A timber sale is a serious matter requiring careful preparation. The results of many years of past timber growth are at stake, and the condition of the forest after the sale profoundly affects its productivity for many years to come.

Basics to Consider If profit is your primary objective, avoid the tempta- tion to make a “quick sale.” Think about what you are going to do, and don’t be pressured into making Your best interest should 1. Hire a Registered Forester or a decision. Using the competitive bid process can be the top priority of anyone Consultant (who is a Registered Forester) maximize your profits. you hire to assist in your timber sale. They should to Help With the Planning and Sale of fully disclose and resolve Your Timber any existing or potential Clearly marking sale boundary lines will help Selling timber can be a source of great satisfaction ensure that the logger does not cut non-designated conflicts of interest. to a landowner, or it may be a source of surprise, trees and/or trespass on the neighbors’ property. frustration, and stress, especially for those landown- The use of topographic maps will assist you in ers who make timber sales infrequently. identifying streams, existing roads, property boundar- Relying on the expertise of a registered forester ies, steep grades, and road access. Soil maps will or consultant that is a registered forester to help with help identify wet areas and soils that can be easily the harvest planning and timber sale can prevent damaged during the logging process. The use of topo surprises to either the seller or buyer and help ensure and soil maps can also help in planning not only the landowners get the best value for their timber. time of year to harvest, but also the potential loca- To find a registered forester or consultant, you can Tax Implications tion of logging decks, stream crossings, culverts, and go to the Alabama Forestry Commission’s web page temporary roads. www.forestry.alabama.gov, the Alabama Chapter of Competent tax advice should be You should designate areas adjacent to streams as the Association of Consulting Foresters at www.alacf. sought well before a sale. It is Streamside Management Zones, where timber har- com, or the Alabama State Board of Registration for recommended that prior to making vesting should be controlled or avoided. Foresters at www.asbrf.alabama.gov. the sale you contact your CPA for Before harvesting begins, you or your representa- clarification of the current tax laws. tive should conduct an on-the-ground meeting with 2. Develop a Forest Management Plan the buyer and logger to review the pre-harvest plan. There are also various sources of Properly managed forests yield more timber, have The consequences of not having a pre-harvest information that you can access a higher net present value, suffer fewer environmental plan include: time and money spent on unintended on the internet. The Alabama impacts, and enhance wildlife habitat more than problems, degraded forest conditions, illegal activities, Cooperative Extension System, non-managed forests. declining water quality, more forest land impacted by my-forest.com, the US Forest Forest management plans are also required for skidding, degrading post-harvest condition of forest Service Cooperative Forestry, and third-party certification and future markets, such as soils, trees more susceptible to disease and insect the National Timber Tax Website Woody Biomass and Carbon Sequestration. damage, reduced regeneration of seedlings and provide tax information that may saplings growth, etc. help you better understand the tax 3.Pre-Harvest Planning implications of selling your timber. Determine a Selling Method Pre-harvest planning will ensure that your 4. Timber is generally sold by one of two methods: Those sites are: forest management objectives and goals are not negotiation or sealed bid. You should seek the advice • www.aces.edu/ compromised. It will reduce opportunities for mis- of your Registered Forester or Consultant Forester to • www.my-forest.com understandings between you and the buyer and/or determine which method is best for you and your • www.fs.fed.us/spf/coop/ logger, help ensure that the harvest will maximize harvesting objective. • www.timbertax.org financial returns for all parties, protect water quality, and maintain or enhance forest productivity. Properly managed forests yield more timber, have a higher net Preparing a contract present value, suffer encourages forethought fewer environmental and planning, which will impacts, and enhance wildlife habitat more than minimize difficulties and non-managed forests. ensure that the transaction meets your expectations. You should always • Negotiated sales involve face-to-face bargaining • Selling Timber on a Per-Unit Basis: between you and the buyer. consult with a registered If you choose to sell timber by the unit, specify the • Sealed bid sales require that prospective buyers units of measurement to be used, who is to do forester and attorney submit confidential offers in writing for your timber. the measuring, and where. Measurements may when drafting a timber be made by one of several different methods: log Generally, the sealed bid method returns the high- scales, weight, cords, or some combination of sale contract. est dollar value to you, the landowner, especially if you these. A per-unit sale should specify that all timber are unfamiliar with local markets. The negotiated sale harvested is to be measured and paid for accord- is more prevalent for specialty products such as high- ing to its most valuable product use. value hardwoods, where there are normally very few • The Type of Harvest: bidders. Whichever sale method is selected, you should Specify the type of harvest you desire and if the require the logger to be Professional Logging Manager timber is marked, how it’s marked. For example, if (PLM) certified. you are making a seed tree cut, you may specify A trained professional logger can ensure trees are that all trees banded with blue paint 4-1/2 feet effectively harvested and merchandised in a manner above ground (Diameter at Breast Height, DBH) that fully utilizes Best Management Practices (BMPs). are seed trees and will not be cut or damaged. If This is particularly important as more emphasis is you are thinning or using a select cut, you may Sample contracts are available on our being placed on protecting and enhancing water quality. want to designate the trees to be cut with one website at www.forestry.alabama.gov, It’s a good idea to take time to know the prospective paint spot above DBH and another below the under “Market & Informational Resources” logger by asking for references, business experience, stump height. If you are doing an operator-select menu or http://forestry.about.com and whether they have completed PLM training. You or harvest, specify selection guidelines in the con- your agent can verify they’ve attended Alabama’s PLM tract. course by going to the Alabama Forestry Association’s website at www.alaforestry.org and clicking on PLM. Payment, Damage Clauses, and Penalties The following are provisions to consider including in (If you choose to sell your timber through the bid process, a timber sale contract. Be aware that some restrictions you may limit your ability to specify a particular logger.) placed on harvesting may lower the price someone is willing to pay for your timber, so be reasonable in your 5. Have a Contract expectations. A written contract is essential and will reduce • Selling Timber on a Lump-Sum Basis: surprises to both you and the buyer and/or logger. If you are selling your timber on a lump-sum basis, Preparing a contract encourages forethought and plan- specify that you desire payment in full at the time ning, which will minimize difficulties and ensure that the of contract execution; or if you are deferring pay- transaction meets your expectations. A contract is not a ment, the exact date(s) you expect payment. Whether you’re dealing substitute for good faith and fair dealing between par- (A lump-sum sale is the outright sale of standing ties, it is a framework in which good faith and fair deal- directly or indirectly with timber for a fixed dollar amount agreed upon in ing can operate in an orderly and effective manner. a timber buyer, wood advance. The sale price is not a function of the The following items should be included in a timber volume cut.) supplier, logger, registered sale contract: forester or consultant, you • Selling Timber on a Per-Unit Basis (price): Timber Description If you are selling on a per-unit basis, specify the should always request • An Accurate Legal Description: payment per unit for each species and product, references, experience, In the contract, state the exact location and legal as well as timing of payments. Additionally, agree applicable licenses, and description of the timber sale area. on the method and place of scaling and measure- certifi cations. • Marking Corners and Boundaries: ment. Also, you should require in the contract that The contract should state at whose expense the buyer provide you with a complete accounting marking will be done and how the boundaries and of all species and products by delivery point that corners will be marked. are harvested from your sale. As important as it is, the contract is only one of many issues that needs to be considered when the decision to sell timber is being made. The following concerns should have a bearing on the content within the contract:

1. Do you have a clear title for the timber being sold? (A per-unit price is determined in advance, but the amount • If You are Making a Partial Cut: 2. Have you established your of timber to be harvested is not. Income from sale is based Include a penalty for cutting non-designated trees. tax basis for the land and strictly on the volume actually harvested.) If you specify in the contract a dollar value per mer- timber you plan to sell to chantable tree volume for the cutting of non-designat- • Time Period for Cutting Timber: claim your capital gains ed trees, later problems will be more easily resolved. Normal time periods for cutting timber are 12 to 24 treatment? The usual penalty for such damage is double or triple months. There can be provisions for extensions, but the stumpage rate. 3. What are the market condi- the details and timing of the extension should be tions for the products being defined. There is usually a cost to the buyer for an • Removing Canopy or Overstory: sold or retained? extension, and you can consider the value of addition- If you intend to remove a canopy or overstory to allow 4. How will the sale be al growth if the buyer holds for longer than 12 months. the future stand room to grow, you should likewise specify a penalty for failure to cut designated trees. marketed to receive the • Damage to Your Land or Remaining Timber: best price or the best job? A certain degree of damage should be expected. You • Logging Notification: Agree on when logging can begin and ask to be 5. Will there be any environ- may want to visit a comparable site that has been notified prior to the logger moving on the sale site. mental issues (i.e. wetland recently harvested by the logger who will harvest management or threatened your tract. Also, you may want to state your damage Logging Clauses & endangered species) requirements, such as no more than a maximum num- • Method of Logging: involved in the sale area? ber of trees per acre having visible skidding damage, You may specify a certain method of logging be used, 6. How will the sale area be or specify the acceptable depth (in inches) of skidding such as a forwarding system instead of tree-length accessed? You would not ruts. skidding, to minimize damage to your residual stand want large equipment • Access Restrictions: during a thinning operation. utilizing trails or traveling Specify any restrictions you have for ingress and • Road Maintenance and Skid Trail Layout: on property outside the egress to your property. For example, If you desire that If you desire that roads be maintained to a minimum sale area. the logger not use a certain entrance to your property, standard, refer to that standard in the contract. A 7. Site preparation and such as through your pasture or beside your house, usual requirement is to return roads to as good or reforestation options. better condition than before logging occurred. Address specify this requirement in the contract. your expectations for repair of fences or other special These topics are not all inclusive places that may be damaged during the harvesting but show why pre-harvest planning is important. operation.

Timber Sale Timeline Develop a Forest Management Plan Monitor Harvest

HireHire a Developvelop HaHarvestingrvesting SScheduleched Pre-HarvestPre Harvest PlPlanninganning CloseoutCloseout wwithith Registered Forester - Decide to Have a Sale - Develop Prospectus Buyer/Logger or Consultant - Determine Type of Harvest - Select Timber Buyer/Logger (who is a registered forester) - Check Timber Prices - Develop Harvest Plan - Delineate Sale Boundary - Contract - Identify Special Requirements - Pre-Harvest Conference with Buyer/Logger • Reduce the possibilities for non-point source • Recording of the contract at the county courthouse pollution: • A performance bond or deposit — collected from the You should specify that all logging should be done buyer prior to the commencement of harvesting — to in accordance with “Alabama’s Best Management be held by a third party until provisions of the contract Practices (BMPs) for Forestry.” For more information are met on BMPs visit our website at • Require PLM certification for logger. www.forestry.alabama.gov/BMPIndex.aspx. • Stump Height and Top Diameter Harvested: 6. Monitor the Harvest Monitor If stump height and top diameter harvested is You or your agent should frequently inspect the important to you, then you should specify, in inches, the harvesting operation to ensure the contract terms are the Harvest maximum stump height allowed or top diameter. If you being fulfilled. Operation want to easily machine-plant your next timber stand, When you sell on a per-unit basis, a full accounting of allow a maximum stump height over which the tree what was removed during the harvest should be provided planter can easily maneuver. Check the logging operation on a by the buyer. You can designate how frequently you want regular basis to ensure contract • Selling Your Timber Based on Unit Volume: the information: weekly, monthly, or at the end of the sale. requirements are being met. If you are selling your timber based on unit volume, be Minimum information received should include: Always require as part of pay-per- sure to specify the maximum top diameter that you will • Each load of timber leaving a cutting site must be unit sales that you are provided allow to remain in the woods. assigned a load number. Load numbers for each job with a full accounting of what’s Cleanup:• site should be in numerical sequence. being harvested. This information Include a statement requiring removal of all litter and • The county and state where the timber was cut trash from the logging operation. You may also want to should be provided to you by the • The landowner’s name, or if multiple owners, the name buyer. The frequency with which specify that logging debris be scattered back over the of the estate where the timber is being cut. you receive this information is up site, versus piled at the logging deck. • Date and time the forest product was loaded on the to you, but it’s recommended that The Sale and Harvest truck it be provided on a regular time • Arrange a meeting with the buyer and/or logger so that • The scale ticket number that corresponds to each schedule, i.e. weekly, monthly, etc. you or your representative can point out any load number to verify delivery of individual loads of special restrictions that you have imposed. Walk the forest product Requiring a load-by-load account- sale site to ensure sale boundary lines and other ing of forest products removed restrictions are understood. • The forest product type identified (for example: pine from your timber sale is a good • Check the logging operation on a regular basis and logs, pine poles, pine pulpwood, hardwood logs, hardwood pulp, chip and saw, woody biomass, and business practice for you and the inform the logging supervisor if you think that the terms miscellaneous forest products) buyer. It provides you with a full of the contract are not being faithfully followed. accounting of what is harvested • Be reasonable in your expectations and assignment of • Destination of the first wood-receiving facility that the off your property and helps damage penalties. In some instances, the amount forest product is being transported to ensure that contractual terms are that you receive for your timber may be reduced • The name of the logging company, wood dealer, or fulfilled. due to excessive restrictions. producer removing the forest products Record-keeping on per-unit sales: Other Contract Provisions to Consider 7. Closeout with Buyer/Logger • Load number • Name and address of buyer • A notice of completion of harvest from the buyer can be • County and state of origin • Date contract is executed helpful in removing any question if the buyer considers • Landowner’s name • Declarations of the seller’s ownership and right the harvest complete and relinquishes remaining • Date and time to convey. This may include a title abstract and biomass back to owner. • Scale ticket number insurance. • Species and product • Review and agree on action and timing to address • Clarify ownership of by-products. any land or timber damages related to harvesting • Destination • Liability Insurance of all contractors and operations. Purchaser• Purchaser• sub-contractors • Address any other issues related to non-compliance • State who is responsible for paying severance tax. of the contract. • Statement of who suffers the loss if timber is destroyed Acknowledgements: • Ensure compliance with BMPs. • Dr. Richard Brinker, or stolen Auburn University • Provision for or against assignment of the contract • Alabama Cooperative • Notarization of the contract Extension System For more information, contact one of the following agencies or organizations: • Arkansas Forestry Commission • North Carolina Department of Forest Resources www.forestry.alabama.gov www.sfws.auburn.edu www.aces.edu www.alfafarmers.org www.cleanwaterpartnership.org www.alabamanaturalresources.com www.fs.fed.us • Cornell Cooperative Extension • Steve Nix, About.com Guide • USDA Forest Service, Cooperative Forestry www.alabamawildlife.orgl b ildlif www.alaforestry.org/sfi www.alaforestry.org/treefarm www.alaforestry.org www.alacf.com www.dcnr.state.al.us www.adem.state.al.us www.al.nrcs.usda.gov • www.forestry.alabama.gov The Alabama Forestry Commission (AFC) prohibits discrimination in all of its programs and activities on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status. The AFC is an equal opportunity provider and employer. Funding provided in part by various state and federal agencies, and private organizations. ANR-1387 AFC-20100308