Agricultural Appraisal Review

Appraisal Approaches
  • Income Approach: Used when analyzing properties that generate income (e.g., rental income).
  • Cost Approach: Focuses on the cost to replace or reproduce property improvements minus depreciation.
  • Market (Sales Comparison) Approach: Values property based on comparable sales in the area.
  • Tax Assessment Approach: Based on assessed property values for taxation purposes.
Appraisal Approaches for Specific Properties

  1. Grain Elevator:

    • Most appropriate: Income approach

  2. Non-tillable Timberland:

    • Most appropriate: Market (Sales Comparison) approach

  3. Ethanol Production Facility:

    • Most suitable method: Cost approach (considering specialized equipment)
Farm Real Estate Assumptions
  • Farm appraisals assume the property will be placed in its highest and best use.
Soil Quality Ranges
  • CPI of 75 typically corresponds to a soil quality range of 70 to 80.
Cost Approach Applications

  1. Properties suitable for Cost Approach:

    • A. Highly improved grain storage facility
    • C. A farmstead with a new house and barn
    • D. A farmhouse with recent additions
    • E. Highly improved hunting lodge

  2. Economic Principles for Cost Approach:

    • Using Contribution and Substitution.

  3. Improvements on land typically include:

    • C. Constructed structures like buildings.

  4. Handling improvements in the Cost Approach:

    • B. Their value is estimated separately using replacement cost minus depreciation.

  5. Key steps in Cost Approach:

    • C. Use comparable sales to estimate land value by class.
Time Adjustments in Appraisals
  1. Price adjustment calculation could include:
    • Annual decline/market fluctuations to determine current values.
Effective Cropland Calculations
  • Evaluating effective land quality based on different classifications of land:
    • High-quality cropland: 100%
    • Medium-quality: 80%
    • Low-quality: 60%
    • Permanent pasture: 30%
Value Allocations

  1. Time-adjusted sale price for land sold:

    • Formula for decline: Use percentage declines over time adjusted for comparables.

  2. Appraised Value of Low-Quality Land:

    • Calculated with allocated values.
Appraisal Final Calculations
  • Total appraised value should sum individual land qualities and their respective values.
Depreciation Types in Farmland Valuation
  • External Depreciation: Influences from external factors (e.g., noise, landfills).
  • Functional Depreciation: Loss due to layout inefficiencies or outdated features.
  • Physical Depreciation: Wear and tear from age and usage.
Specific Calculation Examples
  1. Depreciated value for RCN of a house:
    • Calculate by determining the depreciation rate vs. its expected life.
Age-Life Method Usage
  • Used for estimating physical depreciation based on the structure's age vs. its total useful life, applying a straightforward formula to determine adjustments.