1. SELLING TIMBER

2. TIMBER SALE BASICS Have a plan for your woodland. Have a plan prepared by a professional forester based on your woodland conditions and your personal goals and objectives. Know what you are trying to achieve with any timber harvest. Know what you are going to sell. You choose what you will sell, not let the logger choose what he wants to buy. Have the timber marked or cruised by a professional forester. Must have an operable volume to sell. (i.e. enough to be commercially salable.) Sell by written contract. More about contracts later. Advise the Division of Forestry logging inspector when the harvest begins.

3. TWO BASIC TYPES OF TIMBER HARVESTS LUMP-SUM-IN-ADVANCE SHARE SALES

4. LUMP-SUM-IN-ADVANCE All money paid in advance before the harvest starts. Often there is a down payment paid at contract signing of 10 to 25% with the balance due before the first chain saw starts. Logger owns the trees and assumes all risk. There is a written, enforceable contract. Landowner is in control of what’s going on. Always eligible for capital gains tax treatment. Clean with every one involved knowing what’s expected.

5. SHARE SALES Over 50% of the timber harvested in Kentucky is harvested on-the-shares. The Landowner is entering into a partnership with the logger.  Logger harvests and markets the trees for the landowner.  Landowner receives a fixed % of the sale of the logs.  Landowner retains ownership of the trees until they are marketed and paid for.  Landowner assumes all risk.  Landowner has no control of what’s going on.

6. SHARE SALES CONTINUED Landowner MAY make more money  IF everything works perfect…  IF the partnership goes well…  IF the timber cuts sound and  IF it is marketed properly and in a timely manner.

7. SHARE SALES CONTINUED Why will he make more money?  Because in lump-sum-in-advance sales, the logger is guessing how the timber is going to cut. .

8. SHARE SALES CONTINUED NO ONE can be 100% sure how timber is going to cut until it’s been cut and the logs can be examined.

9. SHARE SALES CONTINUED Logger has to figure risk into any up front price he pays for timber.

10. SHARE SALES CONTINUED IF the timber cuts good, then the landowner reaps a bonus.

11. SHARE SALES CONTINUED Also… bear in mind: An effective contract that protects the landowner cannot be written for a share sale. Landowner has very little control of the logger. Share sale is not eligible for capital gains tax treatment unless contract is titled “right-to-cut” in the contact title. Landowner may not be able to keep track of where logs are being taken, marketed, or sold.

12. LUMP-SUM vs SHARE SALES RECOMMENDATION: Sell timber by lump sum and not on the shares. Lump sum is clean, enforceable, and the landowner has all of his/her money in advance of any cutting. Selling on the shares is an invitation to a host of problems which could have been prevented. Remember – any one can promise anything, especially if there is no mechanism to force them to deliver what they promise. Share sales are a lot about promises.

13. LUMP-SUM vs SHARE SALES EXCEPTION: There are situations where, for a variety of reasons, timber is not salable by lump sum.  The volume is too small, so scattered, or of such low quality that no one is willing to buy it by lump sum.  A share sale may be a landowner’s only recourse in these situations.  A small share operator can harvest trees that a larger operator would not consider.

14. TIMBER SALE CONTRACTS CONTRACT BASICS: The agreement is the contract not the piece of paper. The signed piece of paper is documentation of the agreement. (Basic contract law.)

15. TIMBER SALE CONTRACTS CONTINUED Contract should specify:  The parties to the contract.  What is being sold  Description of what may be harvested.  Dollar amount of the sale.  How payment will be made.  Length of the contract.  Usually never less than six months and up to two years or more depending on what and how much is being sold and how hard it will be to remove.

16. TIMBER SALE CONTRACTS CONTINIUED Landowner protections to include:  Best Management Practices will be followed.  All property improvements (roads, fences, fields, etc) will be left in as good a condition as found.  Disturbed areas will be graded (if necessary), water-barred, and seeded.  Logger releases the landowner from any liability for damage or injury to him and his employees.  Logger carries appropriate liability insurance.  Specify recourse in case of non-performance.

17. TIMBER SALE CONTRACTS CONTINUED In the contract, the landowner must:  Guarantee his/her right to sell the timber.  Guarantee his/her property boundaries.  Grant the logger the right of ingress and egress for any equipment necessary for the harvest.  Agree to the construction of necessary roads and skid trails, and a suitable yarding area. The location of the yarding area should be by mutual agreement.

18. TIMBER PRICES What’s a tree worth?

19. TIMBER PRICES CONTINUED What’s a car worth?

20. TIMBER PRICES CONTINUED It depends on the car!

21. TIMBER PRICES Here’s a veneer white oak on the left and a sugar maple with a hole in the middle on the right.

22. TIMBER PRICES CONTINUED All trees are not created equal.  Is it walnut… or is it hickory?  Is it straight or is it crooked?  Is the trunk clear of branches or does it have a lot of limbs?  Is it veneer or is it rough lumber?

23. TIMBER PRICES CONTINUED All wood of the same species is not worth the same. Clear wood is worth more than knotty wood  Best wood is on the outside of the tree, NOT in the center.  The center of a tree contains the knot for every limb that ever grew on that tree.  Therefore, the bigger a tree, the higher the per cent of clear wood it will produce and hence the higher its value.  There will generally be multiple log grades in the same tree.  There can be a vast difference in price between log grades.

24. TIMBER PRICES CONTINUED Prices paid for standing trees (stumpage) will vary regionally. Loggers and mills have widely different markets which will in turn affect the prices they can offer. Transportation distance to a mill will affect price. Logging conditions (i.e. topography, slope of the land, length of skid, etc.) will affect productivity and the cost of logging -- which will in turn affect price. To get the highest price for your timber -- advertise widely and sell lump-sum-in-advance by sealed bid.

25. ABOUT THE HARVEST “Are they going to make a mess?” Some of that depends on your personal definition of a mess. The short answer is, “Yes.” It’s not if they make a mess, it’s if they fix it. That’s what your contract and the Division of Forestry logging inspector are for.

26. ABOUT THE HARVEST CONTINUED Your woods is going to look different.  The best logging job in the world will look rough for awhile.  How rough will, in part, depend on the volume of timber removed.  Lighter harvests look better; heavy harvests worse.  There will be tree tops laying on the ground usually where they fell. But…they make good firewood.  There will be exposed soil on roads, skid trails and landings until grass takes hold.  But…It will look a lot better the 2 nd year.  In hardwoods, we depend on natural regeneration.

27. TIMBER TRESPASS It is Kentucky law (KRS 364.130) that you must be notified by certified mail when someone is going to harvest timber adjacent to your property. If they don’t, and cut some of your trees, you are entitled to:  Three times the value of your trees harvested,  Three times cost of any damage to property.  Legal expenses Call a consulting forester to have the value of the your illegally cut trees appraised.

28. CONSULTING FORESTERS Consulting foresters are privately employed businessmen with a minimum of a BS in Forestry who provide professional forestry services for a fee. Most consulting foresters in Kentucky are members of the Kentucky Association of Consulting Foresters (KACF) which is a chapter of the national Association of Consulting Foresters (ACF) Their web site is www.kacf.org which lists all of their current members, their location, and their contact information. Some also have personal web sites.www.kacf.org

29. CONSULTING FORESTERS CONTINUED Consulting Foresters are trained to provide a complete array of woodland assistance to include:  Timber sales  Timber and TSI marking  Cruises (statistical sample used to estimate volume)  Appraisals  Management Plans  Timber trespass investigations  Expert witness testimony in court  Forest certification  Some provide vendor services such at TSI or tree planting.

30. CONSULTING FORESTERS CONTINUED How do they handle timber sales?  They are your personal representative.  Turn key operation. They handle it all for you.  Mark or cruise the timber.  Advertise the sale widely.  Conduct the sale.  Prepare and administer the timber sale contract.  Inspect the on-going operation.  Coordinate with the Division of Forestry logging inspector.

31. CONSULTING FORESTERS CONTINUED What do they cost?  Depends on the service they provide and the distance they have to travel. Rates vary among individuals. For timber sales, they usually operate on commission.  Commission usually varies from 10 to 15% What do they do for that commission?  Make you money, almost always lots more than their commission.  Relieve you of stress. What price are you going to put on stress?

32. CONSULTING FORESTERS CONTINUED What can they do that you can’t do?  Consultants know timber, the market, the buyers, and how to get you the most for what you have to sell.  Do you?  Prefer sealed bid sales when the timber and situation are suitable.  Often the high bidder in a sealed bid sale will be double to triple the low bid and from over 100 miles away.  Do you know enough to analyze the bids you get and know what is a fair price?

33. CONSULTING FORESTERS CONTINUED Do you know who the high bidders are likely to be and can you get them to come bid?  Loggers are not waiting by their telephone for you to put your timber on the market.  Buyers are bombarded daily with requests to look at timber.  The loggers and buyers know and trust the consultant.  They will often come bid on timber because of the personal relationship the consultant has established with them and because the consultant asks them to.  Buyers regularly call the consultant asking him if he has timber for sale.  They don’t know you!

34. CONSULTING FORESTERS CONTINUED Remember: If you are going to buy a car, you are going to try to buy it as cheap as you can. That’s business. Loggers aren’t any different. Timber Sales are one of the places a consulting forester is really valuable to a landowner.

35. SUMMARY Have a plan and know what you are going to sell. Sell lump-sum-in-advance by written contract. Engage the Division of Forestry logging inspector. To make the most money and relieve yourself of stress, hire a consulting forester to handle your sale. KACF web site is www.kacf.org