What are the most common mistakes when selling mineral rights in Texas? We’ve been working with mineral owners for years and we’re going to share the most common mistakes. As a mineral owner, it can be overwhelming trying to figure out the right thing to do. When you sell mineral rights you want to make sure you make the right decision. Avoid the common mistakes below and you’ll be much better off. You’ll probably have more cash in your pocket too!
Most Common Mistakes when Selling Mineral Rights
When you sell mineral rights in Texas, make sure you don’t fall into the traps below. You can maximize the value of your property when you sell by keeping the following in mind:
Mistake #1 – Accepting the 1st Offer
We could write an entire book about this common mistake. Mineral owners have lost out on thousands of dollars from making this mistake. Unfortunately this is also the most common mistake we see mineral owners make. What do we mean by accepting the first offer? This usually happens in 2 ways:
1. The Mineral owner will stumble across a website offering to purchase their mineral rights. They submit their information and receive an offer back. They assume they are getting a fair deal and decide to sell.
2. The mineral owner is approached either directly or with a letter in the mail offering to purchase mineral rights. They were not interested in selling their mineral rights but since the offer presented itself so easily they decide to sell.
The reason this is the number one mistake is that taking the 1st offer you receive leaves a lot of money on the table. Many mineral buyers would prefer you not shop around and see what other mineral buyers are offering. Why? So that you don’t find out they are not offering your full market value and they can purchase it for less money. As a mineral owner you want to maximize the value by getting your property in front of many mineral rights buyers. When you get multiple bids you create competition among buyers which increases the amount you receive.
To get multiple offers on your property, we recommend you list your property at US Mineral Exchange. They have a large network of mineral rights buyers who will compete to pay you the highest price. If you have an offer in hand, that shows there’s demand for your property and we recommend seeing what other buyers are willing to pay at US Mineral Exchange to make sure it’s a fair price.
Mistake #2 – Option Contracts to Sell Mineral Rights
Another one of the common mistakes when selling mineral rights is signing an option contract. Why? When you sign an option contract you have effectively given up control of your property. The person who holds the option contract is not obligated to buy your property. In fact, they usually have no intention of purchasing your property. When someone convinces you to sign an option contract they now have the ability to go sell your property someone else! If they get you to agree to sell for $1,000/acre and you sign an option contract, they can then go sell your property for thousands more per acre and pocket the difference. When you sign an option contract for the sale of mineral rights you are giving up control of your property and certainly receiving less than fair market value.
Mistake #3 – Listening to Rumors
If we had a $1 for every time a mineral owner was convinced their property was worth $10,000/acre because they heard someone else got that price we would be rich! One of the more common mistakes when selling mineral rights in Texas is assuming that your property is the same value as someone else’s property. The value of your property is completely independent of someone else’s.
Many mineral owners view mineral rights like a home. If you have 2 homes that are similar in size and close together, they are worth the same price. With mineral rights that’s not always the case. Your property may not be far from someone else’s but the value may be significantly more or less. The best way to ensure you get fair value for your property is by getting it in front of a lot of buyers and letting the market tell you how much it’s worth.
Mistake #4 – Timing – Like taking risks?
This is one of the hardest mistakes to stomach as a mineral owner. Unfortunately it happens all the time. We see a mineral owner get an offer for $5,000/acre and they stand to make some excellent money on the sale. Then they listen the rumors (we just talked about that one!) or believe their property is worth more so they decide to hold onto the property. Could you get more in the future? Possibly. Many times though a mineral owner holds onto the property and then the price of oil declines or a few bad wells are drilled in their area. The next thing they know they are accepting an offer for $2,500/acre just 6 months.
If you try and time the market in mineral rights is very easy to get burned. If you have taken the time to get multiple competing bids to ensure you are getting fair market value, holding out for more money may not be the best option available.
The situation has changed drastically for selling mineral rights in Texas in 2020. With Coronavirus killing demand for oil, the risks for holding onto mineral rights have become very obvious. Just a few years ago, mineral owners in PA, WV, and OH were seeing huge prices. They didn’t sell and now they are lucky to get 20% of what they were getting in 2013 or 2014. The same thing is taking place in some parts of Texas right now. Waiting to sell mineral rights in Texas is a risk. If you hold onto your mineral rights you are subject to the whims of the market!
You may have heard the old saying, “never sell mineral rights”. This is simply bad advice. Unless you have a retirement portfolio that is well diversified, and your mineral rights are a very small (less than 5%) portion of your overall assets, you should sell. It’s simply too risky to hold mineral rights unless you have a lot of other assets for diversification.
Mistake #5 – Selling Mineral Rights without a Broker
A mineral rights broker in Texas can help ensure you get the best price. There are a lot of mineral owners who get an offer in the mail, then quickly accept the offer. This is a massive mistake. It will cost you thousands of dollars. Most mineral owners assuming that mineral buyers in Texas will give you a reasonable price. They will not! Every mineral buyer in Texas offers different pricing. One mineral buyer may offer $100,000 for your property. That’s a lot of money! Just because you got an offer that is a lot of money does not mean it’s a good deal. Those mineral owners who quickly accept an offer for $100,000 don’t realize there are likely mineral buyers out there who would pay $120,000, $130,000, or even $150,000.
A mineral rights brokers in Texas will get your mineral rights in front of the right people. The only way to get the best price is through competition. When you don’t use a broker, you are exposing your mineral rights to less than 1% of the mineral rights buyers in Texas. Don’t make the same mistake that other mineral owners make. You will be costing yourself THOUSANDS of dollars trying to do it yourself.
Mistake #6 – Selling Through an Attorney
One of the most common mistakes when selling mineral rights in Texas? Using an attorney. We would never recommend that you don’t consult with an attorney if you want to sell mineral rights in Texas. However, a mineral rights attorney should never be used to market your mineral rights. Why? Simply put, that is not what they do for a living! Would you go to your attorney to sell a car? Of course you wouldn’t! Yet many mineral owners do exactly this with mineral rights. They assume an attorney is their “trusted” advisor, and end up getting a terrible deal. Attorney’s do not have a network of buyers. At best, they know a few people who know other people. Selling mineral rights in Texas will nearly never result in you getting a fair deal.
Bonus Mistake – Not Understanding Net Mineral Acres
This topic is too much to cover here, but understanding net mineral acres is critical when selling mineral rights. This is another one of the most common mistakes when selling mineral rights in Texas. If you don’t understand what net mineral acres are you may lose thousands of dollars. Many PSA (purchase and sale agreements) are written with net mineral acres as the basis for the offer. A lot of mineral owners look at their gross mineral acres and assume they have a much larger ownership. When closing comes, they end up getting a tiny fraction of the amount they expected. Quite simply, these mineral owners didn’t understand the offer and fell into a common trap. Don’t let this be you! A qualified broker can help you understand the contract, your net mineral acres, and how to avoid common mistakes when selling mineral rights in Texas.
Questions about Selling Mineral Rights in Texas?
Hopefully this article helped you better understand some of the most common mistakes when selling mineral rights in Texas. However, do not use these common mistakes as a guide on how to sell mineral rights on your own. It’s simply not possible to sell mineral rights on your own and get a fair deal. The mineral rights industry has been set up to take advantage of mineral owners. Mineral buyers simply have all the information and they use that information to get a better deal.
To sell for fair market value you need competitive bids to ensure the best price and you need a good mineral rights broker who can walk you through the process to ensure you get a fair contract. Most attorney’s don’t understand a gross mineral acres vs a net mineral acre vs a net royalty acre. They may understand contracts, but they don’t know how to avoid the common tricks mineral buyers in Texas use.
Before you sell mineral rights in Texas and get a bad deal, reach out to us. We can help you evaluate the offer you have in hand and figure out if that offer is fair. Simply fill out the contact form below and we’ll quickly reach out and help answers your questions.
Hopefully we have helped you avoid common mistakes when selling mineral rights in Texas!
