Chapter One: Getting Started.
Buying a ranch is often the greatest investment a buyer will make in his or her lifetime and should not be undertaken lightly. Admittedly, while ranches are simply toys for some people, land ownership and the transfer of ownership is serious business. Unlike a car, you cannot just “take it back” if you find something doesn’t suit you. Buying a ranch is a major undertaking, with a lot of aspects you may not be familiar with. You’re going to need some help.
Regardless of how you find and buy your ranch, you’ll probably do business with a farm and ranch Broker, one licensed by the Texas Real Estate Commission (TREC) to assist in the transfer of ownership of real estate. Yes, you can dig a hole with your hand, and you can buy a ranch by yourself, working directly with the Seller. However, just as digging is easier with a shovel, so is buying a ranch with a Broker. Most ranch buyers today are not ranchers by trade, and may not know exactly what they’re buying. While they might be the greatest doctor, lawyer, or even commercial broker on the face of the earth, they often don’t know the difference between guajillo and blackbrush; sandy loam and clay. A RANCH Broker should know the difference and should know what you need to be satisfied.
What then is this animal, known as a ranch Broker? As recently as 30 years ago, ranch Brokers were a closed lot. In South Texas, there were perhaps 5 “successful” Brokers, Brokers that sold across South Texas and sold more than 25,000 acres a year. These few pretty much were the extent of the farm and ranch real estate industry. In those days, the laws were pretty loose and for “$10 and a letter of character recommendation”, you could become a Broker in Texas.
This changed with the land bust of the early 1980’s, when land in Frio Co., for example, went from $1,200 to $400 per acre. With good ranches being auctioned at local hotels and banks peddling their foreclosures to anyone with decent credit and a small down payment, a new class of buyer was introduced. Because of the glut of properties, the sharing of information and professionalism became crucial to a Broker’s survival. “Hip pocket” listings, listings where the Broker knew of a place that could be bought, but no signed agreement existed between the Owner and the Broker, became rare as first-time buyers became the norm rather than the exception.
This was because these first-time buyers were not cattlemen but were successful businessmen; usually at least one generation away from the land. They were looking primarily for recreation property, not a source of income, and they were used to doing business in writing, using lawyers and expert advisors to accomplish their transactions. This professionalism dictated a change in the way Brokers did business and precipitated a change in the industry. The Texas Real Estate Commission (TREC) stepped in too, stiffening education requirements, upgrading the licensing process, and revising the forms used in rural land sales. The “good ol’ boys” and their slipshod way of doing business were out.
Today, farm and ranch real estate brokerage is strictly regulated and supervised by TREC. As a group, we gradually came to accept the FAX, the mobile phone, and eventually, with much wailing and gnashing of teeth, the computer. In the last 20 years the business has undergone major changes, all to the benefit of the consumer.
Brokers are required to have two years of experience as salespersons under the tutelage of an established Broker, and must pass an additional test to become a Broker. Like many professionals today, farm and ranch Brokers, with few exceptions, must undergo mandatory continuing education every two years to renew their license. They are required to use the forms promulgated by a Lawyer-Broker Committee at TREC, and must be well versed in their duties.
Unlike residential Brokers, farm and ranch Brokers normally work alone, sometimes with one or two salespersons; salespersons doing their time before they can become Brokers. It is important to note that most farm and ranch Brokers do only farm and ranch. I fear many Buyers do not get the best property or best deal possible, because they do not seek out a farm and ranch specialist.
Broker responsibilities fall into several categories, starting with a basic two; those that represent the Seller or those that represent the Buyer. If a Broker has a listing agreement with a Seller that Broker normally represents the Seller. He is compensated by the Seller for completing the sale at a rate negotiated between the two. This compensation, called the commission, is that Brokers’ money, to do with as he sees fit. He can, of course, keep it all, for a job well done. He may give some of the commission to either the Seller or the Buyer at closing, to help with closing costs, or to “make the deal”. He may also give some of his commission to another Broker for that Brokers’ assistance, called “splitting” the commission. The “other” Broker may assist the Listing Broker as a sub-agent, representing the Seller, or he may assist as the Buyer’s representative, representing the Buyer yet still be paid by the Listing Broker. This is a major and recent change. When I got in the business, we all worked for the Seller because we and had a fiduciary link to the Seller. Once the commission was deemed to belong to the Listing Broker, to do with as he sees fit, it allowed other Brokers to represent the Buyer, a major difference. In an instance where the Broker represents both parties, an “intermediary” relationship is formed. This is complex and fraught with potential problems and should be avoided.
To make this all clear, at the first substantial meeting between any Broker and prospective Buyer, the form below should be supplied to the Buyer. This form, promulgated by TREC, sets forth the duties and obligations of the Brokers in any transaction. As I often say when handing it to a Buyer, “you can’t tell the players without a program”. This form identifies the players and delineates their loyalties.
Unfortunately, there are “bad apples” in every business and obscurity is their haven. In addition to possibly misrepresenting information, Brokers are NOT attorneys and should not advise you on any matter regarding the law. You should not rely on him/her for advice of a legal nature. As a Buyer, you should always keep in mind that real estate professionals in Texas are subject to the TREC and there is a venue for complaints against Brokers and salespersons. Do not hesitate to complain to TREC if you feel you have been mistreated or misled by any real estate professional.
Many Buyers feel that they can best find the property they want by looking at the classifieds and visiting Listing Broker websites, then contacting the Listing Broker for a viewing. The mistake they make is that they simply do not see all that is available. Not all Brokers have websites and not all properties make it to the web. Brokers that have listings would prefer you buy their properties and may not show you other properties listed by other Brokers. After all, they represent the Seller and have an obligation to sell his property before they go looking elsewhere. Also, the Buyer may not fully understand what requirements he/she has in terms of location, soils, vegetation, etc. and may not know what questions to ask of the Listing Broker. Lastly, they may be “bullied” during the contract phase to either pay too much or give up rights they may not even know they have. This is not to say Listing Brokers are evil. Many Brokers do both, taking listings as well as representing Buyers. I do just that and in truth do not change my presentation regardless of my fiduciary responsibilities. But it is crucial, in my opinion, for a buyer, particularly a first-time Buyer to have his/her own Broker, a “buyer’s rep”, looking out for his/her best interests.
I should point out that there is an option for a Buyer to retain a Broker as his representative and negotiate a commission with him/her. This has been the case for several years, but has not caught on. My thought is that this is due to the relatively large commissions that have always been traditionally paid by the Sellers. The Buyers feel that they are paying one commission anyway in the purchase price and, since they’re not going to get a “break” in the purchase price by paying another Broker to represent them, why should they pay a buyer representation commission? Happily, it is the norm for Listing Brokers and Buyer Rep. Brokers to work together, splitting the commission. Both parties are then represented at no additional cost to the Buyer.
Picking a good Broker to represent you early on in the purchasing process should fill in the gaps in your knowledge and experience as well as make the process go smoother. How do you go about finding a Broker to represent you, a Broker suited to your needs? First of all, you need to decide in general what type of land you are looking for, where you would prefer it be located, what you intend to do with the land, and how much you can afford. Once you’ve chosen a Broker, these parameters can be refined, but a rough idea of your needs is helpful in choosing a Broker to ensure he is knowledgeable in that area of the state.
Once you have these questions pretty well answered in your mind, it is time to seek out a professional farm and ranch Broker. Please, do not ask your wife’s third cousin who just got his/her real estate license to “see what’s for sale”. It wastes his/her time, your time, and any other Brokers’ time. You need a farm and ranch Broker, one who specializes in the area you want and the type/size property you want to purchase. You should look for a member of the Texas Association of Realtors, if for no other reason than they have and adhere to a code of ethics. That alone will make the purchase process more open and above board. If possible, find a Broker that has the Accredited Buyer Representative (ABR) designation. That simply means that the Broker has attended classes designed to help him/her protect your interests in the sale.
Word of mouth is probably the best way to find a Broker to represent you. Ask friends and relatives if they have bought or sold ranches and who the Brokers involved were. Were these Brokers honest, knowledgeable, and friendly? Did they work to present your friends with a variety of properties, trying to expose them to several selections in their price range? Location of the ranches they helped buy or sell is fairly important, although farm and ranch Brokers usually cover large geographic areas. An exception would be when you want to be in a specific area or near a specific town. In that case, small town Brokers who work their counties and little outside that may suffice. They are excellent sources for information, but limited to their areas and normally sell just their own listings. I feel it is better to try to find a Broker that has experience in your preferred area, but works a broad area, just to widen the scope of your search. After all, you probably are not familiar with, all of South Texas or all of the Texas Hill Country. Once you find a Broker to represent you, let him/her go to the Brokers in that small town and see if they have any properties that you might be interested in.
Failing to find a likely candidate from among your friends, you can type “South Texas Ranches for Sale” in your search engine for a list of websites that should apply. Read the Broker bios on these websites and pick a few to call. Ask specifically if they do Buyer Representation and ask for their sales history and references. Any qualified, experienced Broker will be happy to send you his/her sales history and from that you can pick those Brokers that have sold in the area and size you’re looking for.
As a last resort, check out the classifieds on the San Antonio Express-News, the Houston Chronicle, the Austin American-Statesman or the Livestock Weekly. These periodicals, while steadily shrinking, still have “Farms and Ranches For Sale” sections. Look through these ads, noting Brokers that are selling ranches in the size you need, in the areas you prefer. Call several, explaining what you are looking for and ask if they have anything that might fit your needs. Ask if they will represent you in looking at ranches listed by other Brokers. If they agree, ask for e-mail or written packages on all the ranches they are aware of that fit your requirements. The fact that you have asked for and received information on certain ranches from a Listing Broker in no way obligates you to that Broker. At any time, you can say you desire to be represented by another Broker and he/she must respect that request. He/She may say however, that he/she does not want to share the commission with this other Broker, either because it is too small to be split, or because he/she feels they have already earned the whole commission. At that time, you must decide if the property is interesting enough to seek out and compensate your own Broker. Also, if the Broker seems pushy or eager to go look at ranches before you feel ready, find another Broker; this is too important an investment to fall for the hard sell. Along the same lines, if you pick a Broker with listings which generally fit your requirements, the Broker will often favor his listings over those of another Broker. This reduces the scope of your search and leaves you without any representation. If at all possible, choose a Broker without any listings that fit your search parameters; let him/her represent you and see all that’s out there.
During this initial phase, ask the Brokers you call about their business and their experience. Try to find one that is compatible and is eager to help you, not just sell those properties he or she has listed. If they are not willing to seek other properties, if for no other reason than to compare with their listings, they are not representing you and you will not get the best selection to choose from.
Once you have selected a Broker to represent you and search for likely properties for you, show him/her some loyalty. Once you start looking, you may start to receive calls from Brokers, offering you properties and their services. It makes life and the buying process much easier if you simply refer them to your chosen Broker. Nothing complicates what can be a pleasurable experience more than multiple Brokers fighting over a commission. Pick a Broker and force all information through him/her. Doing this, the process will be much simpler, reducing stress and avoiding lawsuits when it comes time to close. It is very important that you visit prospective properties with the same Broker. An unwritten rule among Brokers is that, whomever showed the property to the Buyer is the procuring cause of the sale and is due compensation. If you feel you are not seeing all that there is to see in your search category, tell your Broker. If the situation does not change, you may well consider changing Brokers.