You haven’t been home from work long when the phone rings. A man identifies himself as a timber buyer/logger who is working nearby and has noticed that you have some nice timber. Since you were not at home, he has taken the liberty of walking your woods. He asks, "Would you accept $10,000 for your timber?"
"Ten thousand dollars! Heck, I didn’t think it was worth anything," you say to yourself. Ten thousand dollars right out of the blue, free; what a lucky day!
Before you get too excited, slow down and ask yourself a few questions. Be completely honest, and if you answer any of these questions with, "I don’t know," the deal is likely to bring less money than is potentially possible, plus it could ruin your valuable timber for future sales.
Q. 1. How many trees will be cut?
Don’t know__ 20__ 200__ 2000__
Q. 2. How many board feet will be cut?
Don’t know__ What is a board foot?__ 10,000__ 100,000__
Q. 3. How much is my timber really worth?
Don’t know__ $10,000__ More than $10,000__
Q. 4. How and when will I get paid for the timber?
Don’t know __ Before timber is cut __ As timber is cut __ After timber is
cut __ Maybe never
Q. 5. Will they remove the lower-valued hickory, elm, honey locust, etc., or
will they only take the higher valued oaks, walnut and silver maple?
Don’t know __ Everything marketable __ High quality only ___
Q. 6. He said they would not ruin the woods by only cutting trees 15 inches and
larger. Fifteen inches measured where?
Don’t know__ Ground level__ Breast high__ Top of butt log__
Q. 7. If the logger or one of his crew members is injured or killed, who is
responsible?
Don’t know __ My liability insurance __ His insurance company __
Q. 8. Does the logger and crew have insurance? Are they covered by Workman’s
Compensation?
Don’t know __ They supplied written proof of insurance ___ No insurance
Q. 9. Who fixes the rutted roads, farm lanes, ruined fences or pulls tree tops
back out of the crop fields, pastures and/or creeks?
Don’t know __ Logger does after sale __ Security deposit to cover such damages __
Q. 10. If the logger says he will do all of the above, will he let me hold a
security or damage deposit to insure my property will not sustain
excessive damage?
Don’t know __ No written arrangements __
Q. 11. How long will they be on my land? (And have a right to cut timber.)
Don’t know __ 1 month __ 1 year __ Assumed it would be immediately __
Q. 12. Is the money I receive from my timber sale taxable?
Don’t know __ Yes __ No __ Maybe __
You won’t have an unbiased answer to Questions 1-5 unless the timber is "marked" by a forester. This means each saleable tree (mature, overmature, damaged/defective) is measured and tallied for diameter and merchantable log lengths by species and grade and paint-marked on two sides of the trunk and the stump. After marking the trees to be sold, the forester tallies the board-foot volume in the marked trees by species and grade. With this information the forester can make a very accurate evaluation of sale value. The marked timber is usually then sold by sealed bids to the highest bidder. There are many good timber buyers/loggers who are interested in buying timber at a fair market value and performing a good job of logging. By knowing the value of your saleable timber and having a good Timber Sale Contract chances are good that your timber sale will be a positive experience.
Especially important is Question 4. Always get your full payment prior to allowing any harvesting. It is almost never a good idea to sell on shares or percentage, which is always a cut now, pay later situation. Always know the true and fair value of your timber prior to selling. If you don’t like trouble or problems, this may be the best free advice you will ever get.
Question 6 is very tricky. Most landowners think this means 15 inches diameter measured at breast height (4 1/2 feet above ground) or d.b.h. The logger may mean 15 inches measured at ground level. Since all trees flare out at ground level, the lower the cut, the smaller diameter tree he can/will legally harvest. I have seen woodlots practically clear cut when loggers have cut the smaller trees at ground level where the stump is largest. Remember, a minimum diameter limit cut is very rarely used by professional foresters because it usually results in "high grading" or cutting only the best timber you have. A low (example 15”) diameter limit may also rob you of future high quality (and high value) veneer trees.
Questions 7 and 8 can be covered by a Certificate of Insurance from the logger or by a good Timber Sale Contract. A forester will have a good contract protecting both the seller and buyer. Selling timber on shares using only the logger’s contract or a verbal agreement can put you, the landowner, at great financial and liability risk.
Questions 9 through 11 will be covered in a good Timber Sale Contract. A security or damage deposit is often used to insure access roads, fences, crop fields and pastures are left in original condition after the logging is complete. If the logger completes the work properly as most will when a good Timber Sale Conract used, the security/damage deposit is refunded to the logger after the logging job is complete.
Question 12 refers to an often overlooked situation. Since producing timber is a long-term proposition, IRS allows timber volumes to be "depleted" as timber is harvested from the property. The amount calculated to be the value of the timber when you purchased the property is known as-the "Timber Cost Basis." A professional consulting forester can establish through an inventory procedure, your personal "timber cost basis." You are then entitled to subtract the value of any timber sales sold from the timber cost basis until it is entirely depleted. You may have heard the term "depletion allowance" used to describe this calculation. The net result is that you will probably owe no federal income taxes on the timber sale proceeds as long as there is a positive balance in the depletion account. Only a professional, consulting forester should assist you in establishing your cost basis because, if you are audited, it is very important to have had the Timber Cost Basis established by a qualified professional. Taking the above steps can prevent significant tax liabilities.
Remember, a forester is working for you to obtain the best dollar value for your saleable timber and, put your timberland in a healthier, more valuable condition. A consulting forester (charges for his/her services) can answer all of the above questions for you while a public agency forester (free service) can answer certain questions, and under certain circumstances, the landowner may have a six to eighteen month wait for the actual marking to take place. Consulting foresters can work with you throughout the process of selling timber and realization of the many favorable income tax treatments. The dollar value of their services is likely to exceed many times the amount of their fees. Free forestry assistance through a public agency does not include tax assistance or many of the specific services offered by a consulting forester.
Look at your answers again. Do you still feel comfortable taking the first offer for your timber? If you really want to pursue the sale of timber, you now know where to go for assistance, and you are informed so that you can ask the right questions. For your own satisfaction, it is just good business to be informed.