Do We Need an Appraisal on the Farm?

Top 50 Questions about Farmland

Hey, it's the Iowa Land Guy and here's the top 50 questions that I get asked about farmland. Do I need to get an appraisal on my farm before I sell it? I'm going to argue that no you don't, because an auction is a... Live in person appraisal of what somebody's willing to give it's the most accurate way to determine the value of your farm now Our appraisals important you bet they are so oftentimes taxes are a big part of selling your farm So there is a number called a date of death appraisal. So when we inherited the farm What was the value? And we determine that value for what's called a basis, a tax basis. What is the value of my farm when I inherited it? Now when we sell it, what is the value of it at that point? That is the real life appraisal, uh, an auction or the price that somebody was willing to give. The difference in those two numbers sometimes is very important. But does that basis need to be determined, be determined by a certified appraiser? And what's the difference between a certified appraiser and a broker opinion of value or a land valuation from a broker? So, an appraiser, a certified appraiser has to be certified and USPAP certified. So that's the, the federal, um, uh, law, uh, the unified, uh, uh, code for appraisers of how they do it. Okay. So they're under some scrutiny and rules. They also go to school. Most have a four-year degree, go to school for, uh, 26, 700, it might be 800 hours, 2, 800 hours of apprenticeship under. a licensed appraiser to learn the craft before they move forward. The real determining factor here is comparable sales. So most appraisers, uh, value farmland two different ways. Whether it's a farmland broker doing evaluation, an auctioneer doing evaluation, a broker opinion of value, or an appraiser, we look at it a couple different ways. First way, comparable sales. So within eight miles of that farm, within 50 miles of that farm, What other farms sold that look just like your farm? So is it the same soil type? Does it lay the same? Is the farmability the same? What's the topography? Then we know if the neighbors were willing to give 15,000 on this other farm, they'll probably give 15,000 on your farm. So we use a scoring system to do that and then we we put what are the comparable sales to your farm into a valuation or an appraisal. Okay, different terminology, similar, similar items. Now, everybody has a different level at what they do this to. The second way that a lot of appraisers value your farm is a cost approach. So, if an investor was willing to buy the farm, how much money does it make? And most farms, uh, in Iowa anyway, want about a 2. 5 percent return. Now, if there's cap rate compression, that comes down. If there's cap rate, uh, uh, expansion, it goes up. Maybe they want a 5 percent return. So that's a moving number at any given time. So this is why you hire a trusted professional to help you with a price on the farm. Now, we'll take that, uh, uh, cap rate that they can make on it, we'll find out how much would an investor be willing to give to get the same amount of money by renting out the farm. What do the crops yield on it, etc, etc, etc. So, what you're getting is a Broker opinion of value evaluation or a appraisal but two ways are going to value your farm most often or more times than not Now if I was getting one and I was a seller I would make sure that they can show me the proof in the pudding The days of I think it's worth 15,000 because I've been in business for 45 years That does hold some weight. You've been in the area, you know the area however Um, data is huge, and that market changes so fast, if they're following the data, they'll be able to show you, here, here is the data of other farms that sold six months ago, and this is why I think your farm is at this price, or this is why I value. your farm at this price. So, hopefully that helps with should I get an appraisal, and then what am I looking for in an appraisal? So, yes, um, you might need an appraisal. An attorney might tell you for an estate or a receivership that you need an appraisal. Oftentimes, if you're just looking for a farmland basis number of what you have in it, that can be a broker opinion of value, that can be a land valuation, that can be a certified appraisal. Now, if it's a divorce, you might need that certified appraisal. If it's a, a, a dissolution of a partnership, you might need that appraisal. But, uh, past that, broker opinion of value goes a long ways and often times is a little bit more cost effective. David Whitaker | Iowa Land Guy