Extension Ag Agent, Agriculture & Natural Resources/Community Development
First, let's make sure we know what it means to sell development rights.
What does selling development rights mean Most of us own real estate as fee simple. If you own your property fee simple, in general you own that property and can do with it what you wish. In other words, none of your property rights have been "officially" dolled out. However, it is common to divvy out property rights, either officially or unofficially. Property rights are officially separated when recorded as such at the courthouse. Title searches are conducted to discover any property rights that have been officially dolled out. Cash rents, crop share lease, oil and gas leasing and easements are examples where property rights have been dolled out.
The right to build on open land, or the right to develop open land can be separated from your other property rights and given, leased or sold. Development rights can be given, leased or sold to another individual, to a trust that holds land rights (often called a land trust) or to a public entity such as a park district, township, county, state or federal agency.
Can you sell your development rights?
Some farmers on the east and West Coast have had the opportunity to sell their development rights to a public entity that holds a "conservation easement." But no farmers in the middle of the U.S. have thus far had that option. So, most of us, even if we wanted to, could not sell our development rights. There has been no one to buy our development rights, even if we were willing to sell. However, that may change for those in Medina County this March election day! Medina County has a quarter percent property tax on the ballot. If the tax passes, Medina County farmers will be the first in the state of Ohio that will have the opportunity to sell their development rights. The Medina County issue will be the first test in Ohio to see if the public is willing to pay their tax dollars to purchase your development rights. If the Medina County issue passes, who knows, your county may be next.
How can you sell development rights, if you ever can?
Let's suppose the quarter percent property tax is approved in Medina County. Farmers will then be asked to make application to sell their development rights each year. The properties put forth on the application will then be assessed. An offer to purchase development rights will be made for only a portion of the properties submitted that year. It may take years before Joe Farmer in Medina County has the opportunity to sell his development rights. Even on the east and West Coast where development right purchase programs have been in place for years, farmers who would like to sell their development rights have not yet had the opportunity.
How much will development rights sell for?
Development rights will sell just as other property rights have sold, for what the market will bear. Development right purchase agencies on the east and West Coast have had more development rights offered for sale than the agencies have had dollars to purchase. Therefore, generally farmers are asked to "bid down" the purchase price so agencies can purchase more development rights per dollar.
The maximum most agencies have paid for development rights has been the difference between the value for farming and the value for development. Current Agriculture Use Value (CAUV) is assigned to farmland in Ohio according to soil type and a rolling average of crop prices. CAUV is most frequently used as the value of land for farming and can easily be obtained from the county auditor's office. Development value is considered to be essentially the current sale price and is best estimated by an appraiser by assigning a value similar to that of like properties that have sold recently. If CAUV value is $1,000 and the appraised value is $4,000 per acre, the
corresponding value of development rights would be $3,000.
Should you sell your development rights if you can?
Most farmers I have talked to will not consider selling their development rights unless the farmer and his or her heirs are able to and willing to continue farming well into the future, through future generations. So, development rights should not be sold in hopes of making a non-viable farming operation into a viable one. A one time cash infusion seldom turns an unprofitable farm into one that is profitable. If the farm isn't making money now chances are it still won't be making money after the proceeds from the sale of development rights are gone.
Once development rights are sold the right to develop or to sell for development is not available to future generations. The benefit derived by this generation may be at the expense of future generations, especially if a future generation chooses not to or is unable to continue farming. Therefore, careful evaluation needs to be done concerning the next generation's ability and willingness to continue farming. To stay in business the next generation must be better managers and more savvy businessmen or women than were the older generation. The next generation will be farming in an increasingly competitive future agriculture.
Because of the possible negative impact on future generations it is more important that junior generation(s) be comfortable with the sale of development rights than the senior generation. At the very least, if and when the sale of development rights becomes possible, the senior generation should not consider sale without conferring with the junior generation.