Here are the most common mistakes mineral owners make when selling mineral rights in Texas:
1. High Pressure Offers: If a mineral buyer is putting pressure on you to sell, this is a huge red flag. Why would a mineral buyer put pressure on you to sell? Simple. They are offering you a below market price and they want you to decide quickly. They know that by putting pressure on you to sell they will convince some people to take the offer and get a much better deal.
2. Fake Deadlines: Related to high pressure offers, putting fake deadlines on offers is extraordinarily common in this industry. Nearly every mineral buyer does this to some extent. Mineral buyers will make you an offer, and then claim that the offer expires in 48 hours or within 7 days, etc.. Do not fall for this. Mineral buyers do this to create a sense of urgency. They want you to sell quickly before you get any competitive bids.
3. FSBO: By the far, the number one mistake you can make when selling mineral rights is doing it yourself. When you sell mineral rights on your own, you are going to waste a lot of time and lose thousands of dollars. We are biased. We are mineral brokers so naturally we believe that using a broker makes sense. However, consider these examples:
Family Sales: It is extremely common for families who all have an identical interest to sell around the same time. Frequently, a few family members will get an offer in the mail and then accept the best offer they can find after some negotiation. Another person in that same family will then reach out to us and have us list their mineral rights. We nearly always help that mineral owner get 10% to 50% higher prices than their family got. The rest of the family is then extremely mad after they realize they got taken advantage of selling on their own.
PSA Terms: Are you intimately familiar with the terms in a purchase and sale agreement? If not, mineral buyers will take advantage of you. One of the most common examples is intentionally using an incorrect royalty rate. A mineral buyer can give you a contract for $10,000 acre assuming a 25% lease. Let’s assume your actual lease rate is 12.5%. At closing, their $10,000/acre offer is going to be $5,000/acre. The mineral buyer knew you were leased at 12.5% but they write in 25% to make their offer appear to be twice as large. This is just one example out of the many ways mineral buyers take advantage of you.
Flippers: It’s not uncommon for a mineral owner to get a free consultation with our company. That mineral owner ultimately decides not to list. They sell on their own. A couple months later, a mineral buyer will approach us and list the mineral rights from exactly the same person that didn’t want to list. After the mineral buyer worked directly with you, they get a cheap price and then turn around and list with us to get a much higher price.
4. Lawyers: We still don’t understand why, but selling mineral rights through a lawyer still occurs today. A lawyer does not know how to market mineral rights and as such will not get you the best price. A lawyer should be used to review contracts, not market things for sale. You are better off selling mineral rights on your own than using a lawyer.
Bonus: Be cautious picking a lawyer to review the PSA when you sell mineral rights. Most lawyers are good at understanding generic contract language. They are not necessarily well versed in mineral rights sales. They may not understand the difference between an offer with a 25% lease assumption and a 12.5% lease. If you need a good Texas Oil and Gas Attorney, we can refer you to one.
5. Mineral Rights Value: When selling mineral rights, figuring out the value of mineral rights is complicated. There is no way to know the value until you get competitive bids in an open mineral rights marketplace. Here are some common mistakes that mineral owners make when it comes to value:
Things that DO NOT determine the value of your mineral rights:
Comparables: What someone else sold mineral rights for does not tell you anything about what your mineral rights are worth. There are no ‘comps’ in mineral rights. Even if a family member sold an identical interest, unless they sold within the last 30 days and got competitive bids through a broker, it means nothing about the current value of your mineral rights.
I need $X: A lot of mineral owners will say they need $300,000 to buy a house so they want $300,000 for their mineral rights. Your mineral rights are worth what a buyer is willing to pay. Your mineral rights are NOT worth what you need to get to make a purchase.
Making up a value: Many mineral owners will also make up a completely arbitrary number. This number may come from what they read online, what they just “feel” it’s worth, etc..
Taxes change value: You may get an offer for $500,000 and then say you need more to cover the mineral rights taxes. That is not how it works. You are paid what the mineral rights are worth. Your personal tax situation doesn’t change the value of the mineral rights.
Retirement Value: After speaking with a financial advisor, some mineral owners will say they need the mineral rights to be worth $X so they can retire. Your mineral rights are worth what the market is willing to pay, not what you need to retire.
Things that DO determine mineral rights value:
Competitive bids: The only way to determine mineral rights value is to get competitive bids through a reputable broker. When you get competitive bids an in open market environment, you will determine the absolute best market price available.
6. Mineral Rights Brokers: It’s important to use a mineral rights broker to ensure the best price. However, not all mineral rights brokers are created equal. It’s important to pick the rights mineral rights broker in Texas.
7. Understanding Taxes: It’s important to understand the tax implications of selling mineral rights before you sell mineral rights. A lot of mineral owners accept an offer and don’t realize what will happen on their taxes. You may owe nothing when selling mineral rights, or you may owe capital gains taxes. You should understand how much money you will owe so that you can set that money aside after the sale.