8 questions to ask before you sell your development rights.

At one time or another, many Northeast farmers have contemplated the sale of development rights for their land. Perhaps they have even talked about this idea in a conversation with a neighbor over a cup of coffee, with family members over dinner, or with a financial adviser when mapping out the future.

But moving from "contemplating" the sale of development rights to actually "selling" them often means working through a long, complex process. Along the way, you will probably interact with state and county governments, private land trusts, attorneys and financial advisers. And you'll learn about legal concepts such as "conservation easement," "ag preservation," "restricted land" and "perpetuity."

In short, making the decision to sell - or not to sell - a farm's development rights is not easy.

While it is clear that farmers love their land as much as they dislike the spread of condominiums and mini-malls across their rural landscape, the debate over whether they should restrict the future use of their land is a lot less clear.

Bill Zweigbaum, a business consultant with First Pioneer Farm Credit in Claverack, N.Y., has worked with many ag business owners on development rights issues. Bill says, "The first and foremost reason why Rural America and agribusinesses sell development rights to their land is for the preservation of agriculture and the safekeeping of their scenic landscapes."

Zweigbaum adds that it is also about individual farmers making personal, business, financial and tax management decisions that are right for their family and their livelihood. After all, it is a permanent decision that determines how a family can use its land now - and how future generations can use it decades ahead. After careful study, some farmers choose to sell their rights, while others decide it is not right for them.

To help you through this complex issue, this article offers eight important questions that every landowner should ask before making this decision.

1. Who will make the decision?

Every decision maker in your business needs to be 100 percent sure that the decision to sell - or not to sell - is the right one. Consensus is critical.

According to Tunis Sweetman (pictured on this page), a dairy farmer in Warwick, N.Y.(click here for details) who sold his development rights in 1998, "This process can last two years or more. So be sure to bring in all family members who will be involved in the decision early. That way, you'll have no surprises."

2. Why do you want to sell?

Bill Zweigbaum advises that a rule of thumb to follow when contemplating any "business-changing" transaction is to keep your long-term goals in mind. "Be absolutely clear why you are selling your rights," he says.

Here are some common reasons why landowners sell development rights:

• Money. Many landowners want an influx of cash to retire debt, diversify enterprises, purchase buildings and equipment or buy land to expand the farm operation or secure rented land.
• Family. Some family members want to farm and others don't. Rather than sell the farm for its full market value and split the proceeds, some families sell development rights to provide equity for off-farm members while allowing on-farm members to continue to farm.
• Preservation. If you are considering relinquishing your development rights to keep your land forever green, also consider how the restriction will encumber future generations and, if you think your children's children will feel the same as you do about the land
• Retirement. Selling development rights can provide retirement income - with options. That is, your proceeds from the sale may afford you the luxury of reducing the price of some land to your children and gifting the remainder to them. Or it may allow you to sell the land at an affordable price to a young farmer who could never afford to buy the land at its market value.
• Increased value of unrestricted land. Some farmers retain a parcel of their best land, knowing that selling the development rights on land that abuts this parcel will increase its market value.
  

6. Are you operating profitably?

Loan officers absolutely shudder when they hear of landowners selling development rights to pay off mounting losses. Loan professionals don't like to see people trying to fix a problem at the expense of their most valuable asset. If a business is not profitable then selling its development rights might leave the landowner vulnerable. Subsequent events might force the landowner to sell the land at a lower value some day in the future. Instead, landowners should first fix the problems causing their losses. If they can't, then selling the farm at its greatest value may make more financial sense.

7. Can you manage this change comfortably?

Steve Weir, branch manager of First Pioneer's Riverhead, N.Y. office, says that agricultural landowners are expert real estate economists who know how to reap the best appreciation and value from their land. "When selling development rights," he says, "a landowner should be equally comfortable managing a different asset, such as cash, stocks or bonds."

Steve advises customers to give as much of their energy to managing new ventures as they did managing their real estate. "This is important to maintaining overall returns," he adds.

8. Will your new investment make more money for you?

Steve Weir also says that farmers should be confident that their new investments will be equal to or greater than the appreciation of the rights without the deal. "Spend time on this financial analysis," Steve advises. "It is the key to the sale of development rights."

For example, if you use your proceeds to invest in the stock market, be reasonably certain that your money will appreciate at the same rate as your development rights would have.

Summary of state development rights purchase programs and links.

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