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Cost, Sales, Income approaches for Vacant Ag land

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Terrel L. Shields

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Arkansas
I went to an FSA orientation in Stillwater, OK, where the lead review appraiser told us that she expects to see all three approaches on a large tract vacant land appraisal.

She argues that you can use summation techniques to estimate the land value even if there are no improvements.

Further, even in transitional lands where there is no relationship between the pasture rents and the market value of the land, she insists that the income approach is applicable even if 1/2% cap rates!

Yipes! Ag boys tell me what you think.

Terrel
 

Steve Owen

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Jan 16, 2002
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Missouri
I'm not an AG guy, but I think she's full of crap! Anytime you say "always" you are always wrong. lol.
 

EDWARD BERRY

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Jan 15, 2002
Professional Status
Certified General Appraiser
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Arkansas
THIS is wonderful.

To complete the Cost Approach on Land all we have to do is cite Genesis I.

Who is going to argue with that and is is cheaper than Marshall & Swift.

Ed in Arkansas
 

Terrel L. Shields

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Which means if you miss the cap rate by 0.1% you change the value by 20% or more.
 

Neil (Texas)

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Jan 16, 2002
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Certified General Appraiser
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Texas
Terrell,

She must have "read" how to build a clock, but can't figure out how to tell time. The Peter Principle is alive and well.

Neil Schaeffer, IFAS
Terrell TX
 

DAVID ANDREWS

Freshman Member
Joined
Apr 12, 2002
All three approaches can be used to value AG land. They may or may not be applicable. It is the appraiser's responsibility and duty to determine which is or is not applicable based on market activity and data. It is also the appraiser's responsibility and duty to explain the applicability or in-applicability of each approach in each assignment. But never ever say ALLWAYS for any approach. I have never experienced OAR rates for AG properties lower than 2% to 3%, however, I will agree that they may be much different in other areas.
 

Terrel L. Shields

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Certified General Appraiser
State
Arkansas
I am curious what ag appraisal book teaches the cost approach to include summation of the land values via soil types + zero improvements. In my opinion if you apply summation of soil types then you are doing a Sales Comparison via summation. Making apple pie without the apples is just not the way I see it.

In my region the situation is simple. Flint rocks will grow grass if you apply enough chicken litter. Without the CS, it would hardly grow anything. But that tract of flintrock is good for grazing, possibly haying, and very few areas can be cultivated. Grazing is a $25 to $30/acre proposition if the grass is good. Too many houses to lease for hunting in most places. Acres near town are $30 and acres 10 miles from town are $30. But the land value will vary with the demand for sites to build houses, not agricultural sites. Housing, not cattle prices dictate the land value. There is no relationship between pasture rents (which vary with cow prices) and sales price of land which varies with residential demand. Thus the income approach is less than meaningless, it is misleading.

Ditto for summing soil type values. There is no desirable soil type nor undesirable ones for pasture therefore no comparable data could exist that supports adjustments for soil type. The buyers and sellers do not use it and do not even understand what you are talking about. And we as appraisers have to put ourselves in the buyers shoes. How is that buyer going to estimate the value of the land. Comparable sales, that's how.

Sure in Roger Mills County, OK, land value will vary with agriculture because there is no demand for residential tracts. No wonder the Red Men were PO'd at whites...stick them in that desolate dreary wind sucked stinking desert...Land prices in purely agricultural areas vary year by year according to local crop prices and weather, a situation that rarely exists East of I-35 to the Atlantic coast.

ter
 
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