A farm appraisal can be much more challenging than a residential appraisal, and usually requires a broader scope of knowledge. Farms and farmland are appraised for the same variety of reasons that a home or a commercial property might be. But an accurate appraisal will require familiarity with a vast range of regulations (which can vary by state and locale), commodities prices, and even the quality of the soil.
As with commercial property, appraisers have three common approaches to agricultural property: cost, sales comparison, and income. Agricultural appraisers often grew up in agricultural families, or in parts of the country where farming is the chief industry.
Demand for agricultural appraisers
Currently, farm appraisal is a profitable field in many parts of the U.S., since the pool of experts is dwindling and aging. (Based on a recent survey completed by McKissock in February 2018, 16% of licensed appraisers specialize in farm appraisal.) However, it’s a challenging field, at a time when transactions are slow and few comparables are available in some markets. The consensus among farm appraisers: the water’s fine!
Particularly in the Midwest, where agricultural production is a driving factor, competition comes from statistical companies that can analyze land sales and provide a Zillow-like estimate of land values. This is less the case in parts of the country where the value of the land lies in its development potential. However, David GaNun, national president of the American Society of Farm Managers and Rural Appraisers, notes that statistics can’t substitute for a thorough understanding of the physical land involved in a transaction.
“Agricultural production might not be a driving factor in some markets,” he says, “but it’s not just farmers who need to analyze the quality of the land. If you’re developing, you want good quality land, too, because it will affect the digging of basements, the installation of septic systems. Appraisers who aren’t attuned to looking at land for its quality might be way off in their conclusions. Anyone getting into the field has to be able to extract the land value, and the improvement value, which is not the easiest thing to do.”
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Key considerations and challenges
Some of the big issues in farm and farmland appraisal include:
- The availability of irrigation
- How much rainfall can be expected
- The quality of the drainage systems
- The farm’s current and future use
- Existing facilities
- Potential for conversion to a higher and better use
“Here in New Jersey, we have farms with riding and horse-training facilities,” GaNun notes. “Delaware has a lot of poultry farms. Some areas have mostly swine; then you have farms that include cold storage for produce. If you’re exporting fruit and vegetables, how close are you to shipping facilities?”
Modern issues in farm appraisal
Seth Baker, president of Field Level Agriculture (Mt. Zion, Ill.) says the biggest questions in farm appraisal today are the likely effects of wind and solar energy on farmland values. Solar panels on farmland, for example, could be considerably more profitable than agricultural production.
“It’s too soon to tell about solar production,” he says, “but wind energy has more history behind it. Wind towers don’t take much space and could bring an extra $1000 per acre.
“Commodity values haven’t changed much; here in Illinois, we’re mostly corn and soybeans. Even with crop prices down, we’ve had some great deals in the past few years. There can be wide variation in farm values in a micro-market, if there are just one or two buyers in a small area. For example, transactions in Woodford County have been pretty aggressively priced: $14,000 to $15,000 per acre, compared to $10,500 to $11,000 in a neighboring market, because of just a couple of aggressive buyers in that one area. You have to look out for that sort of thing.”
The role of government regulations
Rebecca Stone, vice president of Farm Credit East (Watertown, N.Y.), agrees that farm appraisal value will depend on the type of farming or ranching involved, and the location—plus state and local regulations.
“Every state has specific laws about land use,” she says. “Many properties have conservation easements, and many states have restrictions within the easements. The closer you get to New York City, for example, you’ll see more restrictions. The same thing, the closer you are to Chesapeake Bay and that watershed.
“The more complex the property, the more there is to know. With a farm, you’re dealing with many acres of land, and some properties are building-intensive. A dairy barn is different from a hog barn or a poultry barn, then you have to consider permanent plantings, such as an apple or almond orchard, or vineyards.”
Lack of good sales data
“Probably the biggest challenge farm appraisers are struggling with now is a good sales data source,” remarks L. Craig Harris, appraiser at Peoples Company (Shenandoah, Iowa). “Activity is slow compared to two years ago. Not all markets go through the same economic conditions at the same time. Grazing land values may be strong if beef prices are high; corn and soybeans might be different. Some timberland has more appeal than the marginal cropland.
“Farmers here in Iowa and Missouri are getting along, although we’re not seeing any great windfalls from farm income.”
Farm appraisals aren’t just about the land. Farms usually include a surprising variety of buildings, which tend to depreciate very quickly. Farm equipment and livestock can be tricky to appraise as well. In Twin Falls, Ida., Jay Proost, executive director of the American Society of Agricultural Appraisers, advises that valid comparables in these areas can be hard to find.
“If you’re appraising a dairy herd, or beef cattle, or younger animals, get comps for other herds of that same type, that have sold recently,” he urges. “We recently had a call for an appraisal of 100 head of Angus show cattle, registered animals—an unusual assignment—and we were able to refer that assignment to an appraiser who specializes in show cattle. We get information from two local markets and a regional market, usually, and information is usually available on a daily basis. TractorHouse is a good website for farm equipment; so is Farmers Hot Line. A lot of local auction companies publish the results of their sales, and they can be very good resources.”
Article written by Joseph Dobrian. Joseph Dobrian has been writing about commercial and residential real estate, and real estate-related finance, for more than 30 years. His by-line has appeared in The Wall Street Journal, The New York Times, The New Yorker, Real Estate Forum, Journal of Property Management, and many other publications. He is also a noted novelist, essayist, and translator. His website is www.josephdobrian.com, and he can be contacted at [email protected].