One of the reasons consulting forestry, and now land focused real estate brokerage, has been so appealing to me is that the job is not monotonous. Each day presents new challenges and, while experience helps navigate those challenges, timberland agents are constantly learning and coming across new things. It is hard to describe a typical day because each one is unique. There are certain characteristics that make timberland brokerage a unique specialty.
I worked as consulting forester early in my career before transitioning into land agency. These early experiences prepared me for the more technical aspects of timberland brokerage. Brokers need a strong knowledge to help them allocate value among the component parts of properties. The value in timberland can be thought of as comprising two major components: the underlying or bare land and the timber growing on the land (there may also be improvement value). The agent must be able to quantify the timber portion separately from the bare land in order to form an accurate purchase or selling price.
The first step in this process is accurately describing the timber on the property. This usually starts with a current forest stand map that details the acreages associated with each unique stand. A forest stand is an area of similar species composition and age. We prepare for the initial tract visit with an aerial photograph of the tract, and the first visit involves touring the property to identify the stands and stand boundaries. We then describe those stands in terms of species composition, age, site quality, silvicultural treatments, and any other relevant features. We take this field information back to the office and, using our GIS system, create an accurate and up-to-date stand map with associated acreages.
We then decide if the property requires a full timber inventory (cruise) to accurately value the merchantable timber. Ideally, all merchantable stands of timber will be inventoried prior to a purchase or sell. This gives either the buyer or the seller confidence in the timber value of the asset. If this is not possible, or the party does not want to incur the expense, an experienced forester or broker can provide estimates of the per acre value based on a thorough inspection of the property. Walk through or “ocular” estimates are not as accurate but are significantly lower cost, and may be sufficient depending on the goals of the buyer/seller.
The timber inventory should detail all of the species, forest products, and volumes in each timber category. If the agent is not a forester, they should seek to establish relationships with local consulting foresters in their work area, so that he or she can be engaged to perform timber inventory and appraisal services clients when needed. Pre-merchantable stands, those too young for commercial sale, have value that should be estimated as well. These can be valued if the agent can determine the age, species, and site preparation invested in planted stands or natural stands of timber.
Agents specializing in this area of the land business need to have a strong knowledge of timber markets in their work area. They should know the area mills, what products they purchase, how the trees are merchandised (cut up when harvested), and current market pricing of all forest products for the market. In my area of North and South Carolina, I work in five unique timber markets within a 200-mile radius, and the values for the same forest products can vary greatly between each of these markets. If you are going to advise investors on where to purchase land, and help them forecast future timber markets, it is imperative to be networked with consulting foresters, procurement foresters, timber dealers, and mill representatives. These relationships will keep you updated so you can help your clients make good decisions. Armed with a deep understanding of the markets and forest product pricing in the area, a broker can use the timber inventory data to estimate the value of the timber on the property with a reasonable amount of certainty.
Equally important is the ability of the broker to value the underlying land on the timber investment. There are two primary approaches timberland brokers can use to value the land:
- Comparable sales. The sales comparison approach is the primary method used for smaller acreages that have less potential for regular (annual) cash flows. The broker should have a strong understanding of recent timberland transactions in their work area with as much detail as possible to estimate the bare land price realized in each sale (the allocation). This allows the agent to make an apples-to-apples comparison of sold tracts to the subject property. Land focused real estate brokers and local rural appraisers can help agents obtain comparable sale information. Professionals are usually willing to share information with other professionals, so be sure you return the favor to those who assist you.
- Land Expectation Value (LEV). The Land Expectation Value (LEV) approach involves using discounted cash flow analysis (DCF) to derive the net present value (NPV) of the net income stream produced by a property over time. The LEV approach does require some specific knowledge to complete accurately – primarily a way to project timber growth into the future. Generally, this approach is reserved for larger transactions with many acres and forest stands involved, those likely to generate annual or at least semi-regular cash flows through frequent harvest events. To complete this approach, the analyst will need to understand the client’s investment parameters as well, including likely holding period and required return. Specialized training and knowledge is required to value a property using the LEV approach.
Timberland is a specialty, and this is a very high level overview of the types of task a timberland agent might work on in a given day. The REALTORS Land Institute offers and excellent introductory class, Timberland Real Estate, as part of their LANDU Education Program. I recommend this course as a first step for those who seek expertise in timberland.
Chris Miller, ALC, is a land broker and consulting forester for American Forest Management, Inc. in Charlotte, North Carolina.