# How to Compare Two Offers for Your Sod Farm

By David Lapham

Compare sod farm offers by putting the assets, closing conditions, and payment schedule on the same page. Then calculate the cash you can use at closing and the money you may receive later. Two buyers can each offer $4 million and leave you with very different financial results and obligations.

I would start with a written comparison before choosing a buyer or agreeing to exclusivity. The purchase price matters. So do the standing sod you must deliver, the receivables you transfer, the financing the buyer still needs, and the months you may spend helping after the sale.

## Separate farm value from offer terms and seller proceeds

Keep three questions distinct:

- **Market value:** What would the defined property or business interest exchange for under the stated market assumptions and valuation date?
- **Execution risk:** What must happen before this buyer can close, and what could delay, change, or stop the transaction?
- **Seller proceeds:** What money reaches the seller after the agreed adjustments, debt payoffs, selling costs, taxes, and payment restrictions?

A value conclusion needs a defined subject and assumptions. The [IRS business valuation guidelines](https://www.irs.gov/irm/part4/irm_04-048-004) identify the property, ownership interest, valuation date, restrictions, and standard of value as part of that work. A buyer's proposal adds transaction terms to the discussion. Its headline alone does not establish market value.

Debt payoff is another separate calculation. If the same farm sells for the same amount, an owner with more debt generally has less cash remaining. That difference in the owner's financing does not, by itself, mean the farm is worth less. Taxable gain also has its own calculation: the IRS discusses [amount realized and adjusted basis](https://www.irs.gov/publications/p544), which should not be confused with cash left after paying a lender.

## Make sure both buyers are purchasing the same farm

Write an inclusion schedule for each offer. Identify the entities selling the land and operating assets, and whether the proposal purchases assets or ownership interests in a company. Those structures require different analysis. The IRS explains that a [business asset sale involves separate assets with potentially different tax treatment](https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-a-business).

For a sod farm, compare parcels, buildings, fixed irrigation, machinery by serial number, standing crop, supplies, receivables, customer deposits, and assumed obligations. Identify the leases, contracts, licenses, and other permissions that need review or consent. An offer should say what happens if a required consent is unavailable.

Check any retained items carefully. A seller who keeps a truck may retain something useful, but its debt, selling expense, and eventual sale proceeds remain separate. Do not add an optimistic resale estimate to one offer and treat it as cash already received.

Have counsel and the closing team identify liens and the releases needed to convey the agreed assets. In Florida, [section 679.3151](https://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0679/Sections/0679.3151.html) generally provides that a security interest or agricultural lien continues in collateral after a sale unless an exception or authorized disposition applies. A purchase agreement's equipment list does not clear a lender's lien.

Use the [standing sod closing inventory](/insights/standing-sod-inventory-at-closing) to make the crop and open-order assumptions explicit in each offer.

## Two hypothetical offers at the same $4 million price

**This entire example is invented to explain the comparison.** It represents no actual farm, offer, market price, customary deposit, or recommended financing arrangement. Assume a combined asset sale of the same land, operating equipment, standing sod, and business assets. The seller retains existing cash. There are no earnouts or assumed financing debts.

Both offers include a defined operating working capital package. Its agreed closing amount is $300,000. Offer A requires that amount; Offer B requires $400,000. Both use identical account definitions and measurement rules. In this example only, the $100,000 shortfall under B reduces the cash purchase price dollar for dollar at closing. Standing sod is already included once in that working capital schedule, with no separate crop charge. The diligence and closing day counts below begin when the purchase agreement is signed.

| Proposed term | Offer A | Offer B |
| --- | --- | --- |
| Headline purchase price | $4,000,000 | $4,000,000 |
| Seller note included in price | None | $800,000 |
| Holdback taken from closing cash | $200,000 | $200,000 |
| Working capital adjustment | $0 | −$100,000 |
| Acquisition funds disbursed at closing before seller payoffs and costs | $3,800,000 | $2,900,000 |
| Buyer funding condition | Verified available acquisition funds; no loan contingency | New lender financing required; approval and closing conditions remain |
| Proposed diligence and closing | 30 days of diligence; closing by day 60 | 60 days of diligence; closing by day 100, with a proposed extension right |
| Included seller assistance | Up to 40 hours over 30 days | Up to 240 hours over six months |

For both offers, assume the holdback is held by an independent escrow agent, earns no interest, and is fully released at the end of year one if no valid claims exist. That release is an assumption for the calculation, not a guarantee. Assume seller debt and lien payoffs total $1,100,000 and seller closing costs total $160,000 under either offer. Taxes are not yet estimated.

Offer B's note pays $200,000 of principal at the end of each of the next four years, plus 6% annual interest on the beginning unpaid principal. The rate is an invented contract assumption, not a market or tax safe harbor. No principal is contingent on farm performance. Additional transition work requires a separately agreed arrangement under either proposal.

### Calculate available cash at closing

| Closing calculation | Offer A | Offer B |
| --- | ---: | ---: |
| Headline price | $4,000,000 | $4,000,000 |
| Less seller note | $0 | −$800,000 |
| Less holdback | −$200,000 | −$200,000 |
| Working capital adjustment | $0 | −$100,000 |
| Less debt and lien payoffs | −$1,100,000 | −$1,100,000 |
| Less seller closing costs | −$160,000 | −$160,000 |
| **Cash available at closing before income taxes** | **$2,540,000** | **$1,640,000** |

Offer A delivers $900,000 more at closing under these assumptions. Of that difference, $800,000 is purchase price postponed by B's note and $100,000 is B's working capital reduction. The holdback and debt payoff are each deducted once.

The comparison remains incomplete until the seller's CPA estimates the tax payments and their dates. Cash at closing before income taxes is not spendable wealth after tax.

### Put later receipts on a calendar

Offer A has one assumed later receipt: the $200,000 escrow release at the end of year one. Offer B has that same assumed release plus the following note payments:

| Payment date | Principal | Interest | Note cash received |
| --- | ---: | ---: | ---: |
| End of year 1 | $200,000 | $48,000 | $248,000 |
| End of year 2 | $200,000 | $36,000 | $236,000 |
| End of year 3 | $200,000 | $24,000 | $224,000 |
| End of year 4 | $200,000 | $12,000 | $212,000 |
| **Total** | **$800,000** | **$120,000** | **$920,000** |

If everything is collected, A produces $2,740,000 of purchase-price proceeds after the assumed debt and costs, before income taxes. B produces $2,640,000 on that basis, plus $120,000 of interest. B's total nominal receipts are $2,760,000, just $20,000 more than A, despite waiting four years and taking collection risk.

For a timing illustration, discount every future receipt at an **assumed 8% annual comparison rate**, measured from closing. Treat closing cash as time zero and both escrow releases as year-one receipts. A's cash flows have a present value of approximately **$2,725,185**; B's are approximately **$2,590,792**. Present value means translating later dollars into a stated equivalent amount today.

The formula is closing cash plus each future receipt divided by 1.08 raised to its payment year. This calculation assumes full collection, excludes income taxes, and does not value the different closing dates or transition hours. Eight percent is a chosen sensitivity assumption, not an appraisal rate or an estimate of either buyer's default probability. Keep collection risk visible alongside the timing calculation.

## Define working capital before comparing the net price

Operating working capital in a purchase agreement is a negotiated set of current assets less specified current liabilities. It may differ from the farm's financial-statement working capital. The [ABA's discussion of working capital adjustments](https://businesslawtoday.org/2019/01/planning-beyond-sale-business-understanding-working-capital-adjustments/) explains why the target, included accounts, measurement rules, and closing calculation should agree.

On a sod farm, specify whether standing sod, fertilizer and chemical supplies, collectible receivables, prepaid expenses, trade payables, accrued payroll, and customer deposits enter the calculation. Set crop measurement and receivable reserve rules before the closing statement arrives. Use one sample calculation showing those exact accounts.

A customer deposit carries a fulfillment obligation. A receivable may require collection work. Harvesting before closing can turn crop into receivables or cash. Decide how those movements affect the agreed calculation rather than assuming every balance sheet dollar reaches the seller.

If crop is priced on a separate schedule, exclude it from any overlapping working capital adjustment. Likewise, do not subtract a payable through working capital and again as a separate seller payoff. In the example, the seller's $1.1 million financing payoff sits outside operating working capital.

## Test whether the buyer can meet the closing conditions

Request a funding schedule showing buyer equity, lender funds, and any seller financing, with evidence appropriate to each source. Verify who controls the funds and whether they are available for this acquisition. A financed buyer can be a strong buyer; the question is which approvals remain and who bears the delay.

The [SBA's 7(a) guidance](https://www.sba.gov/loans/7a-loans/) makes creditworthiness and reasonable repayment assurance eligibility requirements. Mentioning a loan program does not establish approval for a particular buyer, farm, or transaction. Ask the lender what remains outstanding without assuming a program name resolves the financing condition.

Compare the diligence deadline, financing deadline, deposit terms, extension rights, outside closing date, and termination rights. Record when a deposit is refundable and what remedies the actual agreement provides. A large deposit with broad return rights provides different protection from money genuinely at risk under narrow conditions.

Put title, survey, environmental review, inspections, land-control arrangements, and required consents on the same timetable. The [SBA's business-sale guidance](https://www.sba.gov/counseling/manage-your-business/) emphasizes a thorough sales agreement and legal assistance. Have counsel review any letter of intent, including exclusivity, confidentiality, costs, and which provisions create obligations. In Florida, [section 725.01](https://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0725/Sections/0725.01.html) addresses signed-writing requirements for land-sale agreements; informal agreement on a price is insufficient protection.

The [acquisition financing guide](/insights/financing-sod-farm-acquisition) provides a way to examine whether the buyer has funded both closing and the operation afterward.

## Treat deferred money and transition duties as real terms

A **seller note** is the buyer's promise to pay under specified debt terms. An **earnout** makes some price depend on defined future results or events. A **holdback** withholds funds to secure specified obligations; an **escrow** places funds with a third party under agreed release instructions. Ask who holds the money. A buyer retaining cash exposes the seller to a different arrangement from a funded independent escrow.

For a note, have counsel review the obligor, guarantees, collateral, lien priority, payment restrictions, default remedies, and any right to offset claims against payments. Ask whether a senior lender requires subordination or limits payments. A security document does not guarantee recovery; analyze the collateral and the borrower's ability to pay.

For an earnout, define the metric, accounting rules, buyer operating discretion, reporting access, calculation dates, and dispute process. Keep the maximum possible earnout separate from fixed purchase price. A favorable forecast is not a collected payment.

For a holdback, identify the claims it covers, claim deadlines, release dates, dispute procedure, and whether liability can exceed the amount withheld. For transition services, agree on hours, dates, location, duties, authority, expenses, compensation, and a clear stopping point. In the example, B requires up to 200 additional included hours. Those hours do not appear in the closing wire, but they matter to a seller planning retirement or another business.

## Ask for an after-tax comparison before accepting

Have the CPA compare both proposed structures, asset allocations, tax bases, and payment calendars. In qualifying asset acquisitions, [Form 8594 instructions](https://www.irs.gov/instructions/i8594) describe allocation and reporting responsibilities. Inventory, equipment, land, and goodwill can occupy different classes; the allocation affects tax analysis and is not a separate appraisal of the whole farm.

Deferred price does not mean every tax is deferred. [IRS Publication 537](https://www.irs.gov/publications/p537) explains installment treatment, exclusions such as inventory, and the requirement to report depreciation recapture in the year of sale. It also addresses inadequate stated interest and arrangements involving escrow. A holdback's tax timing needs its own review. Interest is a separate component from gain on the sale.

Ask the CPA to show estimated taxes by year, including tax due before deferred cash is collected. Entity structure, liabilities, asset basis, allocation, and applicable state rules can change the result. The hypothetical tables deliberately stop before tax because those facts have not been supplied.

## Copy this offer comparison worksheet

Use one column per buyer. Attach supporting schedules and mark unresolved items clearly. Enter a number only when the term or estimate has an identified basis.

| Comparison item | Offer A | Offer B |
| --- | --- | --- |
| Selling entities and asset or ownership-interest structure | Fill in | Fill in |
| Parcels, crop, equipment, contracts and excluded assets | Attach schedule | Attach schedule |
| Fixed price and separately identified contingent price | Fill in | Fill in |
| Working capital definition, target, expected adjustment and true-up date | Fill in | Fill in |
| Debt, liens, deposits and other obligations paid or assumed | Attach schedule | Attach schedule |
| Closing cash less holdbacks, payoffs and seller costs | Calculate | Calculate |
| Estimated income taxes and payment dates | CPA estimate | CPA estimate |
| Note, earnout and escrow amounts, dates and conditions | Attach calendar | Attach calendar |
| Funding evidence, remaining approvals and contingency deadlines | Verify | Verify |
| Deposit refund rules, extensions and outside closing date | Counsel review | Counsel review |
| Seller transition hours, compensation and continuing liability | Fill in | Fill in |
| Unresolved issue, responsible person and resolution deadline | Fill in | Fill in |

### Is the all-cash offer always better?

No. Compare the actual package, after-tax proceeds, funding evidence, restrictions, and your own needs. Cash paid at closing may come from the buyer's lender. Ask whether the proposal is still conditional on obtaining that loan.

### Should I choose the offer with the highest present value?

Use present value as one comparison, with an explicit rate and collection assumptions. Also consider whether the transaction can close, whether you can tolerate the deferred exposure, and whether the transition duties fit your plans. An unsupported risk score will not resolve missing terms.

I would resolve the largest uncertainties before making the choice: what transfers, what cash arrives, what remains conditional, and what you still owe afterward. If you want help organizing that discussion, [share a few details about your sod farm](/sell-my-farm).

For more on the operating resources different buyers bring, see [who buys sod farms](/insights/who-buys-sod-farms).

## Sources

- IRS: [business valuation guidelines](https://www.irs.gov/irm/part4/irm_04-048-004), [sale of a business](https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-a-business), [Publication 544](https://www.irs.gov/publications/p544), [Form 8594 instructions](https://www.irs.gov/instructions/i8594), and [Publication 537](https://www.irs.gov/publications/p537).
- SBA: [7(a) loans](https://www.sba.gov/loans/7a-loans/) and [closing or selling a business](https://www.sba.gov/counseling/manage-your-business/).
- Michael A. Ellis for the ABA: [working capital adjustments](https://businesslawtoday.org/2019/01/planning-beyond-sale-business-understanding-working-capital-adjustments/) (2019; general transaction guidance).
- Florida Legislature: [section 679.3151](https://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0679/Sections/0679.3151.html) and [section 725.01](https://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0725/Sections/0725.01.html). The legal examples refer specifically to Florida.