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Markets set prices, not sellers

By Jim Griffith

Communities across this country are experiencing the negative effects of the real estate bubble bursting. The housing markets in these areas are expressing unprecedented price drops. I was recently told that a friend’s neighbor sold his house for $60,000 less than the appraised value of a year ago.

No matter how much the seller wanted or felt he should get from the sale of his house, the market set the value of the house. A seller’s desires or feelings have nothing to do with the value of houses. The same holds true with timber prices.

It is my job to assist landowners in helping them determine the value of their trees and helping them get the best price for their product. It is not my job to set the value of the trees. Just as in the housing industry, the market does that.

I have to know what the market is doing (is it flat, going up or down, high or low, etc), what the products in that market are, and the price for these products. I also have to know who the buyers are for the mix of products located in a specific area. Different products growing in a timber stand will attract different buyers depending on their relationship with the mills to which they deliver their purchased wood.

I often have a seller who has already decided what their timber is worth. This worth is based on some previous knowledge of a timber stand that, in their opinion, is similar to theirs. Sometimes this predetermined value is based on some number they have decided their trees “ought to be” worth.

I recently had a landowner waiting to put a sale value on his timber until he could determine how much the land would bring. He had an overall goal price he wanted for the land and timber together. With this total price he had to know his land value before he could determine what he could accept for his timber.

Just like the housing market, the seller, nor me, the forester, set the market for timber value. We can decide what we want and ask whatever we desire, but unless the market will bear the price, the timber is not going to bring our price simply because we wish it would. This is why it is important to know the quantity of timber one has on his land. Tree counts, diameters, heights, quality, location, and species, among other specific factors, determine what a buyer can pay for a timber tract.

Mills determines what they are willing to pay per ton for trees delivered to their site. The timber dealer has to pay his logger a fee per ton for loading the trees on a truck. The trucker is paid based on the number of miles he has to travel in delivering the trees to the mill.

The buyer has a margin he wants to make for his time, effort, and risk of buying the trees. The difference in the buyer’s costs and what the mill pays him for delivery is what he can pay the landowner. The longer the haul from the woods to the mill, the less money left over from the mill’s price the buyer has to pay the landowner. It is a simple mathematical calculation for pay-as-cut type sales. Timber cruising and the variation of results tend to create more room for variation in a lump sum sale.

Regardless of the type of timber sale, a landowner’s desires and wants do not set the price in the timber market. Your forester is familiar with your market and able to direct sellers in a manner that will result in the highest price for you. Talk is cheap. Don’t take your neighbor’s opinion or a timber buyer’s guess as to what your timber is worth after they spend only 30 minutes with you riding over your land in a pickup. Talk with a professional forester who works for you. If you don’t trust your forester, then find one you do.

Jim Griffith is the general manager of the GFB Timber and Real Estate Companies.
Georgia Farm Bureau Neighbors – June 2008

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