So, you’ve decided to sell your mineral rights, great! You are about to enjoy either a huge influx of cash, some long term royalty payments, or excellent tax benefits in purchasing another asset through a 1031 exchange.
Now before you sign the papers to hand over your mineral rights, there are a few crucial things that you will want to make sure you have already considered. In this article, we will outline the most important things to know when selling mineral rights.
A Full Understanding of the Assets Outlined in the Negotiation
To put it simply, you’ll first want to “know what you’ve got.” If you’re selling mineral rights, that means that you’re selling your subsurface rights which include any valuable minerals that may be below your property.
In states like Texas, Oklahoma, and Colorado, there is a large chance that a company will be primarily interested in oil and gas reserves. In other cases, your property could even have iron, copper, gold or other precious metals below the surface.
Here, you will also want to know the exact size and percentage share of your property’s mineral rights. Make sure that you know the exact acreage of your property. If you only own a portion of your mineral rights, then it is a good idea to double-check your paperwork so that you are compensated for the exact percentage you are entitled to.
An Approximate Value of Your Mineral Rights Worth
Once you’ve figured out exactly what you own, then it’s time to understand what it might be worth. Mineral rights can be very highly valued assets, but can be difficult to price, because purchasing companies are not legally obligated to share transaction information with the public.
The value of mineral rights is determined by a combination of a few things. Most notably, brokers consider the size of the property, a number of wells (both in use and vacant), current market prices for minerals, and potential future earnings as the primary influences in a property’s mineral rights value. It is extremely advisable to speak to an expert when estimating the value of your mineral rights.
Common Red Flags for Mineral Rights Buyers
Before you sign on the dotted line, make sure to thoroughly review your interactions and contract with the potential buyer of your mineral rights. Because of their value, many individuals and companies set out to earn as much as possible.
Above all, make sure to read the fine print and consult a lawyer if there is anything you do not fully understand in the agreement. Everything is negotiable, so it is not advisable to take the first offer you receive. Be wary of any company that appears to be in a hurry or wants you to accept a deposit right away. Performing a full background check on the individual or entity will also be able to provide some peace of mind.