How much is your farm worth?
Even if you are not trying to sell your farm, knowing what it's worth is still valuable information every property owner should have. It's a needed number that can help with securing credit, estate planning, determining lease rates, paying taxes, succession planning and so much more.
However, it can be understandably hard to put a price tag on farmland because the value could be based on both emotional and practical reasons. That's why we have put together this post to help you get a better idea of how to find an answer when you want to know how much your farm is actually worth.
Why accurate farm valuations are so important
Farm valuations are a much-needed piece of information because of how much planning goes into the decision-making of farming business operations.
Think about it: Each of the common situations we listed above in the introduction requires careful planning. All of those scenarios are common for farmers. And, when one of those situations comes up, having an accurate farmland valuation will paint a clearer picture when you are determining next steps in any of those situations.
Ask an appraiser for a farm valuation
Bringing in a professional almost always pays off. Property owners should not rely on guess work - even if the guesses are educated - when it comes to finding the value of farmland.
It likely could be a wise decision to bring in an appraiser to help you find how much the land is worth. Appraisers can help sift through the complicated nature of finding an accurate valuation.
When looking for a good appraiser, make sure the person you choose is licensed and trained in your state, has experience in determining farm valuations and is knowledgeable of the agriculture business.
Now, when setting up an appraisal, be sure to ask for an in-person assessment, as these are typically more accurate. This way, the appraiser can truly gather the needed information on location, amenities and land condition.
Back up your valuation with strong data
The better record-keeping you can maintain, the higher the likelihood you will be able to get an accurate estimate of your land's value. When the appraiser begins to crunch the numbers, they'll want a few records from you so that they can generate a valuation that is as accurate as possible.
The appraiser should ask about production, harvest, expenses, equipment purchases, maintenance, employee costs and any other type of record or bookkeeping information you may be able to provide. The higher the quality of your records, the more accurate and reliable of a valuation you will receive at the end of the process.
Access research tools online
Now that we've stressed the importance of having an expert provide an official appraisal, we should mention that are online tools that can help you get a glimpse of what the farm is worth. These research tools are useful for comparing to other land in your area.
Again, though, online research is not a substitute for an actual appraisal, but rather a good starting point.
Look at the land
A farmland's valuation is obviously heavily influenced by location and land quality. There is, of course, soil quality, past production records and historic weather patterns that can influence land's value.
We aren't just talking about those standard characteristics, either. A farm that has a creek or other unfarmable feature running through it won't be as valuable as land that has a consistent terrain that's uninterrupted by natural features or oddities that making farming it harder or more of a complicated process.
Landowners should also consider how easy the farm is to access by road and even via highways.
Find the business's worth, not just land
A farm's true worth is so much more than the land it is situated on. That should not come as a surprise. The success and potential of the entire business operation also are factors.
So, how do you find out a business's value? Well, some farmers try to determine the operation's earned gain in net worth. That is a farm's increase in net worth from cash earnings instead of appreciation in real estate values, according to FarmProgress. An earned net worth increase can then be divided by the net worth at the beginning of the year to determine the return on equity, or ROE, that a farm operation generated.
But FarmProgress notes that determining earned net worth is not the only way - nor always the best way - to estimate a farm's value. Some farmers and advisors instead determine the present value of future cash flows.
There are many factors that go into finding out how much cash a farm can bring in. Factors including but not limited to management, competitive advantages in the market, technology and more can affect cash flow. But determining cash generated can help when a producer needs to make decisions.
For more information on how to determine cash flow and then compare that to earned net worth increase - plus what that can tell you about farmland's value - we strongly recommend you read this piece in FarmProgress.
Ask yourself about sentimental value
Although an appraiser may not factor it in, sentimental value is a very real influence on how much you believe your farm is worth. This is especially true if the land has been in the family for a longer period of time. If a farm has provided your family with jobs, food and shelter for generations, then of course it is going to be worth more to you.
Farms are also important to neighbors and the surrounding community, as well. Don't underestimate how important it could be to neighboring farmers or communities in general that active farmland continue to be used for that purpose and not sold for development.
Determine your farm's value
If you are interested in learning more about determining your farmland's value, then contact Cotton-Grave Farm Management today.
Cotton-Grave has been a farm real estate sales leader since 1960 in Iowa, Minnesota and South Dakota. Our staff is able to apply its understanding of soil productivity and apply that to come up with production potential and rate of return data for every farm we evaluate.
From there, Cotton-Grave will effectively market a farm. We have investors and producers who are actively seeking out farmland that they can purchase. With our experience helping both sellers and buyers, you can trust our team to secure a beneficial deal for you.
Request a complimentary consultation.
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