36 Acre Lot With Olive Orchard In Nor. Cal.

[Joe Tuckey]

I'm looking at appraising a SFR (single family residence) on 36 acres which has 30+ acres of olive orchard. The owner has a crop manager which takes care of the orchard and collects most of the harvest profit. The home owner considers it mainly as a hobby farm and collects a relatively small profit from the sale "enough to pay his property tax". At this point, I don't know the full income and cost figures. The property is zoned as limited Ag which allows SFR's. The property is slightly larger than typical but not unusual for the area. Other lots in the area have olive orchards but are mainly only 3-6 acres in size and are sold as SFR. Is there any reason why this could not be appraised a SFR? Does it need to be appraised as Ag commercial? What are the potential pitfalls? Should the orchard only be considered as view or appeal value? :blink: Thanks for any help on this. JT

 

[Wendy]

Just thinking out loud.....I have no answers or expert knowledge - only curious....

Could the orchard be managed by the home owner and be made to provide a decent income, i.e. enough to support a modest family?

Are the trees high quality or of a type that would make them more (or less) valuable?

Also, what stage of life is the orchard? I know that orange groves have a limited life (20-30yrs, I think) and have to be replaced with new trees. How long do olive trees live? If the olive trees are old, could the utility(?) of the orchard be declining to the point were contributes little value?

Is the SFR exceptional in value so as to eclipse the orchard?


Seems to me that a 3-6 ac orchard is a hobby, whereas a 30 ac orchard is an income producer. The question is, how much income?

 

[CDMcCullough]

What is the purpose of the appraisal?

Is it for a lender? Some lenders do not want to include all the acreage. Is it for a sale?

I can give more pointers with more information.

 

[hastalavista]

Joe-

My opinion-

Yes, you can appraise it as a SFR, if that is its highest and best use as improved (I’m assuming you are doing this for a mortgage loan).
You need to make sure that your client understands what exists on the property. You will need to disclose the configuration of the property in your report (some lenders won’t loan on a property that has a commercial use, even if it is ancillary).
You must be careful that you properly analyze the value of this crop and its affect on the market value; in other words, your comps should be similar, or your adjustments for differences well explained.

You should send Greg Boyd (who is a regular participant in this Forum) an email linking this thread. He’s well qualified in such properties. Many others on this forum are also qualified, but Greg is also located in Northern California; his knowledge and experience would be “generally” helpful, and may also be “geographically” insightful, too!

 

[David Bodtcher]

collects a relatively small profit from the sale "enough to pay his property tax

Wow, I didn't realize olives were so cheap!

Like someone said earlier in this post, you would need to do a highest & best use analysis. Personally, I would think that 30+ acres of a working olive farm zoned agricutlural would indicate the highest and best use as farm/olive orchard, but I have no backing to this. Maybe the SFR dwelling on the subject is worth more, & supports a higher value as SFR than as an orchard.

But most likely, this is for loan purposes as an SFR (talk to your client) & they wouldn't want the appraisal to be anything other than SFR. If that is the case & you find that the highest and best use is actually something other than SFR; in order for you to complete the report for your client, you would need to enter in a hypothetical condition as if the subject's highest & best use was SFR.

If they want a highest & best use appraisal, & the highest & best use is agricultural, I believe you would need to be AG licensed.

 

[Joe Tuckey]

Thank you all for your input, but I decided that it is probably most wise to pass on this appraisal and recommend a general to determine a HBU and a value. Thanks Again, JT

 

[Shon Moore]

I am assuming that your property is located at or near Corning/Richfield/Tehama/Gerber. I use to live in Redding and am very familiar with Tehama county. First, the highest and best use theory applies here and will more than likely kill the deal anyway. If income production (which I am sure could be well in excess of property taxes annually) has significant potential, then it sounds like the owner is downplaying. If the surrounding properties predominantly have this set-up (which most do in this area) then a non-conforming residential property or AG property is what you have. Most lenders are not going to give the cream of the crop going "A paper" rate or exceed 70% LTV. Secondly, you will need to find out of the property is included in the Williamson Act (which allows a significant discount in property taxes, as the state will actually lease land from private home owners in exchange for portion of leased land for farm/crop production). Remember, properties included in the Williamson Act need to be compared with homes also included in the Williamson Act. There is a measurable difference in property values in this area, in and out of the Williamson Act. I believe you will probably discover that AG commercial is the highest and best use here. Many borrowers in this geographic area depend on some form of crop-production income to subsidize, as their is really no professional industry in this region to earn a moderate living (service industries and local govt. agencies). Many property owners operate commercial/ag businesses on such properties in this general region. If zoning allows for this, and highest and best use indicates "income production" (which is typically the case); then the lender/broker will likely have a nightmare to get through funding, and more hoops you (the appraiser) will be asked to jump through that will likely not be acceptable under FNMA guidelines. Moreover, you cannot exclude acreage (ie. appraise only 5 or 10 acres) unless you specify which portion of the property is included in the value; and the appraisal scope should state as a Limited Summary Appraisal Report (per USPAP). And good luck getting that through underwriting. My experience tells me that the deal will be dead.

 

[Rudy Canoza]

What Shon Moore said...

When the owner decides to sell one day those olives will be worth thousands of dollars a month...

 

[Brian Weaver]

Let's see...30 acres of olives (type?)...somewhere between 40 and 300 trees per acre (again, type?) yield is about 80 lbs of olives per tree...somewhere between 2 to 5 tons of olives per acre...going rate...$500 per ton, give or take... let's say....

30 x 2 tons = 60 tons x $500 = $ 30,000? Maybe more...maybe as much as $75,000 for the crop?

Is this still a single family assignment?

Be careful.

 

[Joshua Fookes]

I'm thinking he's out in Happy Valley west of Anderson.

There are a lot of houses out there with Ag Meters and Olive "orchards". Most people out there are contacted by out of area companies that process the olives. They come to the owner's house, harvest the olives, and pay small fee.

It's not a big income. It is totally within what the A1 zoning allows, where SFR is the predominant use. That is reason the big olive orchards were subdivided in to the smaller lots they are today. THEY WERE NOT GOOD INCOME PRODUCERS.

The people can pay their property tax, BIG DEAL. I could pay my property taxes if I had a yard sale twice a year. Does that make my house an income property???

Most of those smaller "ranchettes" are SFR. If it sold it would be bought by someone else who wanted a "ranchette" NOT AN OLIVE ORCHARD.

H&B Use would come into question at this point though. Not for the income aspect, but as to how much could the land be subdivided in that area. There are some locations out there with 40 acre minimums. But other locations in Happy Valley have 5 Acre & 10 Acre minimums.

HOWEVER, Fannie Mae does not want a strict THEORETICAL H&B use analysis. IF the improvements have ANY contributory value, they say to consider the property improved to its H&B use.

FannieMae Handbook for Appraisers

If the use of comparable sales demonstrates that the improvements are reasonably typical and compatible with market demand for the neighborhood, and the present imporvements make the value of the property greater than if the site were vacant , you should consider the existing use as reasonable and report it as the highest and best use. If the current improvements clearly do not represent the highest and best use of the site, Fannie Mae will not purchase or securitize the mortgage.