A farmland sale contract covers seven things before anyone signs: exactly what land is being sold, the price and how it is paid, any contingencies, how title is proven, what happens to the tenant and this year’s crop, who gets FSA payments and any CRP contract, and what happens if someone defaults. Iowa adds its own items: the groundwater hazard statement that goes with the deed, and a 30-day cure period if a seller-financed contract goes into default. At auction, most of these terms are already set in the sale bill. Read it before you bid.
Key takeaways
- The legal description and acreage, not the listing, define what you are buying.
- Auction contracts usually have no financing contingency. Get approved before you bid.
- An existing lease can control possession and this year’s crop. Read it before you sign.
- If the farm has CRP, the buyer either takes over the contract or the seller may owe back payments.
- Iowa requires a groundwater hazard statement with most deeds, covering wells, burial sites, and tanks.
Does the contract describe exactly what you are buying?
The contract should use the full legal description, by section, township, and range in Iowa, plus the acreage and how it was measured. A listing that says “160 acres” may mean deeded acres, surveyed acres, or FSA cropland acres, and those are often different. If the price is per acre, the contract should say which acres it is based on and whether a survey can adjust the final price.
Name every seller. Inherited farms are often owned by several siblings, a trust, or an estate. Every owner, or someone with legal authority to sign for them, has to sign.
The contract should also list what goes with the land and what does not. Grain bins and buildings usually go with the land. Anything the seller plans to keep, such as a portable bin or equipment, should be named. Check for recorded easements and leases too: wind turbine and solar leases, pipeline and utility easements, and drainage district assessments all stay with the land after you buy it.
How is the price paid?
At a typical public auction, the price is paid the way the sale bill says: earnest money on sale day and the balance at closing. Our sale bills typically call for 10% down on sale day and closing in 30 to 45 days, with no financing contingency, as we cover in how buyers pay for farmland bought at auction.
A private treaty sale has more room. Price, earnest money, closing date, and possession are all negotiable, and some sellers will carry a contract for part of the price. That can help a buyer and spread the seller’s tax, but it changes who carries the risk if the buyer cannot pay. If you are the seller, have your CPA look at how the payment structure affects your taxes before you agree to it. For larger gains, a 1031 exchange may matter more than the payment schedule.
The contract should also say who pays which closing costs and how taxes are prorated between seller and buyer.
What contingencies belong in a farmland contract?
That depends on how the farm is sold. At auction, the buyer usually takes the farm as is, with no financing or inspection contingency. That certainty is part of why auctions work for sellers, and why buyers need to do their homework before sale day.
In a private treaty sale, buyers commonly ask for:
- A financing contingency, with a loan amount and a deadline.
- A survey contingency, especially if acreage drives the price or the farm is being split.
- Time to review the tile maps, the FSA records, and any lease.
- An environmental review if there are old building sites, fuel tanks, or a history of livestock.
Every contingency should have a firm deadline. Open-ended contingencies keep a seller’s farm off the market without a real buyer.
How is title proven in Iowa?
Iowa uses abstracts of title, examined by an attorney who issues a title opinion, not title insurance alone. Owners and lenders can also buy coverage through Iowa Title Guaranty, the state’s program. The contract should say who updates the abstract and pays for it, how long the buyer’s attorney has to raise objections, and how the seller fixes them.
Farm titles often carry problems: an heir’s interest from an estate that was never fully closed, an old mortgage that was paid but never released, or a fence line that does not match the legal description.
What happens to the tenant and this year’s crop?
This is the clause that causes the most trouble after closing. If the farm is rented, the buyer usually takes it subject to the lease. In Iowa, a farm lease continues for another crop year unless notice to end it is served by September 1, which we explain in the September 1 lease termination deadline. A buyer who wants to farm the ground next year needs to know whether notice was served.
The contract should say who gets this year’s rent or crop, who gets the next rent payment, who pays for fall fertilizer or tillage already done, and when the buyer gets possession. Spell out the crop residue too. Under Iowa law the tenant owns the stalks unless the written lease says otherwise.
Who gets FSA payments and the CRP contract?
FSA payments and the farm’s base acres both need to be addressed. The contract should say which party gets this year’s program payments, and the buyer should visit the county FSA office soon after closing to get the farm reconstituted into their name.
CRP needs more care. Under 7 CFR 1410.51, the buyer can become the successor to the seller’s CRP contract. If the buyer does not, the contract ends on that land and the seller generally has to refund prior payments with interest and liquidated damages. The contract should say whether the buyer will take over the CRP contract and how the year’s rental payment is split.
What should the seller disclose?
Iowa requires a groundwater hazard statement with most real estate transfers. The seller states whether there are any wells, solid waste disposal sites, hazardous waste, underground storage tanks, private burial sites, or private sewage systems on the property, as shown on the DNR groundwater hazard form. Old farmsteads often have an abandoned well or a buried fuel tank, so do not assume the answer is “none.”
Beyond what is required, a buyer should ask for tile maps, soil test history, yield records, and any notices about drainage districts, assessments, or conservation compliance. A seller who has them and shares them usually gets a better sale.
What happens if someone defaults?
The contract should say what each side can do if the other does not perform. For a buyer who backs out, the usual remedy is keeping the earnest money. For a seller who refuses to close, a buyer can ask a court to enforce the sale. Unique land is the kind of thing a court will order specific performance on.
Seller-financed contracts need extra care. Under Iowa Code section 656.4, a seller who wants to forfeit a real estate installment contract has to serve notice, and the buyer has 30 days to cure the default. Both sides should understand how that works before they sign.
This is a general overview, not legal advice. Have an attorney who handles farm sales review any contract before you sign it.
Where Midwest Land Management fits
We write and manage farm sale contracts every season, at auction and by private treaty. Our sale bills spell out the terms bidders are agreeing to, and on listed farms we negotiate the purchase agreement and work with the attorneys through closing. Ben Hollesen is a licensed real estate broker in Iowa, Minnesota, and South Dakota. See what is coming up on our land auctions and land for sale pages.
FAQ
Can I get a financing contingency when buying farmland at auction?
Usually not. Most farm auctions sell without a financing contingency, with earnest money on sale day and a set closing date. Get approved by your lender before you bid.
Do I get possession of the farm at closing?
Not always. If the farm is rented and the lease was not ended by the September 1 notice deadline, the tenant may farm it another year. The contract should state the possession date.
What is a groundwater hazard statement?
An Iowa form, filed with most deed transfers, where the seller discloses wells, waste disposal sites, hazardous waste, underground storage tanks, private burial sites, and private sewage systems on the property.
What happens to CRP when farmland is sold?
The buyer can take over the CRP contract as a successor. If the buyer does not, the contract ends on that land and the seller generally owes back prior payments with interest and penalties.
Before you sign a farmland contract, get one that covers all of this. Request a free farm evaluation or call our Spencer office.