Marketing Your Timber:
The Bidding Process
Timber is a multi-million dollar
business in Mississippi. Many landowners, however, do not receive the full value when they
sell their timber, because selling timber properly is a complicated task.
Landowners sell timber infrequently
and often do not have specialized knowledge about logging, timber estimation, utilization
standards, or local markets. Lack of marketing knowledge is costly to the landowner
because it decreases profits on timber sales. Also, bad harvesting and marketing decisions
on today's sale can cause loss of future profits by delaying or complicating future sales.
Prevent problems by following good
marketing procedures. A good marketing procedure helps you to approach the timber sale in
a businesslike manner and helps you answer many important questions, including:
- Are my trees ready to sell?
- How much timber do I have?
- What is the value of my timber?
- Will professional forestry assistance
help?
- Who will buy my timber?
- How should I sell it?
Selling Method
A key element in properly marketing your timber is to use the proper selling method.
The two methods commonly used in the South are negotiation and sealed bids. In the West,
auctioning timber is also a widely used method, but it's rarely used in the South.
Negotiation
A negotiated sale is when the buyer and seller establish the price through face-to-face
negotiations. This is probably the most commonly used method of selling timber;
unfortunately, if the landowner is unfamiliar with local timber markets, he usually is at
a disadvantage in this situation.
Certain specialty products, such as
high-value hardwoods and poles, are often purchased through negotiation.
Sealed Bids
A sealed-bid timber sale requires prospective buyers to submit confidential written
offers that will be opened at a specified time and place. Each bidder is allowed to make
only one bid, and bids are not accepted after the specified time for the bid closing.
As with many other products, the
best way to attract interest in your timber is good advertising. Whatever the selling
method, a good timber sale prospectus, often referred to as a bid invitation, is a key to
attracting interest in your timber sale. The more interest, the more competition and
therefore, the higher the sale price.
Sale Prospectus
There are several steps in preparing your timber sale prospectus. You must have
accurate, reliable information, and you need to send it to as many prospective bidders as
possible.
One of your first steps is to
arrange for some professional forestry assistance. A lot of people might say "Well,
this is just an extra expense." It is, but it's well worth it to have professional
help, because professional foresters can make you money.
In a study by University of Georgia
researchers, it was found that landowners who used professional forestry assistance
received 23 percent more income per acre for their timber than did those who sold timber
themselves. That can pay for a lot of help!
Obtain assistance from the
Mississippi Forestry Commission, the Cooperative Extension Service, or the Soil
Conservation Service. In addition, some companies provide help under their
landowner-assistance programs. However, the most complete and personalized help will come
from a private forestry consultant.
The second step is to get an
inventory of your timber, and this requires professional assistance. You need to know what
you have, how much you have, and where it is. An experienced forester will make a
"cruise" of the timber you want to sell. It may be a 100-percent tree tally or a
sample plot-type cruise, depending on the size and type of sale being considered. From
this cruise, he will be able to give you information on the number of trees in each
diameter and height class, by species and product. Get this information for each tract to
be sold.
The third step is to verify
ownership and to mark the sale boundaries. While you know you are the owner, no buyer will
actually purchase the timber until all ownership records have been thoroughly checked. You
should make certain that you have a clear title on file and that your property taxes are
paid. If there is a lien on the property, a release should be secured before the sale.
In addition, if there are problems
with road access to the property, you should secure written rights-of-way or easements
from surrounding owners (to allow easy access). Once this is done, the sale boundaries
should be marked clearly. If the sale area does not have easily defined boundaries (such
as roads or fence lines), then use paint or plastic flagging to mark them. Poorly marked
boundary lines lead to problems for the buyer and the seller and can discourage
prospective buyers.
The last step in preparing your
timber sale prospectus is to develop a list of prospective buyers. Each company buys a
slightly different mix of timber species, sizes, and products. This makes it necessary to
ask around and to consult local agencies (such as the Mississippi Forestry Commission and
the Cooperative Extension Service) to get a list of prospective timber buyers and the
products they buy. If you have a forestry consultant, he should already have a good list.
Preparing the Bid Invitation
Once your timber inventory is completed, the sale prospectus or bid invitation can be
prepared.
The invitation to bid is a letter
(with supporting materials and maps) that describes sale conditions and the timber that is
to be sold. The bid invitation is your advertisement to attract interested buyers. The
more complete the prospectus, the better your chances of attracting prospective bidders.
Each bid invitation is different,
depending on the type, size, and information included. Main elements in a bid invitation
include:
- Identification of Seller/Seller's
Agent -- This section should identify the seller(s) to the buyer by giving full legal
name(s), business/home addresses, and telephone numbers. If a forestry consultant is
representing you, this section also indicates he is your agent and includes his firm's
name, address, and telephone number.
- Location and Size of Sale Area
-- Include the complete legal description and acreage of the sale area in this section. If
the sale area is in separate tracts, provide information on each one. Include a
description of the sale boundaries and how they are marked, since the prospective buyer
may want to examine the tract. Also, set a time and place for prospective buyers to tour
the sale area, if desired.
- Type of Sale -- This will tell
the buyer how you are selling your timber, by lump sum or unit (pay as cut) sale. It
describes how the trees to be cut are designated -- by marking (paint), diameter, or
species within the sale boundary. It tells whether the volume information was from a
sample timber cruise or a 100-percent tree tally.
Bid Guidelines
Volume Information
Volume data come from the timber cruise or tree tally. The information includes total
volume and average volume per acre, which should be presented by species and product
class. If there are separate sale areas, give these data for each tract, as well as a
total sale summary. Mention the log rule used for volume estimation and minimum top
diameters for pulpwood and saw timber.
Duration of the Sale Agreement
Designate the time a buyer has to harvest the timber by setting a beginning and ending
date. In determining the length of time allowed, consider tract size, volume, and ground
conditions. In the South, one to three years is the normal harvest period allowed.
Harvesting Restrictions/Conditions
Provide all restrictions or conditions that are to be placed on your logging operation.
Restrictions can include road maintenance, size and type of harvesting equipment,
supervision requirements, and penalty provisions. This information also will be in the
timber sale contract, but the prospective buyer should be made aware of it before he bids.
Bid Opening
Set the date, time, and place where the bids will be opened. Invite buyers to attend
the opening and specify how you will notify them if their bids are successful. Allow 4 to
6 weeks between advertisement and the bid opening. This allows adequate time for the
buyers to evaluate the sale area and to draw up their bids.
Conditions for Bid Acceptance
Explain your conditions for an acceptable bid. This information includes bid format,
how to address the bid, and terms for a bid-performance bond, if required. Specify
requirements for receiving the bids, either mailed or hand-delivered. State that you
retain the right to refuse any or all bids. Also specify a time limit for seller and buyer
to agree to a sale contract and sale closing.
Provisions for Payment
Outline the payment method in this section. Specify your preference, such as personal
or certified cashier's check, and time of payment. You may want one lump sum at sale
closing, or perhaps installment payments. Remember to consider your income tax situation
before deciding on how you want to be paid.
Supporting Attachments to Bid Invitation
In your bid invitation, include two maps of the sale area. The first should be of the
sale area itself and the surrounding tracts. It should show property boundaries, sale
boundaries, access roads, streams, and other physical land features. Also, a description
of the sale boundaries should be included.
The second map should show the
location of the sale area in relation to surrounding towns and highways.
The summary stand tables from the
timber cruise should include the number of trees by diameter class, species, and product
class.
A sample timber sales contract can
be included, so the buyer can examine it and identify any problem areas.
A sample bid form will make it
easier for the buyer to submit his bid. This also makes it easier for you to compare bids.
Choosing the Best Bid
Choosing the best bid is not just taking the highest price offered. Once again, it
takes homework and good advice to make a profitable marketing choice. Find out what other
landowners in your area have received recently for similar timber. None of the bids you
receive may be realistic and you may wish to refuse them. Also, investigate the reputation
of prospective bidders. An important consideration is who does the buyer's harvesting and
the quality of his work. A poor logging job or problems with the buyer can cost you time
and money.
Conduct the bidding process in a
businesslike manner. Answer all questions and inquiries and keep records of discussions to
help prevent misunderstandings.
Keep all bids confidential until the
opening, and do not bargain between bidders before or after the opening. Open the bids at
the appointed time and date in the presence of the bidders.
Examine the bids, and, based on bid
price and knowledge about the bidders, select the winning bidder as soon as possible.
Notify all unsuccessful bidders promptly. Schedule a meeting with the winning bidder to
discuss the drafting and execution of the sales contract.
Too often selling timber is a
disappointing experience because a landowner does not take advantage of assistance only a
phone call way. Following a good marketing procedure helps you conduct timber sales that
will meet your timber-management goals and objectives while receiving a good price. You'll
also have the satisfaction of knowing that your timber sale was handled professionally. |
