What does the average Wisconsin real estate agent and Imelda Marcos have in common? A vast shoe collection! 

While I may not need thousands of pairs of shoes like Marcos, the former politician from the Philippines who acquired her shoe collection through ill-gotten means, being a Wisconsin real estate agent gives me good cause to have an expansive shoe collection, due largely in part to Wisconsin’s varying landscapes. I can easily spend the morning in dress shoes showing upscale condominiums, don sandals for afternoon showings of lakefront properties, and pull on knee-high boots to trudge through vast fields and forests on a muddy evening land tour. But a diverse shoe collection is not all that is needed for selling Wisconsin real estate — a diverse knowledge base in many areas of real estate is also needed to be successful. Each area of real estate presents unique considerations for the real estate agent. 

Even within the area of land alone, one must recognize the differences that arise between improved parcels and larger tracts of land. A buyer looking at improved parcels in a platted subdivision generally has a standard list of concerns. The concerns that can commonly be addressed using the Proposed Use Contingency, at lines 306-350 of the WB-13 Vacant Land Offer to Purchase, were covered by Carol Krigbaum in “New Construction: The Pivotal ‘Proposed Use’ Contingency of the WB-13” in the May 2018 issue of Wisconsin Real Estate Magazine. On the other hand, the purchase of large tracts of land for farming, recreation or other nonresidential uses lends itself to further considerations in contract drafting. This article attempts to highlight some of the significant concerns for real estate agents with knee-high boots involved in sales of larger tracts of land. 

Choice of forms 

The choice of the form is not always clear when selling large parcels of land. While it is possible to draft an offer for an 80-acre farm with a house and barn on a WB-11 Residential Offer to Purchase, a real estate agent may want to consider its cousin form, the WB-12 Farm Offer to Purchase, which is two pages longer and allows for additional provisions. The farm offer includes options such as a Zoning Classification Confirmation, a Government Program provision, and a Document Review Contingency. The farm offer also includes some contingencies similar to those that often surface in the WB-13 Vacant Land Offer and the WB-15 Commercial Offer, such as a Land Use Approval Contingency and an Environmental Evaluation Contingency. A real estate agent should always review the possible forms and choose the form that fits the transaction best and with the least amount of modification needed. 

Programs affecting land

It is not uncommon for large tracts of land to be enrolled in one or more governmental programs. The WB-12 Farm Offer to Purchase and the WB-13 Vacant Offer to Purchase both have check boxes allowing a buyer to include a contingency for review of program terms that a seller may have enrolled in. The common programs are in a list suggested in the contingency, but others may apply as well. 

Government programs exist for many different reasons and have broad impacts. The Managed Forest Law (MFL) program administered through the DNR, for instance, affects over a million acres of Wisconsin forestland. The program is found in 71 of Wisconsin’s 72 counties.1 In the MFL program, a landowner with 10 or more acres of woodland receives a real estate tax reduction in exchange for practicing sound forestry practices. 

Another program, the Conservation Reserve Program (CRP) administered through the USDA, exists to prevent farmers from growing crops on highly erodible soils, attempting to reduce the amount of runoff into Wisconsin’s waterways and protect environmentally sensitive areas. CRP participants receive an annual payment in exchange for planting cover crops. Over 219,000 acres are under CRP contracts.2 

The most common features of these government programs include the following: 

• The landowner enrolled in the long-term contract.
• The landowner received a financial incentive under the contract.
• The landowner agreed to terms that will most likely affect subsequent owners, including significant penalties for removal from the program. 

Unfortunately the landowner’s memory is relied upon for enrollment determination, as no one program index exists; however, a review of the property tax record sometimes available on the county website or through the local assessor can occasionally reveal program enrollment status. Research through the individual administering agencies may also be helpful in retrieving copies of lost contracts or determining the existence of contracts. Purchasers of land may find themselves subject to inherited, long-term contracts and large penalties upon removal when purchasing land, so knowledge of these programs is critical. 

Use-value assessments

Another matter that may be found on a property tax record is the use-value assessment. The use-value assessment was implemented in 1995 as a means to keep Wisconsin family farmers profitable by offering the farmer a reduced annual real estate tax burden. The assessed value is based on the land’s value as farmland and not based on the market value, as all other real estate is assessed in Wisconsin. Movement of the farmer’s land into a “use-value” assessment versus the market value assessment is done behind the scenes by the local assessor, sometimes without the landowner having knowledge. The reduction in assessed value reduces the landowner’s tax bill. So long as the property remains in the agricultural use assessment, the landowner enjoys the reduced tax burden. A purchaser of a property under the use-value assessment needs to be made aware that removal of the land from a farming use will trigger not only a higher tax bill for subsequent years, but also a one-time per-acre penalty. The penalty can be significant in many cases and varies based on local land rental rates. Real estate agents can obtain the per-acre penalty from the local assessor or county tax treasurer’s office. Residential, farm and vacant land condition reports now ask property owners a series of questions regarding use-value assessments to alert buyers of this matter. 

Differences in financing availability

Do not let the similar language used in financing contingencies in residential transactions and nonresidential transactions lead you to believe that the same types of loans are available. It is not uncommon for vacant land to be financed on a three- or five-year term, versus the coveted and standard 30-year conventional loan, typical in residential transactions. Additionally, lenders generally require a much greater downpayment for vacant land, farms and nonresidential transactions. The interest rates can vary substantially from a 30-year conventional loan and can have quirky underwriting requirements, such as not allowing any of the land to be under a lease. Checking with the buyer’s targeted lender prior to drafting a contract can help steer you toward drafting a realistic financing contingency in an offer. 

Agricultural leases

It is not uncommon for all or part of large tracts of land to be under lease in Wisconsin. Real estate agents involved in sales of large properties should take note of crops in the ground and ask questions of the owner accordingly. An offer written with any type of lease will need to identify the terms of the lease and the proration of rent payments. A buyer of a property impacted by a lease will take occupancy subject to the tenant’s rights, unless otherwise negotiated, so knowing the terms of leases is critical in a sale. Written leases should state the duration and rate, among other terms, making proration and occupancy provisions in a real estate transaction straightforward. However, it is not uncommon for farmland leases to be oral in nature, presenting more challenges in a real estate transaction. The law will generally consider an oral farmland lease a “periodic tenancy.” Most farmland leases will default to a term of January 1 to December 31.3 For an oral periodic tenancy to be terminated, 90 days notice must be given prior to the end of the year. A tenant who has continued renting beyond the initial term is considered a “hold over tenant” and is subject to the periodic tenancy rules as well. A buyer purchasing a property will certainly want to be informed of the duration of the tenant’s rights and notice provisions. Additionally, any testing or pre-closing inspections that will damage a tenant-farmer’s crop should be negotiated with the tenant-farmer and the seller. Often a per-acre payout for crop damage is negotiated prior to any damage.

Keep buying those shoes!

Just as a real estate agent must justly acquire a vast collection of shoes to conduct business, a real estate agent must also justly acquire a vast collection of knowledge in different practice areas. Hopefully this article has not only contributed to your knowledge in farmland and vacant land transactions but also has given you reason to go purchase another pair of shoes!

Liz Tobolt grew up on a dairy farm in Hartland, Wisconsin. She began selling real estate after graduating high school. Later, she went back to school, obtaining a B.A.A. from UW-Whitewater and a J.D. from Marquette University Law School. Today, Tobolt teaches, continues to sell real estate, and practices transactional real estate law as the managing member of Liz Tobolt Law LLC, in Hartland, WI. 

Citations

1. David L. Sperling and Daniel Huegel, Good Value, Just Compensation, Wisconsin Natural Resources Magazine (Feb, 1999), https://dnr.wi.gov/wnrmag/html/stories/1999/feb99/taxes.htm
2. Conservation Reserve Program Statistics, www.fsa.usda.gov/programs-and-services/conservation-programs/reports-and-statistics/conservation-reserve-program-statistics/index
3. Legal Guide, Basics of Landlord Tenant Law, State of Wisconsin Department of Agriculture, Trade, and Consumer Protection (Nov. 9, 2011), datcp.wi.gov/Documents/DAD/BasicsofLandlordTenantLaw.pdf