Sell Your Ag-Exempt Land Note in Texas: What Buyers Consider

Agricultural exemptions are one of the most common features of rural land ownership in Texas, and if you carry a promissory note on a property that benefits from an ag exemption, you may be wondering how that tax status affects your ability to sell the note on the secondary market. The short answer is that you can absolutely sell an ag-exempt land note in Texas, and in many cases, the ag exemption actually works in your favor by reducing the borrower's annual tax burden and making the property more affordable to maintain over time. However, the ag exemption also introduces some nuances that note buyers will want to understand before they make an offer.

Texas has one of the most generous agricultural exemption programs in the country, allowing landowners who use their property for farming, ranching, timber production, or wildlife management to have their land taxed based on its agricultural productivity value rather than its full market value. This can reduce property taxes by fifty percent or more, which is a significant benefit for both landowners and borrowers who are making monthly payments on seller-financed land. When you decide to sell an ag-exempt land note in Texas, the buyer will evaluate not only the standard note metrics like payment history, interest rate, and remaining balance, but also the specific characteristics of the ag exemption and how they affect the collateral's risk profile.

This guide is designed to walk you through everything you need to know about selling an ag-exempt land note in Texas, from the basics of how ag exemptions work in the context of a note sale to the specific factors that buyers weigh when pricing these notes. Whether your note is secured by a cattle ranch in the Panhandle, a hay field in Central Texas, or a wildlife management tract in the Brush Country, the information here will help you understand what to expect and how to maximize the value of your note.

How Agricultural Exemptions Work in Texas and Why They Matter for Note Sales

The Basics of Texas Ag Exemptions

Before diving into how ag exemptions affect note sales, it is helpful to understand what an ag exemption actually is from a legal and tax perspective. In Texas, the agricultural exemption is technically not an exemption at all — it is a special valuation that allows qualifying land to be appraised for property tax purposes based on its capacity to produce agricultural products rather than its fair market value. The Texas Constitution authorizes this special valuation under Article VIII, Section 1-d-1, and the specifics are governed by the Texas Tax Code. To qualify, the land must be used primarily for agricultural purposes — which includes raising livestock, growing crops, producing timber, or managing wildlife — and the owner must apply through their county appraisal district.

The financial impact of ag valuation can be dramatic. A fifty-acre tract in a growing Central Texas county might have a market value of $500,000 but an agricultural productivity value of only $15,000. Property taxes on $15,000 of assessed value are obviously much lower than taxes on $500,000, and this difference can save the landowner thousands of dollars every year. For borrowers who are making monthly payments on a seller-financed note, those tax savings can make the difference between comfortable affordability and a tight monthly budget, which is one reason note buyers pay attention to the ag exemption status of collateral properties.

Why Ag Exemptions Can Be a Double-Edged Sword for Note Pricing

The ag exemption's impact on note pricing is nuanced and can work in both directions depending on the specific circumstances. On the positive side, the lower property taxes associated with ag valuation reduce the borrower's total cost of land ownership, which means the borrower is less likely to default due to financial strain. A borrower who is paying $400 per year in property taxes on an ag-valued tract is in a much more comfortable position than a borrower who would be paying $4,000 per year if the ag exemption were lost. Note buyers appreciate this dynamic because lower carrying costs for the borrower translate into a lower default risk for the investor.

On the other hand, the ag exemption introduces a risk that does not exist with non-agricultural properties — the risk of rollback taxes. If the ag exemption is lost, either because the property's use changes or because the owner fails to maintain the qualifying agricultural activity, the county can assess rollback taxes for up to five previous years. These rollback taxes represent the difference between what was paid under ag valuation and what would have been owed under market value appraisal, plus interest. For a property with a large gap between market value and ag value, rollback taxes can amount to tens of thousands of dollars. Note buyers will evaluate the stability of the ag exemption as part of their due diligence to assess whether rollback taxes are a realistic risk for the particular property securing your note.

Types of Ag Exemptions and Their Impact on Note Marketability

Texas recognizes several categories of agricultural use for special valuation purposes, and the specific type of ag activity on your collateral property can influence how a note buyer perceives the note. Livestock operations — cattle, goats, sheep, and horses — are the most common and most straightforward. If the property is being used for grazing and the stocking rates are appropriate for the county, the exemption is considered stable and low-risk. Crop production, including hay, is similarly straightforward, though buyers may note that crop land requires active management to maintain the exemption. Timber operations qualify under a separate but related provision and have their own set of requirements that can be somewhat more complex.

Wildlife management exemptions have grown increasingly popular in Texas over the past two decades, particularly among recreational landowners who want the tax benefits of ag valuation without running livestock. These exemptions require the landowner to implement specific wildlife management practices — such as habitat management, predator control, supplemental feeding, or census activities — and to file an annual wildlife management plan. Note buyers may view wildlife management exemptions with slightly more scrutiny than traditional livestock exemptions because the qualifying activities can be more subjective and because there is a perception, rightly or wrongly, that wildlife management exemptions are more likely to be challenged by appraisal districts. That said, a well-documented wildlife management plan with consistent annual filings should not materially affect your note's pricing.

What Note Buyers Evaluate When Pricing an Ag-Exempt Land Note

Payment History and Borrower Reliability

As with any land note sale, the borrower's payment history is the single most important factor in determining what a buyer will pay for your ag-exempt land note in Texas. A note with two or more years of consistent, on-time payments demonstrates that the borrower is committed to the property and has the financial capacity to meet their obligations. For ag-exempt properties, a strong payment history also suggests that the borrower is actively using the land and maintaining the agricultural activity that supports the exemption, which is a positive signal for the note buyer. To understand the full range of factors that influence note pricing, you may find it helpful to read about what determines note value in Texas.

If your borrower has been less than perfect with payments — perhaps they have been late a few times but have always caught up — the note can still be sold, though the buyer will adjust their pricing to account for the increased risk. The key is transparency. Share the complete payment history, including any late payments, with the buyer upfront so they can price the note accurately. Hiding payment issues only leads to problems during due diligence and can delay or derail the sale entirely.

Collateral Value and the Market Value Versus Ag Value Distinction

One of the unique challenges of pricing an ag-exempt land note is that the property effectively has two values — its market value and its agricultural productivity value. The note buyer is primarily interested in the market value because that is what the property would sell for in a foreclosure or resale scenario. However, the ag value matters too because it determines the property taxes the borrower is currently paying and because the gap between market value and ag value represents the potential rollback tax liability.

When evaluating collateral value, note buyers will look at comparable sales of similar agricultural properties in the same county or region. They want to see that the remaining balance on the note is well below the property's market value, providing an adequate equity cushion. For ag-exempt properties, buyers may apply a slightly more conservative collateral valuation than they would for residential or commercial property because rural agricultural land can be slower to sell in a distressed scenario. That said, Texas agricultural land has appreciated strongly over the past decade, and properties with established ag exemptions are in high demand among both agricultural users and recreational buyers, which supports healthy collateral values in most areas of the state.

The Terms of the Note and How They Interact With Ag Land Economics

The financial terms of your note — interest rate, monthly payment, remaining balance, and amortization schedule — are evaluated in the context of the specific economics of ag land ownership. Note buyers know that ag land borrowers often have income streams that are seasonal or variable, such as cattle sales in the fall or hay income in the summer. This does not necessarily make the note riskier, but it does mean that buyers pay attention to whether the monthly payment amount is reasonable relative to the likely income-generating capacity of the property and the borrower's financial profile. A $500 per month payment on a productive 100-acre hay farm is very different from a $500 per month payment on a five-acre ranchette that generates no agricultural income.

Interest rates on ag-exempt land notes tend to vary widely because many of these notes originate from private seller-financing arrangements rather than institutional lending. Rates of six to twelve percent are common in the Texas land note market, and higher rates are generally more attractive to note buyers because they generate more investment income. If your note carries a rate at the lower end of that range, the buyer may apply a somewhat deeper discount to achieve their target yield, but the note is still very much sellable. For more information on how discounts work for different note structures, review this overview of discounts when selling a land note in Texas.

Location, Access, and Infrastructure of the Ag Property

The physical characteristics of the agricultural property securing your note are an important part of the buyer's evaluation. Properties with good road access — particularly paved county road or state highway frontage — are more valuable as collateral than properties accessed by dirt roads or easements across neighboring land. The availability of water, whether from wells, stock tanks, or surface water rights, is another significant factor for agricultural properties because water is essential to virtually every type of ag operation in Texas.

Fencing, cross-fencing, working pens, barns, and other agricultural improvements add value to the collateral and can improve your note's pricing. Even if the note was originated on raw land, if the borrower has since made improvements, those improvements benefit the collateral value and should be communicated to the buyer. Similarly, properties with strong perimeter fencing, maintained roads, and functional water systems demonstrate active agricultural use, which reinforces the stability of the ag exemption and reduces the buyer's perceived risk of rollback taxes.

How the Ag Exemption Status Transfers During a Note Sale

Your Sale of the Note Does Not Affect the Borrower's Ag Exemption

One of the most common concerns note holders have when considering selling an ag-exempt land note is whether the sale will somehow affect the borrower's agricultural exemption. The answer is a clear no. When you sell your promissory note, you are transferring your right to receive payments — you are not transferring ownership of the property. The borrower remains the owner of the land, continues to use it for agricultural purposes, and retains the ag exemption without interruption. The only thing that changes from the borrower's perspective is where they send their monthly payment.

This is an important distinction to understand because some note holders worry that they might create a problem for their borrower by selling the note. In reality, the borrower's relationship with their county appraisal district is entirely separate from the note sale transaction. The ag exemption is tied to the property and its use, not to the identity of the lien holder. Your borrower will continue to file their annual ag exemption application with the county, continue to maintain their qualifying agricultural activity, and continue to pay their reduced property taxes, regardless of who holds the note.

What Happens to the Ag Exemption If the Borrower Defaults After the Note Sale

While the sale of the note itself has no impact on the ag exemption, note buyers do think ahead to what would happen if the borrower defaulted after the purchase. If the note buyer eventually had to foreclose and take possession of the property, the ag exemption could potentially be affected depending on what happens next. If the buyer or a subsequent purchaser continues agricultural use, the exemption is maintained. If the property's use changes to non-agricultural purposes, the exemption would be lost, and rollback taxes would become due.

This is primarily a concern for the note buyer rather than for you as the seller, but it does factor into their pricing. Properties in areas where agricultural land is routinely converted to residential or commercial use — such as the expanding edges of Austin, San Antonio, or Dallas-Fort Worth — may carry a higher perceived rollback tax risk than properties in deeply rural areas where the land is likely to remain in agricultural use indefinitely. Note buyers with experience in Texas ag land understand these dynamics and price them appropriately, so you should not be surprised if a buyer asks questions about the surrounding area's development trajectory.

Practical Tips for Getting the Best Price on Your Ag-Exempt Land Note

Document the Agricultural Activity Thoroughly

The more documentation you can provide about the agricultural activity on the property, the more comfortable a buyer will be with the stability of the ag exemption. If you have copies of the borrower's ag exemption application, annual wildlife management plans, grazing leases, or records of agricultural production, sharing these with the buyer can help support a stronger offer. This documentation demonstrates that the ag exemption is not just a paper designation but is backed by genuine agricultural activity that is likely to continue for the foreseeable future.

If you do not have access to these documents, that is perfectly fine — most note holders do not, and the buyer can verify the ag exemption status through the county appraisal district's public records. However, if you do happen to have this information because you originated the note and have maintained a relationship with the borrower, it can be a helpful addition to your document package.

Work With a Buyer Who Understands Texas Ag Land

Not all note buyers have experience with agricultural properties, and working with one who does not can result in a lower offer or a longer, more frustrating process. A buyer who understands Texas ag land will know how to evaluate ag exemptions, will be familiar with the rollback tax rules, and will have a network of contacts — appraisers, title companies, and attorneys — who specialize in rural property transactions. They will also be less likely to be spooked by factors that are perfectly normal for ag properties, such as large acreage, remote locations, or limited comparable sales data.

Longhorn Note Buyers has been purchasing Texas land notes since 2007 and has extensive experience with ag-exempt properties across the state. With over $46 million in Texas notes purchased and a 100% close rate on quoted deals, Longhorn understands the unique characteristics of agricultural collateral and prices ag-exempt notes fairly. Working with a buyer who knows the Texas ag market means you will get an offer that reflects the true value of your note rather than one that applies unnecessary risk premiums due to unfamiliarity with agricultural land.

Consider Timing and Market Conditions

The Texas agricultural land market has been on a strong upward trajectory for several years, driven by a combination of population growth, recreational demand, and the inherent appeal of land ownership in a state with no income tax. If you have been holding your note for several years, the collateral value has likely appreciated, which means your LTV ratio has improved and you may qualify for better pricing than you would have a few years ago. Market timing is never a perfect science, but selling when collateral values are strong is generally a good strategy for maximizing your proceeds. For insights on how to pick the optimal time for your sale, take a look at this analysis of how to sell a land note quickly in Texas.

Tax planning is another timing consideration. Depending on your personal tax situation, the timing of your note sale can affect how much you owe in capital gains taxes. Selling in a year when your other income is lower may result in a smaller tax hit, and structuring the sale as a partial rather than a full purchase can sometimes help manage the tax impact. It is worth consulting with a tax professional before finalizing your sale to make sure you are making the most tax-efficient decision possible.

Ready to Sell Your Note?

If you hold an ag-exempt land note in Texas and you are ready to convert your future payment stream into a lump sum of cash, Longhorn Note Buyers is here to help. With decades of combined experience in the Texas land market and a deep understanding of agricultural property dynamics, Longhorn can evaluate your note quickly and provide a fair, transparent offer — usually within 24 hours. Whether your note is secured by a working cattle ranch, a hay operation, a timber tract, or a wildlife management property, Longhorn has the experience and capital to close your deal.

Contact Longhorn Note Buyers today at (210) 828-3573 or visit longhornnotebuyers.com to request your free quote. There is no obligation and no cost to find out what your ag-exempt land note is worth. With an A+ Better Business Bureau rating and a commitment to closing 100% of the deals they quote, Longhorn Note Buyers is a name you can trust when it comes to selling your Texas land note.

Frequently Asked Questions About Selling Ag-Exempt Land Notes in Texas

Will selling my note affect the borrower's ag exemption?

No, selling your promissory note has absolutely no effect on the borrower's agricultural exemption. The ag exemption is tied to the property and its use, not to the identity of the note holder. When you sell the note, you are transferring your right to receive payments, not the ownership of the land. The borrower continues to own the property, continues to use it for agricultural purposes, and continues to benefit from the ag-exempt tax valuation. The only change the borrower will notice is a new mailing address for their monthly payments.

Do ag-exempt land notes sell for more or less than other land notes?

Ag-exempt land notes generally sell on comparable terms to other rural land notes, and in some cases they may command slightly better pricing. The lower property taxes associated with ag valuation reduce the borrower's carrying costs, which lowers the risk of default and is a positive factor in pricing. However, the potential for rollback taxes if the exemption is lost is a consideration that buyers factor into their analysis. On balance, a well-seasoned ag-exempt note with strong payment history and good collateral will receive a competitive offer from an experienced Texas note buyer.

What if the borrower loses the ag exemption after I sell the note?

Once you sell the note, the risk of the borrower losing the ag exemption becomes the new note holder's concern, not yours. If the borrower were to change the property's use and lose the exemption, the resulting rollback taxes would be the responsibility of the property owner — the borrower — not the note holder. From your perspective as the original note seller, the sale is complete and your proceeds are not affected by anything that happens with the ag exemption after closing. This is one of the benefits of selling a note — you transfer not only the payment stream but also the risks associated with that payment stream to the buyer.

What documents do I need to sell an ag-exempt land note?

The core documents needed to sell an ag-exempt land note are the same as for any land note: the original promissory note, the deed of trust or contract for deed, a payment history, and any title insurance policy. For ag-exempt properties, it is also helpful to provide the most recent property tax statement showing the ag valuation, any documentation of the agricultural activity such as a wildlife management plan or grazing lease, and a recent survey if one is available. Having these documents organized and ready to share will speed up the quote process and help the buyer provide a more accurate initial offer.

Can I sell a partial interest in my ag-exempt land note?

Yes, partial note sales are available for ag-exempt land notes just as they are for any other type of land note. In a partial sale, you sell a specific number of payments to the buyer while retaining the right to receive the remaining payments after the buyer's purchased payments are collected. This can be a good option if you need some cash now but do not want to give up the entire payment stream. The discount on a partial sale is often smaller than on a full sale because the buyer's risk is reduced by the fact that you retain a residual interest in the note, which aligns your incentives with theirs. Discuss the partial sale option with your buyer to see if it makes sense for your situation.