Farm Appraisals 101

Whether you’re interested in selling your farm, buying a farm (or additional land) or simply inherited one, your first steps should include hiring a professional to assess the value of your investment. Farm appraisals are used to determine fair market value of the land as well as the buildings and equipment that come with the purchase (or sale) of a farm. Experienced advisors, accountants, attorneys, and wealth managers will also advise appraisal services for farmland asset estate planning and wealth building strategies. And, just like any real estate transaction, appraisals are a requirement for securing bank financing.

But they’re also beneficial in other cases, too.

“The number one non-bank-related reason for a farm appraisal is usually for tax purposes or estate tax purposes,” said Kyle Ogden, a certified general appraiser with a specialty in agriculture appraisals. “Or, even, just for general estate planning. Our job is to come up with a value for the farm.”

To do that, appraisers consider a variety of factors, including land quality, location, size and shape, topography, environmental factors, and zoning and land use regulations. They also look at current market conditions, neighboring land use, existing infrastructure, farm commodities and comparable sales in the area the farm is located.

“For Illinois and Indiana-based farmers, we also look at soil productivity using the University of Illinois Soil Productivity Index,” said Ogden. “Drainage is also a big thing around here. Farms that are better drained are generally superior to those with poor drainage because they can grow consistent crops.”

The percentage of tillable land and whether the acreage is irregularly shaped are also factors when it comes to appraising a farm’s value, according to Ogden.

There are three approaches to farm appraisals:

1. Sales comparison approach. This is considered the most common approach and is the one mainly used when securing bank financing for a farm loan. Appraisers look at the prices of similar farms that have sold in the area to come up with a fair market value.
2. Income approach. This type of appraisal is used by investors. Appraisers estimate the value of the farm based upon its rate of return so investors can decide if they can market and capitalize on that for income purposes.
3. Cost approach. This type of appraisal is mainly used during estate planning, or during divorce or other legal proceedings. Appraisers must assign a valuation to the farm, outputs and buildings that’s equal to the cost of the land along with its outputs and commodities, minus depreciation.

While you might not be buying or selling your farm at the moment, farm appraisals also come in handy for property tax assessments, especially if you believe your property taxes are too high, and for insurance purposes to ensure you have adequate coverage.

“When I complete a farm appraisal, I’m looking for the most probable value between a typically motivated buyer and a typically motivated seller,” said Ogden. “My goal is to have the appraisal hit the high end of the bell curve or the middle of the bell curve in a stable market.”

Choosing the Right Appraiser It is crucial to select an appraiser with specific expertise in agricultural land to ensure the most accurate and effective evaluation. Professionals who are familiar with the unique aspects of farmland can offer more precise valuations, which are vital for making informed decisions about buying, selling, or developing agricultural properties​.

Key Takeaways:

• Farmland appraisals are vital for accurate property valuation in sales, insurance, and legal or estate planning situations.
• Appraisals are influenced by physical, legal, and economic factors.
• Choosing an experienced and specialized appraiser is crucial for accurate land valuation.

Are you considering buying, selling, or insuring farmland? Ensure you’re making informed decisions based on accurate, professional appraisals. Contact our expert team today to find out how we can assist you in assessing the true value of your agricultural property and guide you through the complexities of farmland transactions.