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Marketing Your Timber:
The Bidding Process

Timber is a multi-million dollar business in Mississippi. Many landowners, however, do not receive the full value when they sell their timber, because selling timber properly is a complicated task.

Landowners sell timber infrequently and often do not have specialized knowledge about logging, timber estimation, utilization standards, or local markets. Lack of marketing knowledge is costly to the landowner because it decreases profits on timber sales. Also, bad harvesting and marketing decisions on today's sale can cause loss of future profits by delaying or complicating future sales.

Prevent problems by following good marketing procedures. A good marketing procedure helps you to approach the timber sale in a businesslike manner and helps you answer many important questions, including:

  • Are my trees ready to sell?
  • How much timber do I have?
  • What is the value of my timber?
  • Will professional forestry assistance help?
  • Who will buy my timber?
  • How should I sell it?

Selling Method

A key element in properly marketing your timber is to use the proper selling method. The two methods commonly used in the South are negotiation and sealed bids. In the West, auctioning timber is also a widely used method, but it's rarely used in the South.


Negotiation

A negotiated sale is when the buyer and seller establish the price through face-to-face negotiations. This is probably the most commonly used method of selling timber; unfortunately, if the landowner is unfamiliar with local timber markets, he usually is at a disadvantage in this situation.

Certain specialty products, such as high-value hardwoods and poles, are often purchased through negotiation.


Sealed Bids

A sealed-bid timber sale requires prospective buyers to submit confidential written offers that will be opened at a specified time and place. Each bidder is allowed to make only one bid, and bids are not accepted after the specified time for the bid closing.

As with many other products, the best way to attract interest in your timber is good advertising. Whatever the selling method, a good timber sale prospectus, often referred to as a bid invitation, is a key to attracting interest in your timber sale. The more interest, the more competition and therefore, the higher the sale price.


Sale Prospectus

There are several steps in preparing your timber sale prospectus. You must have accurate, reliable information, and you need to send it to as many prospective bidders as possible.

One of your first steps is to arrange for some professional forestry assistance. A lot of people might say "Well, this is just an extra expense." It is, but it's well worth it to have professional help, because professional foresters can make you money.

In a study by University of Georgia researchers, it was found that landowners who used professional forestry assistance received 23 percent more income per acre for their timber than did those who sold timber themselves. That can pay for a lot of help!

Obtain assistance from the Mississippi Forestry Commission, the Cooperative Extension Service, or the Soil Conservation Service. In addition, some companies provide help under their landowner-assistance programs. However, the most complete and personalized help will come from a private forestry consultant.

The second step is to get an inventory of your timber, and this requires professional assistance. You need to know what you have, how much you have, and where it is. An experienced forester will make a "cruise" of the timber you want to sell. It may be a 100-percent tree tally or a sample plot-type cruise, depending on the size and type of sale being considered. From this cruise, he will be able to give you information on the number of trees in each diameter and height class, by species and product. Get this information for each tract to be sold.

The third step is to verify ownership and to mark the sale boundaries. While you know you are the owner, no buyer will actually purchase the timber until all ownership records have been thoroughly checked. You should make certain that you have a clear title on file and that your property taxes are paid. If there is a lien on the property, a release should be secured before the sale.

In addition, if there are problems with road access to the property, you should secure written rights-of-way or easements from surrounding owners (to allow easy access). Once this is done, the sale boundaries should be marked clearly. If the sale area does not have easily defined boundaries (such as roads or fence lines), then use paint or plastic flagging to mark them. Poorly marked boundary lines lead to problems for the buyer and the seller and can discourage prospective buyers.

The last step in preparing your timber sale prospectus is to develop a list of prospective buyers. Each company buys a slightly different mix of timber species, sizes, and products. This makes it necessary to ask around and to consult local agencies (such as the Mississippi Forestry Commission and the Cooperative Extension Service) to get a list of prospective timber buyers and the products they buy. If you have a forestry consultant, he should already have a good list.


Preparing the Bid Invitation

Once your timber inventory is completed, the sale prospectus or bid invitation can be prepared.

The invitation to bid is a letter (with supporting materials and maps) that describes sale conditions and the timber that is to be sold. The bid invitation is your advertisement to attract interested buyers. The more complete the prospectus, the better your chances of attracting prospective bidders.

Each bid invitation is different, depending on the type, size, and information included. Main elements in a bid invitation include:

  • Identification of Seller/Seller's Agent -- This section should identify the seller(s) to the buyer by giving full legal name(s), business/home addresses, and telephone numbers. If a forestry consultant is representing you, this section also indicates he is your agent and includes his firm's name, address, and telephone number.
  • Location and Size of Sale Area -- Include the complete legal description and acreage of the sale area in this section. If the sale area is in separate tracts, provide information on each one. Include a description of the sale boundaries and how they are marked, since the prospective buyer may want to examine the tract. Also, set a time and place for prospective buyers to tour the sale area, if desired.
  • Type of Sale -- This will tell the buyer how you are selling your timber, by lump sum or unit (pay as cut) sale. It describes how the trees to be cut are designated -- by marking (paint), diameter, or species within the sale boundary. It tells whether the volume information was from a sample timber cruise or a 100-percent tree tally.

Bid Guidelines

Volume Information

Volume data come from the timber cruise or tree tally. The information includes total volume and average volume per acre, which should be presented by species and product class. If there are separate sale areas, give these data for each tract, as well as a total sale summary. Mention the log rule used for volume estimation and minimum top diameters for pulpwood and saw timber.


Duration of the Sale Agreement

Designate the time a buyer has to harvest the timber by setting a beginning and ending date. In determining the length of time allowed, consider tract size, volume, and ground conditions. In the South, one to three years is the normal harvest period allowed.


Harvesting Restrictions/Conditions

Provide all restrictions or conditions that are to be placed on your logging operation. Restrictions can include road maintenance, size and type of harvesting equipment, supervision requirements, and penalty provisions. This information also will be in the timber sale contract, but the prospective buyer should be made aware of it before he bids.


Bid Opening

Set the date, time, and place where the bids will be opened. Invite buyers to attend the opening and specify how you will notify them if their bids are successful. Allow 4 to 6 weeks between advertisement and the bid opening. This allows adequate time for the buyers to evaluate the sale area and to draw up their bids.


Conditions for Bid Acceptance

Explain your conditions for an acceptable bid. This information includes bid format, how to address the bid, and terms for a bid-performance bond, if required. Specify requirements for receiving the bids, either mailed or hand-delivered. State that you retain the right to refuse any or all bids. Also specify a time limit for seller and buyer to agree to a sale contract and sale closing.


Provisions for Payment

Outline the payment method in this section. Specify your preference, such as personal or certified cashier's check, and time of payment. You may want one lump sum at sale closing, or perhaps installment payments. Remember to consider your income tax situation before deciding on how you want to be paid.


Supporting Attachments to Bid Invitation

In your bid invitation, include two maps of the sale area. The first should be of the sale area itself and the surrounding tracts. It should show property boundaries, sale boundaries, access roads, streams, and other physical land features. Also, a description of the sale boundaries should be included.

The second map should show the location of the sale area in relation to surrounding towns and highways.

The summary stand tables from the timber cruise should include the number of trees by diameter class, species, and product class.

A sample timber sales contract can be included, so the buyer can examine it and identify any problem areas.

A sample bid form will make it easier for the buyer to submit his bid. This also makes it easier for you to compare bids.


Choosing the Best Bid

Choosing the best bid is not just taking the highest price offered. Once again, it takes homework and good advice to make a profitable marketing choice. Find out what other landowners in your area have received recently for similar timber. None of the bids you receive may be realistic and you may wish to refuse them. Also, investigate the reputation of prospective bidders. An important consideration is who does the buyer's harvesting and the quality of his work. A poor logging job or problems with the buyer can cost you time and money.

Conduct the bidding process in a businesslike manner. Answer all questions and inquiries and keep records of discussions to help prevent misunderstandings.

Keep all bids confidential until the opening, and do not bargain between bidders before or after the opening. Open the bids at the appointed time and date in the presence of the bidders.

Examine the bids, and, based on bid price and knowledge about the bidders, select the winning bidder as soon as possible. Notify all unsuccessful bidders promptly. Schedule a meeting with the winning bidder to discuss the drafting and execution of the sales contract.

Too often selling timber is a disappointing experience because a landowner does not take advantage of assistance only a phone call way. Following a good marketing procedure helps you conduct timber sales that will meet your timber-management goals and objectives while receiving a good price. You'll also have the satisfaction of knowing that your timber sale was handled professionally.


By Winston Savelle, Area Extension Forester, and Bob Daniels, Wood Utilization Forester

Mississippi State University does not discriminate on the basis of race, color, religion, national origin, sex, age, disability, or veteran status.

Publication 1620
Extension Service of Mississippi State University, cooperating with U.S. Department of Agriculture. Published in furtherance of Acts of Congress, May 8 and June 30, 1914. Ronald A. Brown, Director


Copyright by Mississippi State University. All rights reserved.

This document may be copied and distributed for nonprofit educational purposes provided that credit is given to the Mississippi State University Extension Service.
 
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