The Status of the Ranch Real Estate Market in South Texas

posted by Jim Mullen on November 12, 2009

My last communiqué  on the market was in April and I thought I’d take a moment and bring you up to date on the ranch market as I see it.  As I’m sure you are aware, starting in October of 2008, the ranch market slowed and then stopped.  The economic meltdown caused buyers to back off, some pulling out of deals already at the title company.  Supply was down at that point, and what was for sale simply sat.  Now, a year later, with the bailout and a new President in place, what has the ranch market done and where, in my opinion, is it headed?

First, let’s review my observations from April:

• Ranches in South Texas that have been sold in the last 25 years are basically recreational properties; i.e. “toys”.
• Buyers, in my experience, have been mostly from the construction trades.
• South Texas ranch real estate is bought primarily by people from the San Antonio or Houston areas who drive to the ranch.

The above remain true or have been proven true in the last six months.  The market is glutted with high-fenced ranches with deer pens and “improved genetics”; the “toys” of which I spoke.  Daily, new ranches come up for sale adding to a bloated inventory and few are selling.  Asking prices initially reflected the boom of ’07 and before, but lately asking prices have been coming down, indicating motivation, or desperation, on the part of sellers.

What does this mean to you either as a potential buyer or seller in South Texas?  First of all, as of today, the housing markets in San Antonio and Houston remain slow.  I spoke with a broker that does nothing but buy outlying tracts for residential development.  He said his company was still trying to sell off the tracts out of a ranch they opened up in October, 2008.  They are not looking to buy new properties in the foreseeable future.                                   

Buyers like this drive the 1031 market which was a big part of the ranch market boom.  The decline in 1031 buyers, coupled with the slow construction industry indicates to me the traditional buyer is still on the sidelines.

Some ranches have sold in 2009 at prices ranging from 80% to 62% of their 2008 asking.  These were ranches on the market for some time, bought by people familiar with them who made a low offer which was accepted.  Sellers are aware of this and are holding their asking prices well above the market, anticipating a “low ball” offer.  This standoff holds the ranch market hostage and will only be broken when motivation on the part of sellers forces enough sales to change the perception of what the real market prices are; i.e. the “coffee shop price”.

What this means to us all is that we are operating in a fluid market with few solid reference points.  To mitigate this situation, I suggest that:

Buyers need to become educated on what is available at what price in a wider area as location is no longer the critical determinant of price and ranches must be assessed on a case by case basis, depending on the motivation of the sellers, not the intrinsic value of the ranch.
Sellers should also become familiar with the market and set their asking price such that the ranch will get shown.  Low offers can be massaged into acceptable values if both parties are realistic.
Brokers need to work harder to provide solid information on properties as the day of selling a ranch with a handful of deer pictures is over.

If you would like to discuss the market and implications for your situation, please call.

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