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"Understanding the Timber Sale Process"
Put our expertise to work for you. At True North Forest Management Services, we are proud to provide value added information to help you have a better understanding of all aspects of forest resource management.
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The average landowner is an infrequent participant in the timber market, generally only making one or two sales in his entire lifetime.
Thus, landowners do not develop a clear understanding of how timber marketing occurs, which is a disadvantage when they do enter the market to sell their trees.
If the timber we have recommended for harvest in this report should meet with your desired forest management objectives, the next question you will probably ask is, "How do I make a sale that is fair to both me and the buyer?" I can answer that question by saying, "Market your timber using a highly advertised, sealed bid of a total dollar amount with the right to reject any or all bids."
If you are unfamiliar with estimating the volume of timber and you do not know enough about timber markets to handle a sale yourself, you should consider seeking the assistance of a consulting forester. Each consulting forester has his own system of handling a timber sale, but generally the following procedure is involved. First, the boundary of the area to be harvested is established and identified. This boundary marking can also include designating any stream management zones that have been recommended to restrict logging on these areas to protect wildlife habitat or insure proper drainage or prevent soil erosion and siltation of waterways.
Secondly, a timber estimate of the trees to be cut must be made. With the known volume of various species, sizes, grades, types of forest products that can be manufactured from the trees (pulpwood, sawtimber, etc.), logging conditions, and a personal knowledge of the timber market, a forestry consultant can determine the fair market value of your timber. Knowing how much your timber is worth will make the sale much easier.
The next step is to advertise your timber sale to all the prospective buyers in the area. The more people who know about the sale the better. The greatest number of buyers you can attract to your sale, the greater the influence on the eventual sale price. Do not think that all buyers will pay the same price for the same timber, and that you only need to contact one buyer. There is no FIXED price for timber. There is no market like the timber market. A phone call can get you a firm price on many common items: stocks, bonds, commodities, etc. A phone call to ten timber buyers, however, will likely get you ten different estimates, and each will say he must see your timber before he can make a firm price. Timber values are solely at the mercy of supply and demand, and there is tremendous variation even within a single county. Your timber is worth what someone will pay for it.
An "invitation to bid" is one of the most effective methods of advertising your sale. An invitation to bid is a written letter that is sent to all prospective timber buyers and includes a description of the timber and its location, a map of the sale area, the conditions and terms of the sale, the time and place bids will be opened, and when the timber can be shown and by whom. Many buyers will prefer to look at the tract themselves; therefore, the detailed maps you provide with your invitation to bid and the timber boundary marking you have done will enable them to find it on their own. Allow enough time for buyers to appraise the tract; three weeks is usually sufficient.
Sealed bids have proven to be the best procedure for selling timber. This method requires that each buyer submit a single bid to the timber owner or owner"s agent (the forestry consultant) prior to a specified time at a specified place, at which time all the bids are opened publicly.
Sealed bids have proven to be the best procedure for selling timber. This method requires that each buyer submit a single bid to the timber owner or owner"s agent (the forestry consultant) prior to a specified time at a specified place, at which time all the bids are opened publicly.
Understand that timber brings the highest price when buyers are all competing under the same conditions. A buyer on the open market (sealed bids) must compete against other buyers and does not know in advance what his competitors will do. Each buyer knows he has one bid, or one chance, and that he must bid his best offer if he wants the timber. A sealed bid method of marketing in which timber buyers are kept in the dark until the opening of the bids will consistently yield better results. Sealed bids pit pro against pro, and leave the amateur out. Also, sealed bids put buyers in the mood to see how high they can go, not how cheaply they can buy the timber.
The importance of opening the bids publicly at a given time and place cannot be overstressed. Timber buyers do not appreciate an owner using his bid to obtain a better price from someone else. Never, never start further negotiations after the bid opening in an effort to pry a few more dollars out of the unsuccessful bidders while holding the high bidder hitched. If you don"t like the bids, reject them all, and then do what you want. Treat the buyers fairly. In order to protect yourself from poor buyers" attendance or poor bidding, use your timber inventory data to determine a minimum acceptable sale price, and retain the right to accept or reject bids should they not be above the minimum.
After accepting the top bid, the next step is to draw up a timber contract. It is very important that all aspects and specifications of the sale be included in the contract so that the seller and his timberland are fully protected. You will find enclosed a list of suggestions for what you might include in this contract to protect your interests. Try to write a contract that will please the buyer as much as possible, because a contract with too many unreasonable requirements is just as bad as one that does not contain enough. Unfortunately, the reputation of timber buyers has suffered considerably in the past, and some of this is due to actions of a very few unreliable people; however, not having a clear understanding of what is expected and what is reasonable accounts for most disagreements between landowners and timber buyers. It has been my observation that most timber buyers are just as honorable as any other segment of our society when they are aware of what is expected of them. These expectations should be made known to the buyers before a price for timber has been agreed upon. This is where the timber contract is so important.
Once the sale is made, the responsible landowner or consultant forester should not just walk away. The actual cutting will need to be inspected from time to time to make sure that the specifications of the contract are complied with. Upon completion of the harvesting operation a final inspection should be made to see that all the contract requirements have been fulfilled. Such requirements should include fence mending, trash removal, road repairing stabilization, and other requirements such as removing tree tops and other material from fields, adjoining property, ditches, creeks, and existing roads.
A highly advertised, sealed bid method of marketing for a total dollar amount with a sound contract is one of the easiest timber sales to administer. It minimizes the seller"s risk and will nearly always return the highest dollar. Insist on cash-in-advance. The risks involved in anything else are too great. In short, sealed bids are the safest way to prevent collusion (price-fixing) between buyers and to capitalize on the complexities of a marketplace that is constantly changing.
Information, Education and Industry Links
Obtaining a fair price for your timber will be the most important phase of your entire forest management program. You can do all the reforestation and timber stand improvement work that is recommended, but it will not amount to a thing unless you obtain a satisfactory price for the final product. Poor marketing practices that return less than the full value of your timber can wipe out the benefits you have achieved through years of good protection and management practices. The average landowner is an infrequent participant in the timber market, generally only making one or two sales in his entire lifetime
USDA Forest Service Ag Handbook #718 - USDA Forest Service Website Ag handbook 718 is the forest owner's guide to the federal income tax.
Federal Income Taxes For Timber Growers - NC Extension publication.
Timber Basis For Federal Income Tax - (West Virginia University Article by Dr. Harry L. Haney, Jr. which was originally published in Forest farmer magazine, now Forest landowner magazine)
