In the mineral rights market, there are some key differences that make it more challenging.
Those same factors we mentioned above for the housing market work differently in the mineral rights market.
Sales Price Transparency: When mineral rights are sold, the sales price is not recorded publicly so no one knows the sales price. Even if you had an identical ownership in your exact wells, you can’t look up what someone else sold for. There is no price transparency.
Volume: While there are a lot of mineral owners in the United States, the number of sales that occur is very low. Even in a “busy” county, you may see between 25 and 100 mineral rights transactions in a single month in the entire county. Compare this to thousands of home sales that would occurs in that same county each month.
Comparables: There are no “comparables” in mineral rights because each ownership is unique. As our mineral rights value article points out, there are many factors that swing the value. Each individual factor will cause huge swings in value. This means that even if we knew the price your neighbor sold for, it would tell us nothing about the value of your mineral rights.
What does this mean? It means that it is impossible to get an accurate mineral rights value until you get competitive bids.
Any estimated value is just a rule of thumb we use in the industry to roughly guess at the value. There is simply no way to know the market value of mineral rights until you get competitive bids.
Did you know that there is zero regulation, oversight, or authority over the mineral rights market? This means that anyone can be a buyer or broker with no license, certification, or oversight.
What this means is that the industry attracts a lot of bad actors. A lot of shady people have entered the industry realizing they can make a fortune taking advantage of mineral owners. They know that most mineral owners don’t have a clue what they are doing, and use this information to take advantage of you.
Contracts / Due Diligence / Closing
When you buy or sell a home, this entire process is highly regulated. If you were ever taken advantage of when buying or selling a home, there is an entire regulatory body that would look into the situation for you. In mineral rights, it is 100% up to you to avoid being taken advantage of.
The place where most mineral owners get robbed is when they signed a contract to sell. The contract to sell, or purchase and sale agreement, varies from one buyer to the next. Mineral buyers will insert language that is to their advantage. The price you are paid at closing can and does frequently adjust at closing.
Imagine you were selling a home and you agreed to a price of $750,000. At closing, the buyer says that “title shows something different” and contract you signed allows us to adjust the price to $375,000. Seems crazy right? This happens all the time.
When selling mineral rights, pricing adjustments at closing are normal.
What is important is that you understand how and why a pricing adjustment will occur.
A buyer may know you are leased at 12.5%, but write the contract to say you have a 25% lease. At closing, their $750,000 offer adjusts to $375,000. They made you an offer they knew would be half of what it was, but it looked good on paper and you quickly signed.
This market is shady. You need an experienced team that understands the contracts, due diligence, and closing process to ensure your interests are protected.
At Texas Royalty Brokers we have been helping mineral owners sell mineral rights since 2012. We understand these contracts and we can help guide you through the process.
As with any transaction, hiring an attorney to review your contracts is recommended.