The Sale – Selling Timber
When it comes to selling timber, things can get complicated very quickly. It’s important to understand the basic terms that timber professionals use when negotiating a contract for your timber.
After you’ve developed a forest management plan with an independent consulting forester, it may be time to harvest some of the trees on your land. There are two main ways to harvest: clear cutting and select cutting.
Clear cutting is when an entire portion of a forest is cut. Clear cutting leaves no tree standing, and includes the harvest of hardwoods in addition to pines.
Select cutting is when a certain species of trees or trees at a certain maturity are chosen for harvest, and is often associated with thinning (see The Terms).
Timberland owners attract a lot of attention from people who want to buy their trees. Sometimes this can make them feel like a pretty girl at a party, and the attention can be stifling. Being prepared for that knock on the door from a timber buyer is important.
There are two very important sale terms to know: lump sum sale and pay-as-cut sale.
Lump sum sales happen when a timber buyer offers a lump sum of money for all the timber on a plot of land (or all of a specific type of timber with select cutting). As with most things, lump sum sales have both advantages and disadvantages.
Having money given to you up front and all at once is tempting. It’s hard to turn down a wad of cash or a check with several zeros. But before you give in to that temptation, make sure you understand all the possible outcomes of a lump sum sale.
If the logging crew misses a few trees on your property, due to difficult access or plain laziness, then you can potentially come away with added value to your lump sum sale. You could sell the trees they miss to another buyer once they’re done harvesting. But it’s not always safe to bet on someone else’s errors.
Sometimes timber buyers underestimate the worth of harvestable timber on a given tract of land, and this error can potentially cost a timberland owner thousands of dollars. Unfortunately, timber buyers who work for a third party (i.e. not you, the landowner) have an incentive to buy your timber at the lowest possible price. While there are many morally upright buyers in the business, the fact of the matter is that this type of market transaction lends itself to occasional shady deals.
When it comes to price negotiation for lump sum sales, independent consulting foresters act as guardians on your behalf. They make money on a fixed percentage of what you get paid for your trees. In other words, they work for you, and therefore their incentive is to get you the best possible price for your timber.
Independent consulting foresters also have education and training to give you an accurate, unbiased estimate of the value of your trees. And because they’ve been in the tree business for a while, they understand the fair market value of timber products, have all the right connections, and are immune to underhanded deals.
Pay-as-cut sales, also called “per-ton-sales” or “cut-n-haul sales,” happen when a timberland owner is paid for the quantity of trees harvested on the land. In other words, you get paid only for what loggers cut and send to the mill.
One disadvantage of this type of sale is that some trees are cut but never reach the mill. This can hurt the overall value for the timberland owner. With this type of sale, it’s very important to know who’s cutting for you. Quality loggers will maximize the value of the timber. Quality buyers will be organized can be depended upon to pay for what they cut.
Here again, it is essential to have an independent consulting forester on your side. They know the best loggers, buyers and drivers in the business, and therefore are able to act as managers for your harvest. And because their incentive is to maximize your paycheck, independent consulting foresters work diligently to ensure that the people involved in harvesting your trees are on top of their game.
What factors cause you to choose one type of sale over another?
In general, an independent consulting forester will be able to suggest which type of sale is best for your property. A number of factors will affect their suggestion, but here are two of the most basic guidelines they will use:
If the trees are uniform in maturity and type, sometimes it is better to do a lump sum sale. Uniformity makes it easier to estimate the total value of your standing timber, and therefore timber buyers are able to give you more accurate lump sum bids.
If the trees are not uniform in maturity and type, it may be better to do a pay-as-cut sale. Timber buyers will often underestimate the total value of trees on timberland that has varying tree types and trees of differing maturity. Other factors, such as land slope, streams and creeks, can also affect the accuracy of a timber value estimate; if your land has any of these features, it might be best to choose a pay-as-cut sale.
Be sure to check out The Complete Guide to Selling Timber – Part IV