The pay-as-cut timber contract is why 240 acres worked as a deal

This one's done and funded so I can write it up.

Tract was 240 acres of pine in a mixed-age condition, listed at 1.02M, sat for seven months. The listing mentioned "active timber sale" in one line and nobody I talked to had read the contract. I asked for it and the broker sent 14 pages including two amendments.

What was in it: the seller had sold a pay-as-cut sale on 96 acres to a logging contractor in the spring. Pay-as-cut means the buyer pays per ton as wood is delivered and scaled at the mill, so the money arrives over months instead of at signing. About 31 percent of the contracted volume had been cut. Roughly 340k of gross remained uncut against an original contract of about 495k. Contract had 11 months to run and, importantly, it ran with the land under an assignment clause that the seller apparently hadn't focused on.

So the seller was pricing the tract as if the timber sale proceeds were his and the buyer was getting cut-over ground. The contract said otherwise once the deed moved unless he carved it out at closing, which would have required my consent.

We negotiated for five weeks. Landed at 838k with the contract assigned to me, seller keeping proceeds on tons already scaled through the closing date. I put 210k down. Since closing I've received 143k in scale tickets over four months and expect most of the balance by next summer, though the contractor has slowed down in wet weather.

The part that nearly broke it: the amendment extending the contract term was unsigned by one party in the copy I got. Took nine days and a title company that actually cared to run down an executed original. If that had been a genuine gap, the contractor could have walked and my 838k was suddenly a price for a tract with an argument attached.

What I'd keep: asking for the underlying documents on anything the listing mentions in passing. Seven months on market and the whole deal was in a paragraph on page 6.

5 replies

1nataliehsuSO1BPRO7

Nine days to find an executed amendment sounds calm in retrospect and I bet it wasn't. What would you have done if it never turned up?

4aliyah_bAU2APRO6

Ran your numbers. 838k in, 210k down, 143k back in four months. If the rest lands you've got most of the down payment returned inside 18 months on a tract you still own. That's the part that made me sit up.

3dmitri_v6CapitalPRO6

The assignment clause is the whole deal and I want to know how it was drafted. Language that says the agreement binds successors and assigns is common boilerplate. Language that says the timber rights run with the land and survive conveyance is a different animal, and I've seen sellers argue a severed timber deed stays personal to them even after a sale. Which was it?

Also curious whether the contract was recorded. In some states a recorded timber deed puts everyone on notice and in others it's a private contract nobody can find, and recording practice varies state by state, so a buyer relying on a title search alone can miss the whole thing. Sounds like your title company earned their fee.

3Rena Expert

A few mechanics worth setting out for anyone reading this later, because standing timber sits in an unusual place legally.

Standing timber can be treated as real property or as personal property depending on the state and on how the instrument is drafted, and that classification affects recording, notice to subsequent purchasers, and what a title search will surface. Because it varies state by state, whether a prior timber sale binds a buyer is a question for a real estate attorney licensed where the land sits, not a general rule.

The underwriting point in @thatch's reply is the one to carry. Remaining contract value on a pay-as-cut sale is a receivable contingent on performance, so it should be discounted for the probability the contractor doesn't finish, for mill quota interruptions, and for weather that pushes tons into a later season. Standard protections include a performance bond, a per-acre security deposit, liquidated damages for abandonment, and an obligation to restore roads and firebreaks at completion. Whether those exist in a given contract is a document question, which is why reading it is the work.

On the broader pattern: timberland's low reported volatility comes partly from the owner's ability to defer harvest. A tract with a live contract on it has already spent that option for the acreage under contract, and the buyer inherits a fixed schedule instead of flexibility. That's a fair trade at the right price, and it's a different risk profile from an unencumbered tract.

Reforestation obligation on cutover acres is a real cost, generally somewhere in the low hundreds per acre for site prep and planting depending on region and terrain. Confirm current local costs with a consulting forester before assuming a number.

The pay-as-cut timber contract is why 240 acres worked as a deal

5 replies