of the surveyor who had received the most glowing recommendations and met with him and his son. On that same trip, I sat down with our number-one-pick attorney, who also had offices in Cheyenne.
I liked and trusted these people and had respect for their acumen. Our team was assembled, organized and brought up to speed, and only four days had elapsed since the showing.
A protracted contract negotiation ensued. The principals and the attorneys painstakingly negotiated details, along with numerous critical financial elements. Every salient point and major question was passed on to the appropriate team member for input. The contract was executed. Due diligence and research followed. Over the ninety-day due diligence period, the property passed every test and investigation with flying colors. This was a fun part of this particular purchase.
Insuring Your Dream Does Not Become a Nightmare
Little can compare to finding, loving and anticipating the conversion of a dream to reality, only to find out after you receive your deed that a neighbor can cross your new land under an old easement, or that somebody upstream can “make a call” on the water rights and dry up your creek. The discovery that sparkling blue, fish-filled ponds are impossible because the soil is too permeable or that the water right cannot be diverted is not pleasant. If that sounds extreme, consider this: What if an environmental hazard lingers from long ago and was never disclosed? What if that problem precludes financing or insurance, or festers with potential physical danger and tremendous liability? What if an adjacent property owner announces plans for a four-hundred-unit subdivision after your closing? What if the seller retains some rights or even a piece of property you believed was included in your purchase? How about an announcement that eighteen-story metal monster power transmission towers are going to be marching across your land? The fact is you cannot be diligent enough in searching for any possible future problem.
An experienced realtor, a knowledgeable real estate attorney who understands water and finance, a good surveyor and your own CPA are vital core members of such a team. For larger purchases, you need to consider having a land-and-resource consultant, an attorney schooled in mineral rights and other specialists. Even then, be prepared to encounter some surprises. Get your team vested in your vision and excited about the land. They will be invaluable throughout the period of your ownership.
A carefully drafted purchase agreement must clearly set forth all matters that the seller must disclose and that you wish to research and investigate. The “Buy/Sell” or “Purchase and Sale Agreement,” as it is commonly referred to, is the first formal step in the process. Certain states or Canadian regions are “contract” jurisdictions. Others are “escrow” locations.
Areas that require escrow transactions also require an attorney to draft the Purchase and Sale Agreement. The Broker prepares only the “Binder,” an outline of the contract details.
In contract negotiations, the realtor prepares the contract or oversees contract preparation. Many realtors in contract states or provinces are averse to using attorney-drawn contracts or forms that are different from the standard approved forms of the real estate commissions of the various states and provinces. Many sellers lack the experience to trust an attorney-drawn contract. There is nothing wrong with using a standard real estate form, so long as it is relevant for farm, ranch, vacant or rural ground. However, do not attempt to buy a ranch or rural property using a residential house contract. The printed real estate forms must be as carefully perused as any other document.
The Team
Create and consult your team, but remember that your advisors can only do so much. The team is not the buyer of the property—you are. While the team members may offer great insight and enthusiastic support, never forget that it’s your money that is being spent to achieve your dream. In addition to review by the team, read every document yourself. If using a pre-printed format, pay attention to the numerous little boxes that allow the seller or buyer to elect certain rights or confer certain obligations and liabilities. (See Green for Green workbook.)
If you have a buyer’s broker with whom you have a Buyer’s Agency Agreement, that’s great! A qualified broker experienced with land can be your first line of defense. He or she can bring invaluable experience to the purchase equation. Residential realtors typically do not have the specialized knowledge necessary for most land transactions. Remember that the seller’s agent or broker owes their allegiance and agency by law to the seller, not to you. If you are not represented by a buyer’s broker, or if you decide not to assemble a full acquisition team, I highly recommend that you at least have competent real estate counsel domiciled and licensed within the same state, and preferably the same county as the property you wish to purchase. There is no substitute for local knowledge, network and contacts. Do not sign any purchase agreement without having it reviewed by your attorney and buyer’s broker. A seemingly innocuous detail or an inconspicuous term can be the cause of severe post-contract regret.
Don’t be afraid to add special provisions or conditions to your contract. Don’t be too bashful to ask for something you want, or too lackadaisical to care. Don’t blow off an opportunity to get things right at the very outset. Additional provisions or conditions can be suited to your needs and goals, to your financial reality and long-term plan for the property (see Chapter 14). If you employ a standard-form contract, these matters can be set forth in the “Additional Provisions” section. If the selling broker whines that there is only so much space on the preprinted form, look him or her in the eye and say, “Then let’s add some additional provision pages as an addendum or a continuance of the Additional Provisions Section.”
The contingencies section of the contract and any additional provisions are your primary contractual shields. These sections allow you to investigate the land, the title and a host of other matters. This affords you and your team a chance to perform the due diligence necessary to avoid wrecks and ensure that the property can actually fulfill your short and long-term goals. It is primarily these clauses that allow you to exit the contract with a full refund of your earnest money if your investigation reveals problems or contingencies that cannot be met.
The basic criteria of a sound purchase
agreement includes: price, terms, finance, place and date of closing, conditions, contingencies and additional provisions. However, layered into each of these basic contractual components are a myriad of advantageous or disadvantageous details. Many times it is the details that make or break a deal, ensure long-term success or cement eventual failure.
These details can protect you from unsavory circumstances; for instance, if the seller were to attempt to void your contract and sell the property to someone else, effectively leaving you high and dry, or refuse to return your earnest money. These details can also protect you if the property does not check out based on your due diligence research. A well-written agreement allows you to “reach back” after closing, if a problem should later arise from a lack of disclosure by the seller or seller’s agent.
The agreement should also address any additional matters over and above those which applicable state or provincial statutes state clearly do not merge with (terminate), but survive, a closing, such as a seller’s continuing post-closing warranties or promises. It is the details that may afford you closing or financing flexibility if external economic, governmental, terror-related or similar matters of force majeure occur prior to closing. These general examples are only a few of the many possible scenarios that should be on your radar screen. (An outline of contract considerations developed by me and used by my firms over four decades are in the Green for Green workbook.)
The contract must provide adequate time for investigation of local and adjacent properties and conditions, as well as property-specific matters. Environmental considerations, either existing or which might potentially arise in the future, water rights and resources, soil and geologic conditions, particularly where one plans to grow or build, mineral ownerships, leases and rights, title matters and vegetative disease infestations if the property is forested, are all among other important matters to research (see Chapter 4).
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