Buying Rural Land in Texas

9 Closing the Deal and Enhancing Returns

94 | cHaPTer 8 • Who owns the mineral estate? • Will the mineral rights transfer to the buyer? • What proportion of the minerals will transfer? • Is there an existing lease of mineral interests on the land? • What are the terms of any mineral leases? • Will absence of minerals affect collateral value of the land? In addition to these factors that weaken landowner control, buyers should be aware of other possible reservations of rights or leases. For example , lignite and uranium deposits are not considered minerals under the law, so reservations of mineral rights generally only apply to oil and gas in Texas. However, these other potentially valuable substances might also represent sources of risk to would-be buyers. In addition to outright reservations, some land owners have executed long-term leases for these resources. Some lignite leases run for forty years or more. Reservations of wind rights have also begun to surface in land sales. A buyer should verify that reservations of rights do not apply to candidate properties. If such encumbrances do exist, the controlling documents deserve close scrutiny so that the prospective buyer can ascertain the limits they impose on an owner’s control over the land. They need not scuttle the deal, but a buyer should avoid the shock of discovering a potential problem after the fact. To ensure that they are taking the right risk, potential buyers should investigate these and all factors that might have a negative impact on quiet enjoyment of the property. The purpose of the checklists is not to disqualify properties so much as to alert buyers that potential risks may lurk in the deal. This search exercise should help eliminate unpleasant surprises in the future. Closing the Deal and Enhancing Returns 9 A profusion of paintbrush colors the Washington County countryside near Independence. Photograph by Robert Beals II 96 | cHaPTer 9 H aving explored the market and identified a prospective farm or ranch to purchase, the potential buyer must shift from the search mode to securing ownership. Most transactions involve a complement of professionals assisting in the process. The Texas Real Estate Commission has created a farm and ranch transfer of ownership contract that addresses many pre-identified sources of risk and offers several steps to take that should defuse potential threats. This nine-page document came about aftera committee of lawyers and brokers collaborated in identifying common problems in sales of rural land. Such problems generally arose when participants neglected to resolve issues before passing title to the new owner. Although the form was not designed for use without the assistance of properly licensed professionals , a buyer may find it enlightening to examine the twenty-four separate items the document addresses. At the very least, a review of the form provides insights into how the process will unfold. The Texas Real Estate Commission offers the contract form, as well as a list of additional items that may be needed to secure the deal, at its website, http://www .trec.state.tx.us/formslawscontracts/forms/forms-contracts.asp. The long menu of addenda that follows an introductory notice on the website hints at the possible complexity of the deal. The Farm and Ranch Contract form addresses twenty-four separate issues that could potentially lead to misunderstandings or mistakes in the process of transferring ownership. The items vary from mundane recitation of names of buyers and sellers to specification of closing cost responsibilities. Buyers should insist on timely delivery of all promised documents at the beginning of the acquisition process. To minimize risk, the buyer should engage the services of professionals early in the process. If the buyer located the property without using an experienced real estate broker who specializes in rural properties, consulting with such a professional can provide guidance during the process of transferring ownership . Buyers should also engage an attorney to review documents and advise them during the acquisition process. For example, an attorney may advise tying deadlines to events in the process rather than specifying dates. This tactic may help potential buyers to secure a refund of earnest money should problems arise. In addition, the practiced eye of an attorney is essential when mineral rights issues are involved. To ensure accurate property boundaries, insist on an updated survey. When substantial time has passed since the previous survey, fence lines may have strayed from the legally specified boundaries. A new survey cLOsinG THe DeaL anD enHancinG reTUrns | 97 allows...