Farm or Single Family Residence

[residentialguy]

farming out your land (so to speak) does not mean your property is no longer commercial. If the property is commercial, it takes a commercial appraiser to do it and it has to be done as a commercial property. You can't take commercial property and appraise it as SF Res.

 

[Michigan CG]

farming out your land (so to speak) does not mean your property is no longer commercial. If the property is commercial, it takes a commercial appraiser to do it and it has to be done as a commercial property. You can't take commercial property and appraise it as SF Res.

It appears to be a gray area of where commercial begins and residential ends. The dictionary of Real Estate defines a commercial property as a property that produces income.

Under that definition the lady with 10 acres, a 12,000 SF indoor riding arena, multiple paddocks and a SFR has a commercial property (I appraised this last year).

However on another assignment the guy with 20 acres of wooded land and a house does not have an income producing property.

Where does residential end and commercial start? And is ag commercial all the time?

For the OP he has 50 acres. In my neck of the woods we start to have a marketing problem for the farm land and the home and if they are on one parcel there will be limited buyers who wants the house and 50 acres and there will be a limited number of farmers who want the house with the land. Therefore a discount is warranted after a certain land size is achieved.

Is 50 acres commercial? Can it be done on a 1004 form? I would say that it can be done and I have done it many times.

The argument of misleading goes out the door because the lender knows what type of property it is and this is most likely not going Fannie.

A couple months ago I had an estate property. There was a nice home built in 2005 on 160 acres. Very good farm land. I explained to the client that the Highest and Best Use of the property would be to split off the home and a couple acres in that would most likely bring the highest value to the property. They agreed so I wrote two reports, one for the home hypothetically and one for the farm land being split hypothetically.

Two weeks ago the lender calls (one of the members of the estate was buying the others out) and needs the reports converted to lending purposes. Lender informs me that they did not split the property as I instructed and it would all need to be on one report.

I wrote the new report narratively and noted in the report that because the $260,000 house was not split from the 160 acres there would be a limited pool of buyers should the property be marketed as is and that a discount would be necessary to the property as one vs. the home being separated from the 160 acres.

 

[Walter Kirk]

Properties with Farmland or Woodland assessments are common in my area (with New Jersey's high real estate taxes they are a method of limiting development). If you have comparable sales of similar properties with similar tax assessments you may be able to report the appraisal on a 1004.

 

[Noreen]

Stables/ Horse Farms.

It appears to be a gray area of where commercial begins and residential ends. The dictionary of Real Estate defines a commercial property as a property that produces income.

Under that definition the lady with 10 acres, a 12,000 SF indoor riding arena, multiple paddocks and a SFR has a commercial property (I appraised this last year).

However on another assignment the guy with 20 acres of wooded land and a house does not have an income producing property.

Where does residential end and commercial start? And is ag commercial all the time?

For the OP he has 50 acres. In my neck of the woods we start to have a marketing problem for the farm land and the home and if they are on one parcel there will be limited buyers who wants the house and 50 acres and there will be a limited number of farmers who want the house with the land. Therefore a discount is warranted after a certain land size is achieved.

Is 50 acres commercial? Can it be done on a 1004 form? I would say that it can be done and I have done it many times.

The argument of misleading goes out the door because the lender knows what type of property it is and this is most likely not going Fannie.

A couple months ago I had an estate property. There was a nice home built in 2005 on 160 acres. Very good farm land. I explained to the client that the Highest and Best Use of the property would be to split off the home and a couple acres in that would most likely bring the highest value to the property. They agreed so I wrote two reports, one for the home hypothetically and one for the farm land being split hypothetically.

Two weeks ago the lender calls (one of the members of the estate was buying the others out) and needs the reports converted to lending purposes. Lender informs me that they did not split the property as I instructed and it would all need to be on one report.

I wrote the new report narratively and noted in the report that because the $260,000 house was not split from the 160 acres there would be a limited pool of buyers should the property be marketed as is and that a discount would be necessary to the property as one vs. the home being separated from the 160 acres.

I encounter this here in N.E. and my question is, would they not have to have a business license to be compliant for a commercial property? Some of the horse ranches here have "extra" stables they rent out for private horse owners but there is no license and no declared "income generation". Doesn't it have to be permitted, legally permissible?

 

[Terrel L. Shields]

The dictionary of Real Estate defines a commercial property as a property that produces income.

Well...there's your answer. If it wasn't for farm subsidies most farms lose money. A high percentage lose money some years and hardly any never lose money. It can't be commercial so what is it?

It appears to be a gray area of where commercial begins and residential ends.

Actually, it's black and white. One is residential, one is commercial. Which one is this? And it goes back to the first issue. Does it make money? Most rural properties are residential and are not producing sufficient income for the owner to have the luxury of not working somewhere else. What other defining factors are present?

First and foremost, it has a dwelling on it...a single family dwellilng. It is a home.

Vacant land is typically held for investment or farming. With the expectation that land will inflate with the economy, it is often held as you would hold gold or other commodity investment. The low tax rates on farmland is incentive to keep it farmland and not develop inappropriately. But it is also necessary to keep farmers in business. If my land was valued at its market value, I would pay upward $10,000 in taxes...the farm made exactly MINUS $7,009 last year...I can hardly afford a $7,000 hobby in a good year, but I certainly cannot afford to keep the place if my taxes were $17,000. The average expected rents for land around here is $50 an acre tops. That's $4000...my taxes would obviously be far more than my income were I to rent it out.

As to

would they not have to have a business license

Farms rarely have "business" licenses. They do have EPA rules and certain sized farms require CAFO regulation. There is a plethora of rules and regs that make the "small" farmer impossibly burdened. That won't charge regardless what the politicos say about reducing paperwork for "small businesses". Farming on all but the corporate scale is boxed into the uneconomic category until we have true famine in this nation...by that time we will be so desperate that we'll be planting spotted owls as fertilizer in a frantic effort to feed this nation without civil war.

 

[AnonApprsr]

I don't do farms but if a property had 50 acres in my market areas the appraisal would involve a lot of research in to possible land uses as part of the HBU analysis. My fee would be pretty close to four figures on such an assignment.

 

[Michigan CG]

......The average expected rents for land around here is $50 an acre tops.....

$50/acre? What do they do with that land? Here rents run $100-$200/acre for corn. Talked to a buddy in Iowa and some rents there are $400-$500/acre.

I don't do farms but if a property had 50 acres in my market areas the appraisal would involve a lot of research in to possible land uses as part of the HBU analysis. My fee would be pretty close to four figures on such an assignment.

I have three properties with acreage to do right now. One I am finishing tonight is just vacant farm land, 80 acres. Then there is a house on 30 and another property with a house and 12 outbuildings on 60 acres.

Fees are nice because not many know how to do them.

 

[residentialguy]

I am not CG and don't do commercial. The only income I do is small income properties (duplex,triplex, etc).

A working farm with 40 acres of corn seems to be a whole different ball game, imo. Most lenders I work for say stop if you find it is a working farm with income. Same with a house with a shop in it. Maybe I'm wrong and I'm missing out on work

 

[Terrel L. Shields]

What do they do with that land?

grazing...managed hay production in a good year might make $100 an acre. My best year I netted $11,000 on 80 ac. Most years its between $1000 - 4,000. With the drought hay is high this year but we don't have any...when we do, hay is cheap.. Corn makes about ½ what a N. Mo. or Iowa farm makes..hence the difference. Further a lot of our land is rocky...very rocky. Some of it is ledge rock in fact or too steep to plow.

 

[Michigan CG]

........A working farm with 40 acres of corn seems to be a whole different ball game, imo....

40 acres is not a working farm....it is a hobby. Minnesota is in the top 6 in corn production and your rents there are most likely in the $200-$300/acre range for good land (maybe more, I dunno).

So there might be $12,000 in rent minus taxes, management and a possible mortgage payment. No one is getting rich off of $12,000.

As to farming it no one farms just 40 acres. A John Deere tractor costs $250,000 with no attachments. Attachments start at $50,000.