Discounts on Financially-Stressed Farmland Sales in Two Counties of Northern Illinois

John T. Scott

Review of Agricultural Economics, 1991, vol. 13, issue 2, 277-287

Abstract: Many involved in agricultural finance including appraisers, FHA, FCS and other lenders, sellers, and buyers are aware that forced sale of property usually results in less than fair market value; however, this discount has not previously been systematically measured. This study compares two actual sets of sales during the same time period and same geographic area with similar characteristics: (1) the first set is of financially-distressed sales; and (2) the second set consists of farms sold at fair-cash-market value. The data show that the discount for financially-distressed sales is 28 percent. This clearly is a very significant amount. A subset of estate sales also shows a significant discount. It is hypothesized that the behaviors causing the discounting are the seller's pressing need for liquidity and the seller's desire for a quick sale, and qualified buyers being aware of this quick sale need.

Date: 1991
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