You have your heart set on buying a farm property or cattle ranch, but you are unfamiliar with the market. What is your first step? After browsing through farms and ranches for sale, you will want to have the land evaluated to determine its true value. Getting an appraisal is incredibly important to ensure that you are paying the right price.
An appraisal is a written report that determines the most probable value that a piece of property will have on the open market. This report includes the research and the appraiser’s reasoning behind his conclusion of value. Three factors influence the value of a piece of land: production, investment, and consumption.
Production is a factor when the buyer intends to use the land to produce agricultural income. In calculating productivity value, the appraiser only looks at factors associated with the land’s capacity to yield marketable products. He converts an estimate of the property’s income into an estimate of the land’s value by dividing the income by capitalization rate, thus determining the land’s productivity value.
When it comes to investment value, the appraiser estimates the property’s potential appreciation in value. This is a major factor if the buyer intends to resell or develop the property.
Consumption is a factor in the land’s value when a buyer is less concerned with profits and more interested in purchasing property for personal use such as a hobby farm or a summer home.
The most reliable appraisers are those accredited by the American Society of Farm Managers and Rural Appraisers; they should be knowledgeable about current market values and trends.
Ted Turner bought his 100,000-plus acre ranch for over $20 million. You probably aren’t looking to spend that much, but an appraisal is essential to determine the value of the land and the appropriate buying price. You might be wise to do some research of your own as well. For instance, how will population growth affect land value? Montana’s population is projected to increase by 14.1% over the next 40 years. Do you know what effect will this might have on your land? The employment of farmers, cattle ranchers and other agricultural managers is expected to decrease by 2% between 2014 and 2024. Can this change the value of a property? These are all factors an appraisal service will consider when evaluating your potential purchase.