Rolsen
Freshman Member
- Joined
- Feb 5, 2013
- Professional Status
- Certified General Appraiser
- State
- Minnesota
Was looking for some other opinions on how to handle a CRP contract on a conservation easement (CE) appraisal I am working on. Appraisal has to be done to the yellow book standard. The question pertains on how to reflect a 15-yr CRP contract that will be in the CE area. This may get confusing so I'll try to be as clear/concise as i can be... here goes!
The larger parcel is 69-acres being a mix of wooded, pasture, wetlands and tillable fields. The CE will encumber 45-acres of the larger parcel (65%). The larger parcel has about 30-acres of tillable land of which 15-acres are to be excluded from the CE. The OTHER tillable 15-acres INCLUDED with the conservation easement are to be enrolled in a 15-yr CRP contract. It is important to note that I will be using a hypothetical condition that the CRP contracts were signed/finalized as my effective date (approved by the client).
So.. how do I reflect those CRP contracts in the valuation? Before its seems pretty straightforward as I either discount the NPV of the contract payments and add it to the base value of the land, or maybe discount the difference between the CRP contract payment and market rent (the CRP payments exceed what tillable acres can rent for in the area by about $50 an acre).
The bigger question is in the after. How have other appraisers handled it? My concern is double counting the CRP impact on value. My client is the buying the CE and the terms of their CE while are more restrictive than CRP, they pay one time upfront. They are fine with the landowner enrolling in CRP, but I have to make sure the landowner isn't getting paid twice as CRP is essentially paying landowners not to farm it for the length of the contract, and my CE is paying the landowner to not farm it (among other things) in perpetuity. The conservation easement does not allow the landowner to re-enroll in CRP, so he gets the initial 15-year contract and that is it. Couple of things come to mind.
Land 100% encumbered by conservation easements in my market area go anywhere from $1,200-$1,800 per acre. Those do NOT include CRP contracts. Would that make my encumbered acres worth more, or less? Seems to me more as the terms of the CE allow for this 15-year income stream where the others don't.
But on the other hand, it seems like it may be worth less as the full binding force of the CE for the acres in the CRP is delayed for 15-years (meaning that the landowner is retaining some rights thus reducing the compensation for the CE). It seems to my the CE award should be reduced by a factor of whatever the value of these payments are. In other words, say the typical value of a CE is +/- $4,000 an acre that assumes full binding effect on the day of closing. But in my case the landowner is getting paid for 15-years before that right is wiped out so my CE should be less than $4,000 an acre.
I guess it boils down too this. If a buyer shows up and wants to buy this 69-acre larger parcel subject to the CE affecting 65% of the site with a portion generating CRP payments for 15-years, would he pay more or less than typical if the 15-year income stream is included?
Anyways, I may be overthinking it, but wanted advice from others who may have dealt with this.
The larger parcel is 69-acres being a mix of wooded, pasture, wetlands and tillable fields. The CE will encumber 45-acres of the larger parcel (65%). The larger parcel has about 30-acres of tillable land of which 15-acres are to be excluded from the CE. The OTHER tillable 15-acres INCLUDED with the conservation easement are to be enrolled in a 15-yr CRP contract. It is important to note that I will be using a hypothetical condition that the CRP contracts were signed/finalized as my effective date (approved by the client).
So.. how do I reflect those CRP contracts in the valuation? Before its seems pretty straightforward as I either discount the NPV of the contract payments and add it to the base value of the land, or maybe discount the difference between the CRP contract payment and market rent (the CRP payments exceed what tillable acres can rent for in the area by about $50 an acre).
The bigger question is in the after. How have other appraisers handled it? My concern is double counting the CRP impact on value. My client is the buying the CE and the terms of their CE while are more restrictive than CRP, they pay one time upfront. They are fine with the landowner enrolling in CRP, but I have to make sure the landowner isn't getting paid twice as CRP is essentially paying landowners not to farm it for the length of the contract, and my CE is paying the landowner to not farm it (among other things) in perpetuity. The conservation easement does not allow the landowner to re-enroll in CRP, so he gets the initial 15-year contract and that is it. Couple of things come to mind.
Land 100% encumbered by conservation easements in my market area go anywhere from $1,200-$1,800 per acre. Those do NOT include CRP contracts. Would that make my encumbered acres worth more, or less? Seems to me more as the terms of the CE allow for this 15-year income stream where the others don't.
But on the other hand, it seems like it may be worth less as the full binding force of the CE for the acres in the CRP is delayed for 15-years (meaning that the landowner is retaining some rights thus reducing the compensation for the CE). It seems to my the CE award should be reduced by a factor of whatever the value of these payments are. In other words, say the typical value of a CE is +/- $4,000 an acre that assumes full binding effect on the day of closing. But in my case the landowner is getting paid for 15-years before that right is wiped out so my CE should be less than $4,000 an acre.
I guess it boils down too this. If a buyer shows up and wants to buy this 69-acre larger parcel subject to the CE affecting 65% of the site with a portion generating CRP payments for 15-years, would he pay more or less than typical if the 15-year income stream is included?
Anyways, I may be overthinking it, but wanted advice from others who may have dealt with this.
