Based on the USDA’s Economic Research Service (ERS), the average value of land makes up 81% of a farm’s value. Incorrectly appraised farmland can cause significant losses to the owner, yet evaluating that farmland can be challenging as well.
Appraising Farmland is Challenging
Heterogeneous
Similar properties are simple to evaluate since you can use comparison strategies. Yet when properties are specialized and unique, such as farms, the difficulties of the evaluation escalades. Appraisers must spend more time evaluating every aspect of the property, the specific market demand, and rely on extraordinary assumptions to derive values. There is also more room for errors since extraordinary assumptions of value include estimations and opinions.
Categorizing the Farmland
Based on the highest and best use of the property, farmland can be organized and specified by multiple categories. One classification is based on soil quality. Soils are classified by Class I-VII and each class details the limitations of the specific soils. Farmland can also be classified by its irrigation. While property’s can only be irrigated or not irrigated, for prospective owners that want to bail hay this can be a key classification. Finally, the farmland’s use can classify whether the land would be best-suited for crops, pastures, forest, etc.
Finding an Appraiser
Experience is key. Finding an experienced, educated appraiser familiar with your local real estate market can sometimes be challenging. Take your time and do your research on the experience, licenses, and qualifications of potential appraisers.
By Anna Hellman
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