Guide: What to know about farm land appraisals
November 30, 2022

Guide: What to know about farm land appraisals

Farm land is an investment. The value of farm land has increased over recent years and continues to be a worthwhile method of investing money.

But how do you know where you stand with your investment? Say you want to explore your options to sell. How would you get a good idea of what your farm or other rural land is worth?

An appraisal, that’s how.

A licensed professional can come out and visit your farm or land that you are considering listing. They will go through their process and, at the conclusion, give you a solid report and appraised value that can inform your next steps.

However, quite a bit goes into a rural land appraiser’s process. Here is what you can expect when you have your farm land or rural land appraised and how that process actually works – and a few key takeaways you should know.

Property research is critical

An appraiser in agriculture should know the ropes when it comes to researching properties. This step is the starting point for just about any appraisal project for any piece of property, not just rural land.

The appraiser will take the time to research every aspect of the property that could influence its value. This will include:

  • Legal description of the property
  • Taxed acres
  • Water, wind, mineral and other resource rights
  • Well registrations
  • Acres eligible or currently associated with government subsidies
  • Soil maps
  • Taxes and assessments on the property
  • Buildings on the property

A close-up look

Once those documents and records are collected, it’s time for the appraiser to lay eyes on the property. The appraiser will want to come out and visit for a physical inspection.

The appraiser will want to get a good grasp of the condition the property is in, the terrain conditions, fencing around the property, water sites, irrigation systems and much more. The assessor likely will not need to inspect every square foot of the property, but enough to get a comprehensive idea of the property’s condition.

Appraisers have 3 evaluation techniques

Now it’s time to talk about dollar figures.

As with many professional fields, there are multiple methods to getting the job done. Three of the most common land appraisal techniques are the sales comparison approach, the cost approach and the income approach.

Sales comparison approach

This is the most common technique used to appraise land. With a sales comparison approach to a farm appraisal, the appraiser will take about three properties in the surrounding area that are comparable to the one being appraised and have sold recently, preferably in the last six months.

The appraiser then looks at all the characteristics that the land being appraised has in common with those other properties. This can include crops grown or other land uses, acreage, improvements completed on the land, square footage, the age of the property as it’s currently being used, amenities of any houses on the land (beds, baths, etc.), view and the general condition of the properties.

Cost approach

The cost approach is another common method for conducting an appraisal. With this method, the appraiser takes a valuation formula of land value plus the cost it would require to reconstruct any buildings, minus the accrued depreciation of the buildings from when they were new to their current condition.

This approach can provide an accurate market value estimate when the property is new.

Income approach

Finally, there is the income approach. Using this method, an appraiser will take into account an estimated net income of the property and then derive from that the appraiser value.

This approach is useful mostly for properties, such as farm land for crop or livestock, that will actually produce an income.

Fair market value vs. price

Whenever anyone discusses farm land – or any valuable piece of real estate, for that matter – you will likely hear two terms tossed out with some frequency: fair market value and price.

At first, you might think these are the same thing. If something has a fair market value of “X” then that is without a doubt the price you will pay. But that’s not quite accurate.

Fair Market Value is the most likely dollar amount a seller could expect to get when the property is sold, bar some sort of outside, out of the ordinary influence that could influence that value. Price, on the other hand, is what is actually paid.

An appraiser’s job is to determine what the fair market value is for your farm land or rural property. They can’t guarantee the price it will actually sell for on the market.

The best example that illustrates the difference between value and price is a bidding war between two interested buyers. They may drive up the price of the land at auction for their own reasons, but the value won’t actually change.

Buildings don’t add much value to land

Maybe this doesn’t come as much of a surprise, but, at the end of the day, buildings don’t carry that much value when it comes to your land.

It’s the land buyers will want.

According to Nebraska Farmer, even a new machine shed loses value practically instantly to the tune of 25% to 30% of their value from the moment they are built.

Now, that’s not to say you shouldn’t worry about building conditions. To the right buyer, updated buildings can add to their offer price, but it simply won’t affect the price of the land you are trying to sell.

Get the lay of your land with Cotton Grave

If you are looking to get your agricultural land appraised in northwest Iowa, contact the team at Cotton Grave in Spencer, Iowa.

Cotton Grave has been serving Northwest Iowa farmers and farm landowners since 1960 and helping them with all of their farm management, real estate and appraisal needs. Our current team of professionals is ready to help you move your operation forward, tackle challenges and accomplish your professional and personal goals.

Cotton Grave offers a complimentary consultation if you would like to get started by speaking with a trusted voice in the northwest Iowa agricultural field.

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