When selling timber, there are two common ways to structure the sale and payment. The type that is best for you or is feasible depends on timber type, harvest type, volumes, and stand working conditions.
Timber Sale Types
The Lump-Sum Sale
Selling timber “lump-sum” means the seller is paid upfront before any cutting takes place. The timber is evaluated, paid for, and the buyer owns the timber rights for a set time (the cutting period), which is typically 12 to 24 months. This sale method is best for final harvest where most or all of the timber is cut (clearcut).
- Guaranteed amount paid in advance.
- Low risk for the seller—if trees die, are damaged by storms, or any other loss occurs after closing, the seller bears no liability for loss.
- Difficult to apply to selective timber harvests. Determining harvest volumes of selective harvests can be tough to do with enough certainty for a buyer to risk buying on a lump-sum basis.
- A substantial amount of field work goes into establishing solid volume and value estimates. Accurate sale acreage must be determined, then a series of sample plots must be taken over the site to estimate the volumes of the various forest products. This process can take days.
- Longer contract period. When a buyer pays in advance, he expects to have adequate time to harvest the timber to recoup his money. The timber business is one full of challenges—foul weather, market quotas, price fluctuations, personnel changes, logging force issues, etc., so sufficient time is needed to account for unexpected setbacks.
The Pay-As-Cut Sale
Selling timber on a “pay-as-cut” basis means the seller is paid on a per unit (tons, cords, board feet) basis. The timber is cut, hauled to market, scaled or weighed; then the seller is paid based on that volume determination. This method is typically used for thinnings and selective harvests, short-term contracts, tracts with no legal (temporary) access, or stands where sale volumes are difficult to determine due to terrain, understory, etc.
- Assuming the forest products are separated and merchandised correctly, the seller is paid exactly what the timber is worth, based on the agreed upon per unit prices.
- Flexibility—the ability to make minor changes during the harvest. Example 1: You decide to leave a small area uncut that was originally included in the sale area. Since the trees have yet to be paid for, you can exclude the area if your contract allows. Example 2: A marked leave-tree gets damaged. You can have it cut, be paid, and mark another leave-tree to take its place. Example 3: You add areas or additional trees to the sale.
- Allows for a shorter contract cutting period since the buyer hasn’t paid you money upfront.
- The seller assumes all of the risks for loss due to poor product merchandising, theft, trees left uncut, waste, insects, and storm damage.
- No guaranteed amount of sale revenue.
Most timber buyers prefer this method due to a number of reasons including no or low money up front, little risk of losing money, limited time investment, and less need for monitoring product separation because the seller (you) are taking the loss if higher value products get thrown in the pulpwood pile.
Sellers should bear in mind that most loggers make their money based on production. It is in their best interest to get the truck loaded and on the road as quickly as possible, meaning sometimes higher value products will get thrown in with lower value ones to finish out a load. Many of the individual buyers I deal with are running half a dozen crews or more each (dealing with markets, buying timber to keep them going, etc.) and don’t have the time (even if they had the inclination) to stand out on the job all day and monitor their logging contractors product separations. The buyer and logging contractor you deal with for this type of sale should be chosen carefully.
Product merchandising issues are one of the main reasons that it is preferable to utilize the pay-as-cut sale type only when product separations are fairly cut and dry, such as in pine first thinnings (usually all pulpwood) or second thinnings (mostly pulpwood and chip-n-saw). This simplicity keeps the separations to a minimum, allowing easier monitoring and greater logger production.
Many of the landowners worry about timber theft. Theft is rare–revenue loss due to negligent product merchandising is much more prevalent and harder to detect.
In conclusion, if possible always get your money upfront–the lump-sum sale. If a pay-as-cut sale is the only option, choose your buyer/logging contractor carefully.
I will be glad to help you determine which type is best suited for your timber.