ON BUYING A RANCH: THE BENEFITS OF HIRING A BUYER’S AGENT

Article by Gary Hubbell, ALC

United Country Colorado Brokers, Inc.

Hotchkiss, CO and Carbondale, CO

January 11, 2024

It’s Not “Regular Real Estate”–Buying a Ranch Property is Complicated Business!

Buying a ranch is not what we call “regular real estate”. When compared to buying a house in a typical residential neighborhood, ranch real estate is a very different type of acquisition and process. There is much more to unpack with a large acreage ranch property. A typical sale might include:

• Acreage anywhere from 40 acres to several thousand acres
• Personnel, such as a ranch manager and employees who are willing to stay on
• Farm equipment and recreational vehicles to run the ranch
• Water rights, whether ditch, reservoir, or sub-surface pumping rights
• Grazing permits on state, BLM, and National Forest lands
• Mineral rights that may or may not have been severed from the ranch estate

You Need Representation–Ranch Sales Are Complex Transactions

When a buyer or investor (same thing, really—buying a ranch is a huge investment!) is making a consequential decision like buying a ranch, it’s a good idea to have an agent working on your behalf. By law, a broker cannot “represent” two parties in a transaction. It’s a conflict of interest. There are cases whereby a listing agent can act as a “transaction broker” in Colorado, which is basically a scenario whereby the agent is not the coach of one football team or the other—he or she is the referee on the field. However, we just had an interesting scenario whereby it appeared as though we were representing the buyer on a very large ranch purchase, which also happened to be our listing. Just to be safe, we called the Colorado Real Estate Commission’s Legal Hotline to ask for advice. The attorney who answered said it would be much better practice to NOT try to pursue transaction agency on such a large deal. It would be better practice to appoint an agent to represent the buyer. There’s just simply too much at stake, and we didn’t want the appearance of having a conflict of interest.

A Buyer’s Agent Has the Responsibility to Represent You in Your Purchase

While many people understand the concept of AGENCY (in all caps because it’s that important!), others don’t. When you hire an agent to represent you, that agent has a fiduciary and ethical responsibility to represent you with faith and fidelity. The only way to truly have an agent represent you as a buyer is to sign a Buyer’s Agency agreement. Then and only then is the agent bound to you to represent you as a buyer in making your purchase. A typical Buyer’s Agency agreement lists the duties and responsibilities of each party. The buyer details their purchasing parameters—acreage, quality of improvements, investment criteria, etc.—and agrees to work with the buyer’s agent for a defined term. Also included in the agreement is compensation for the buyer’s agent, which is usually, but not always, defined as a commission percentage of the sale.

Ranch Searches Can Take a Lot of Time and Resources!

I have assisted several buyers in purchasing large ranches, and let me tell you, it can be a lot of work! I remember one particular ranch search where we toured ranches across the southwest corner of Colorado, over to Guffey, which is west of Colorado Springs, then up to southern Wyoming, and finally coming to rest in Steamboat Springs, where my buyer made a nice purchase. We were on the road 22 days and toured probably 20 different properties. As you can imagine, a search like this racks up some road miles, tanks of gas, hotel rooms, and meal expenses, while I was unable to concentrate on any other business. Consequently, when engaging on a ranch search of this type, I charge a per diem rate in addition to my buyer’s agency commission. Sometimes brokers will charge a success fee or a retainer as well. It’s all negotiable.

Who Pays? Buyers Pay the Commission for Off-Market Properties and FSBO’s

Some buyers balk at the idea of paying a buyer’s agency commission if no commission is offered by the seller. This does happen sometimes, especially if it’s an off-market property or a “FSBO—For Sale by Owner” property. While it is true that a buyer’s agency commission is almost always offered on a listed property, it’s not always true that an acceptable commission is offered. Some agents are listing at ever-lower commission rates, and a good buyer’s agent may not be willing to work for those rates. In that case, a minimum commission rate is defined in the buyer’s agency agreement. If the commission offered is not high enough, the buyer is required to cover the remaining balance to compensate the broker for their work.

Do You Expect a Knowledgeable Professional Agent to Work for Free?

Some buyers bristle at the thought of actually paying an agent to work for them. One of my agents has a potential client who is looking for good commercial deals in Western Colorado. I know of three good ones, but none of them are listed. This buyer nevertheless expects my agent to drive all over hundreds of miles of snowy roads to dig up these unlisted properties with no promise of being paid. “HAHAHAHAHAHA!”  was our response. We won’t even start the truck without a signed buyer’s agency agreement. I find this resistance to paying a buyer’s agency commission to be very interesting. Most of the same people who whine about buyer’s agency commissions also have brokerage accounts with money managers who are charging roughly the same commission EVERY YEAR to manage the client’s money while a good real estate agent gets paid only once on each transaction, and the client may own the property for decades afterward. You wouldn’t ask your financial advisor, your doctor, or your lawyer to work for free, so get ready to pay for quality representation.

The Value Proposition That a Good Ranch Broker Brings to You

The skill set of a good ranch broker can be very broad. Much of it is learned through simply living the ranching lifestyle, by growing up in the country and learning by doing. Not every ranch broker will know every aspect of ranch brokerage, but a good broker should have knowledge of:

• Land values, sales comps, and different capabilities of ranch properties in certain areas
• Water rights, annual precipitation, drought conditions, and availability of water in particular areas
• Hunting conditions, health of game herds, local or state game laws and regulations, availability of landowner tags
• Mineral markets, whether drilling is ongoing or productive, chances of it being consequential to local properties
• Productivity for various regions and properties for crop production, including grazing and forage, hay, grain, fruit, row crops, and even cannabis and hemp
• Animal husbandry, including cattle, horses, sheep, goats, and even high-fenced game animals such as deer, elk, and exotics
• Irrigation systems, apportionments, and diversion methods, including center pivots, pressurized sprinklers, gated pipe, and primitive irrigation systems
• Conservation easements and the positive and negative effects on properties
• 1031 exchanges and income-producing investment strategies
• Quality ranch improvements, including custom homes, lodges, and cabins
• Local, county, and state building regulations, codes, and restrictions on use

Most Agents Are Not Competent With Ranch Real Estate Brokerage–Interview Carefully!

We call them “house mouse” agents or “doorbells and window shades” brokers. There are many agents who may WANT to sell ranches but have no actual experience or competency in the field. That’s when YOU, as the buyer, suffer the loss. We have seen time after time when a buyer used the wrong agent to buy a property, and important details were either neglected or flat-out unknown. We’ve seen verdant fields sell to an unsuspecting buyer, who was unaware that half the water rights were stripped out of the deal. We’ve seen sellers pay far too much for neglected properties. We’ve winced when we learned that a buyer wasn’t aware of deficient water rights, a proposed new gas pipeline, or poor soil conditions that will never produce what the buyer has expected. Almost always, these deals are brokered by agents that really don’t know what they’re doing in ranch brokerage.

An Accredited Land Consultant is Your Best Bet for Quality Representation

Ranch brokers are famous for wearing cowboy hats and looking good, but that has nothing to do with competency as a ranch broker. One determining factor, right off the bat, is whether the broker is a member of the Realtors Land Institute. RLI members are known for competency in ranch transactions. Furthermore, RLI awards a designation for higher-level competency in ranch sales, denoting capabilities with 1031 exchanges, water rights, alternative energy sources, land investment analysis, conservation easements, water rights, etc. It’s called the Accredited Land Consultant (ALC) designation. Our office has 10 agents all told, with Gary Hubbell, ALC, and Jake Hubbell, ALC holding the designation. Spencer Jordan, Loren Williams, and Scott Reece are all working on gaining the ALC designation.

 Only 45 Agents are Accredited Land Consultants Of the 50,000 or so agents and brokers in Colorado

The statistic above tells the story of how difficult it is to become an ALC. Only .0009% of Colorado real estate agents are Accredited Land Consultants. On a national level, the percentage is even lower—615 ALC’s out of 3,000,000 agents and brokers, or .0002% of all agents. When you hire an ALC or ALC candidate as your buyer’s agent, you KNOW you’re hiring someone with competency in ranch transactions. Furthermore, RLI agents are known for working deals together in a spirit of fairness and a high degrees of ethics, so if an agent doesn’t know the answer to a particularly difficult question, there’s always another RLI agent or broker who has handled a similar situation and has the answer to the question.

Ranch brokers with demonstrated competency are not easy to find

Buying a ranch is serious business. You may know a friend of a friend who is a so-called ranch broker because they sold a mountain cabin here and a patch of vacant ground there. If you want to trust a multi-million-dollar multi-generational transaction with a “friend” like that, then you’re not doing serious business. Find an ALC or at least an RLI broker or agent who has demonstrated success and competence in ranch sales. Interview them to see if you feel like you’ll enjoy working together. Discuss your goals in detail and let the agent know which particular attributes are important to you. Investment, hunting, cattle production, luxury, proximity to ski areas, fly-fishing, water rights, horse facilities, quality of improvements—these are all important factors in your search. If you are looking for quality representation for your ranch search, we are available for an interview. Let the search begin!

Gary Hubbell, ALC, is the managing broker and founder of United Country Colorado Brokers & Auctioneers, with offices in Hotchkiss and Carbondale, Colorado. A former wilderness hunting outfitter and fly-fishing guide, Gary has extensive experience with hunting properties and outfitting businesses. He and his wife, Doris, own a 118-acre ranch near Crawford, Colorado, where they raise hay and Labrador retrievers. Gary is an accomplished horseman and is very experienced with farming operations, including hay production and irrigation systems. Contact Gary at grandviewranch@gmail.com or 970-872-33322