Texas LAND Spring 2013

MARKET REPORT
R e g i o n 6 : S o u t h T e x a s
Leading into January 2013, the last quarter of 2012 was met by a
number of anxious farm and ranch owners. Several aspects of change
contributed to uncertainty including the 2012 Presidential Election,
and pending changes with regard to estate tax levels and the increase
in capital gains taxes. With the expected fiscal cliff coming at the end
of the year, many owners engaged estate planning measures by gifting
ranch interests to their children or in some cases selling ranches before
the end of the year to avoid the increase in capital gains taxes. The
largest transfer of wealth in many generations likely took place at
the end of the year to capture the lifetime Estate Tax exclusion of
$5,120,000 per person. In essence, a husband and a wife could each
gift up to $5,120,000 in value or $10,240,000 total. For estate
planning purposes, many ranches were placed into Family Limited
Partnerships before the end of the year with the interests being gifted
to future generations. Attorneys, accountants, real estate and business
appraisers specializing in gift and estate planning were busy at historic
levels. Transaction support professionals including brokers, bankers,
title company personnel and surveyors were also very busy at the end
of the year making the year end transactions.
T h e l a r g e s t t r a n s f e r o f w e a lt h i n
m a n y g e n e r at i o n s l i k e ly t o o k p l a c e
at t h e e n d o f t h e y e a r t o c a p t u r e
t h e l i f e t i m e E s t at e T a x e x c l u s i o n o f
$ 5 , 1 2 0 , 0 0 0 p e r p e r s o n . I n e s s e n c e , a
h u s b a n d a n d a w i f e c o u l d e a c h g i f t u p
t o $ 5 , 1 2 0 , 0 0 0 i n va l u e o r $ 1 0 , 2 4 0 , 0 0 0
t o t a l . F o r e s t at e p l a n n i n g p u r p o s e s ,
m a n y r a n c h e s w e r e p l a c e d i n t o F a m i ly
L i m i t e d P a r t n e r s h i p s b e f o r e t h e e n d
o f t h e y e a r w i t h t h e i n t e r e s t s b e i n g
g i f t e d t o f u t u r e g e n e r at i o n s .
A number of sellers marketed ranches at the end of the year determined
to sell with lower capital gains rates. Price discounts were offered
to some buyers willing to close before the end of the year. We are
aware of several ranches that sold at the end of the year with short
term seller financing until permanent traditional financing could be
obtained. Prices may have softened for a short term at the end of the
year in certain cases due to the motivation of selling before the end of
the year. Most sellers took into account what the equivalent sale price
would be before and after the first of the year considering the change
in capital gains taxes. In some cases existing owners sold ranches
earlier in the year only to find and close replacement ranches before
the end of the year. Tax deferred exchanges will likely remain popular.
With the Eagle Ford Shale boom, it continues to be very difficult to
acquire minerals in the Eagle Ford area unless at a substantial price
per net mineral acre is paid. We are aware of unsolicited offers on
nonproducing but leased minerals at aggressive pricing. Most sellers
in South Texas are reluctant to give up any minerals betting on the
chance for production in the future. If minerals are offered with surface,
the minerals substantially raise the overall price per acre in some cases
eclipsing the surface value.
The boundaries of the Eagle Ford are becoming more narrowly defined.
A number of oil and gas wells are being drilled by the operators to
hold the leases which may be nearing the end of their term. Marginal
wells may be steering producers to areas with better prospects. Other
formations including the Pearsall Shale and the Buda are perking the
interest of many area mineral owners and producers alike.
Sales of ranches over the perceived fringe of the Eagle Ford (out of the
“fairway”) are in demand and likely have increased in value. However,
ranches over the main Eagle Ford production areas offered surface
estate only with mineral production and daily oil and gas traffic are
met with market resistance. These ranches are hard to sell and if they
did sell, they likely are sold at a discount due to the oil and gas activity.
Market activity appears to improving. Ranch buyers continue to look at
new ranch product once it comes on the market.
Merrill E. Swanson, ARA
Duggar, Canaday, Grafe, Inc
210.227.6229
meswanson@dcgappraisers.net
111 Soledad, Suite 800 | San Antonio, Texas 78205
54 SPRING 2013