Timber Sale Contracts

[Good Feller]

I've came up with a good timber sale contract.  It seems like it will be impossible to coordinate times when the landowner/logger/forester(me) will be able to meet and sign these contracts.  Is it ok to send a copy to the landowner, have him sign it and mail it back to me,,,, then I'll mail it to the logger and have him sign it and mail it back?  Then I'll make copies...  Stamps are cheaper than gas money so I'd like to handle this by mail. 

Kind of confusing.  Do I need to be there to witness them signing it? 

[Ron Wenrich]

Personal contact is the best.  Have the logger sign first and give you a down payment on the timber.  He needs to put something down so he has something at risk.

Then, take the contract to the landowner and have him sign it.  You give him a check to seal the deal.  Take off your commissions.

Now your gas money is paid for.   

[Ron Scott]

I handle it as follows:

1) The landowner reviews the timber sale proposal, bid sheet, sale area map, and the harvest contract with the terms and performance elements for the sale and harvest of their timber to be sure that everything is in agreement with them before the timber is placed on the market.

All items along with 3 copies of the contract and signature pages are mailed to the landowner for review and signature by all landowner(s) along with their tax ID number. All paperwork is usually mailed or may be signed during a personal meeting with landowner(s) depending upon convenience and availability of all concerned.

2) I then hold the 3 signed contract copies until the timber is sold by bid sale. The purchaser then has 3 weeks to sign the contract copies, provide the 20% down payment, performance bond, and proof of liability and workmen's compensation insurances.

Signatures and witness are again done through the mail or in personal meeting. If it is a first time purchaser that I don't know well, it is done by personal meeting so that there is a personal contact with them and all contract terms are well explained to them for understanding.

3) A signed copy of the contract is then provided to the landowner(s), one to the purchaser, and one to myself. A copy is then made for my forest technician who assists me in administering the timber harvest on the ground.

4) My billings are mailed or provided in person to the landowner when I collect the 20% down payment from the timber purchaser for the contract and then when the final balance payment is made before any cutting begins. The landowner pays my fees when I collect the advance payments from the purchaser. I hold the performace bond in escrow for the purchaser which is usually a cash bond.

   

[Good Feller]

What's up with the down payments? Why not just have the logger pay the full amount at the time of signing the timber sale contract? = less transactions, less hassle. If he's going to sign then he obviously wants the timber.  The faster the landowner gets full amount the faster we can have check clearance and get rolling with the harvest. 

[BaldBob]

Based on your question I must assume that you are selling the timber on a lump sum basis. While that's a legitimate and sometimes good way to sell timber, you and the landowner better be pretty confidant in the accuracy of your cruise - especially if you only had one bidder.  If the buyer is eager to buy it on a lump sum basis, he may just have a better idea of how much and what the quality of the timber is than you do.  If he is taking your volume figures on faith and the cut out way under runs, you will have a hard time getting him to bid on any future sales you put up.

[Ron Wenrich]

It depends on the size of the sale.  If you have a large sale and require a single payment, you can loose some prospective buyers.  It doesn't take too long until a logger has a good amount of money invested in timber.  By allowing a down payment, the logger can bid on more sales and not have capital tied up.

Sales in our area are always lump sum.  I have yet to see anyone guarantee a volume.  Every forester scales trees a little differently.  Loggers usually bid accordingly. 

[SwampDonkey]

Most sales here are lump sum. The big difference, and reason behind it, is the forester or technician is only hired for a cruise. The owner doesn't want to have to sit out by the road counting truck loads and worrying about how many loads when out the back way. They are not interested in someone operating as a middle man. Very few foresters or technicians are hired by the owner to look after the operation, wouldn't be 5%. Heck, most people are so cheap that the logger usually pays for a retracement of the property lines. Although, I'm sure the logger factors it in. The logger also factors in the road building. Shop around and you can get 100 acres retraced for $800. When marketing boards subsidized management plans, woodlot owners were only after the cruise component 95% of the time. The management went out the window with the wash water. Hard to convince the landowner to do anything much differently when the government, and big industry push clearcutting and the investment bankers are looking for your woodlot revenues to invest with them. We don't have a lot of high value timber, it's mostly pulp so revenue per unit volume is very low and often marginal.

[WDH]

If all I was interested in was money as a timber seller, I would definitely sell lump sumthrough a seald bid.  However, then you cannot determine who will harvest the timber.  The high bidder may not be the best outfit to do the logging.  I have seen wood dealers win lump sum bids and then put the poorest logger in the area on the tract to "save harvesting cost". 

As a result, I sell my timber pay-as-cut, after price negotiations, to the group/supplier/logger that I want to harvest my land.  Of course, this requires the the seller to fully understand the markets.  That is why a seller should use a forester if the seller is not fully experienced in the market.

So, different strokes for different folks.  In any case, knowing the value of the timber before the sale is paramount.  In the days that I was buying timber, I found that many landowners wanted to benefit from the "mistakes" of the high bidder (over cruising and paying over market value for the timber) to get more than the timber was worth.  I saw that come home to roost many times in a shockingly poor logging job as the buyer took any measure possible to get back their investment.

Professionals can work professionally together for a win/win for both parties.  Stay away from the jack-legs and the the fly-by-nighters unless you want a bad experience.

[Banjo picker]

Hello folks,  I have had loggers on my place three times since I began my stewardship of the land.....Not involving a profesional forester has cost me plenty.....The first time was about 25 years ago, when I sold saw logs off my back 80.. That went pretty well I got 3 bids from different companys, they had 2 years to get the wood....I sold to the # 2 bidder as they were only interested in the pine, the sale of the hardwood with it would only net an additional 6 thousand.....I kept the hardwood...The high bidder tolod me I was making a big mistake.....Maybe from strickly a dollar view, maybe I did....But you should see those big oaks & populars now....I probably would have gotten more money even from my pine logs if I had hired a forester to assist me,  but I was in my early 20's then and still thought I knew pretty much of everything.....The next time I brought in a crew was to get the pine logs off a 20 acre track....I had no contract with them as I had had some business with the owner and knew him (I tried to pull the little laughing man down but don't know how)  I had to ask them to leave when I figured out they were not going to pay me as agreed....They probably stole 5 to 10 thousand $ worth of logs .....No real excuse for this as I should have known better......The last time I had some guys I knew clear for a pasture just a small area....I am sure they paid me every dime I had comming but left stumps 3 ft. high everywhere....then left before they got completly done.....I ended up buldoszing several loads of pulp wood....and one small spot is still not clear......If ever another tree is felled on my place I'll do it myself.....I have just ordered a mill that will end outside loggers...But if anyone out there is selling ....get help get a forester    Tim   Did't mean to wright a novel.....

[wannabeonetoo]

Tell us more about the mill 
Also ... we love a good read (novel) when we can learn from it 
  Steve

[Good Feller]

Ron S,,, why do I need the landowner's tax id number???

[Banjo picker]

Hello again, Wannabeonetoo asked about the mill....Ordered a Cooks AC36 with a 51 horse perkins diesel full hydralics extra log dog and getting extra 4 ft. out to 25 ft....Cut it down to a short story this time.    Tim

[SwampDonkey]

Ron S,,, why do I need the landowner's tax id number???

Ron will answer for himself, but a tax ID number could mean property tax number or sales tax number. The property tax, or PID number as we call it up here, identifies that property as being owned by that person that claims ownership. You can call up a map and aerial photo outlining the property boundaries here in NB. The online service shows the ownership, tax info and mailing address. I've seen situations where a daughter or son wanting to cash in on a woodlot for that new SUV or house has no title to it and the mother, the owner, is of sound mind and body and often times living in a rather humble abode. 

[Ron Wenrich]

Brings up a good question.  Are you sending out a 1040 income statement to the landowners or are you letting their accountant take care of it?  I always had the landowner send me a 1040 at the end of the year if the fees are over $600.

Some states also have a severance tax. 

[Ron Scott]

The tax ID # is required for tracking by IRS and the Sate of Michigan tax. Some timber purchasers depending upon their asccounting send the landowner a form 1099 for the money paid for the timber which is reportable income by the landowner.

The landowner needs to report the income received for the timber as capital gains. A tax number or social security number is needed for tax reporting by the involved parties so its best to have the landowner's Tax ID # when the contract is signed rather than having to track it down for the timber purchaser at a later date or at tax time or if their is an IRS audit.

[Tillaway]

Ron has covered this well.  We use three contracts as well on most sales.  The purchaser sends three signed contracts with the first payment, insurance and performance bond.  We require a bid deposit with sealed bid sales.  We send a letter to the successful high bidder with three copies of the contract.  The letter states they have 30 days to sign and come up with the payment, insurance and bond.  If its not executed within 30 days we keep the deposit for out trouble and notify the next highest bidder.  They have the option to buy at their bid price.  I highly recommend a bid deposit.

We have moved away from cash sales, overall we get a better price since it removes some doubt on the purchasers part regarding volume sold.  However it is much easier to do this in Washington, Oregon, Idaho and California.  There are third party log scalers at most mills and the mills without tend be quite reliable with their company scalers.  I have heard more complaints about the third party scalers than the company scalers.