Methods of Selling Timber
We generally advise landowners to sell stumpage (standing timber) instead of harvesting it yourself. When you sell your stumpage, the buyer is responsible for harvesting and transporting your timber, employing people, obtaining machinery and equipment, finding markets for the harvested material, and fulfilling all of the legal obligations associated with operating a business.
There are two general types of stumpage sales based on how the timber is priced: the lump sum sale and the sale-by-unit.
Lump Sum Sale
In a lump sum sale, payment is based on an estimate of the timber volume available in the sale area and not on the actual volume harvested. Such sales are easier to administer than sales-by-unit. Lump sum sale values depend heavily on the accuracy of the timber inventory used to estimate the volume and quality of the timber for sale. Lump sum sales may be appropriate if there is no convenient and reliable method for measuring the volume of cut logs.
You normally receive a single payment for the trees designated for sale. Alternatively, you may require a down payment of one-fourth to one-third of the sale price when the contract is signed and payment of the balance before harvesting begins or after it concludes.
In a sale-by-unit arrangement (also called sale-by-scale), you are paid a certain amount for each unit (such as per thousand board feet, cord, post, or ton) of product cut. A sale-by-unit requires that someone measure the products harvested (a process called scaling). Products can be scaled by the landowner, by a professional forester, by the buyer, or by a receiving mill. You and the buyer need to determine who will scale the products based on who can be trusted to provide the most accurate information at a reasonable cost.
Although final payment is based on the actual volume harvested, some landowners ask for a down payment before the harvest of at least one-fourth of the estimated total value. Some landowners also request additional payments during the harvest, with these payments occurring at specified periods during the timber sale contract or equal to the estimated value of the next area to be harvested. Payment is adjusted at the end of the harvest to compensate for overpayment or underpayment.