Do The Avocado Trees Add Value?

[SanDiegoBrian]

So I am appraising 3 contiguous parcels (6, 5, and 3 acres) that are currently and avocado farm/operation. These parcels abut a good quality single family residential area (and in a metro area in SoCal) and many of these parcels are being bought for construction of a single, larger custom home.

The current farming operation is profitable one year (makes 70K) and down the next (loses 50K). But, if someone were to buy one of the parcels they could construct a new home AND get ancillary income from the avocado operation.

Comparables include scrub land and avocado land and I don't see a noticeable difference in price. So my question is, after doing a sales comparison and deriving land value, do you add the value of the 1,200 trees and irrigation equipment? Call them landscaping? Or simply adjust the land sales for Other, like you would a View?
Thanks.

 

[Tony V]

First off, I am NOT a GC so I may look at this from a different angle. It seems you may have answered your own question in your post.."""" Comparables include scrub land and avocado land and I don't see a noticeable difference in price.""""

From there, what is the associated costs to irrigate, etc for the trees, especially with a drought going on. Factoring in the profit one year and then loss the next it seems to be a wash...

 

[Tim The Enchanter]

14 acres is not much of a farm.

 

[Peter LeQuire]

Isn't the question what the value of the land is that is immediately put to use as SF house sites? If the HABU of these tracts is as a house site, are people leaving the avocado trees and engaging in avocado production?

 

[Randolph Kinney]

The income from avocados would be considered as business income from a hobby farm. Peter LeQuire is pointing you in the right direction.

 

[SanDiegoBrian]

Isn't the question what the value of the land is that is immediately put to use as SF house sites? If the HABU of these tracts is as a house site, are people leaving the avocado trees and engaging in avocado production?

Yes, Peter, that's right. What I did hear back from a site that sold down the street was that the buyers' primary interest is the desire to build a home, but they do anticipate ~5-10K yr. in income as well. On that sale the trees went un-watered and need to be re-planted (takes 3-4 years to produce), so they reduced the price by $50,000 during escrow.

 

[gregb]

Long-time CG local appraiser was sued one time in connection with a purchase appraisal. Single family home, on 5 acres, with 2-3 acres of avocado trees. Appraiser attributed income value to the avocados, buyer later sued when the avocado trees turned out to be diseased.

 

[Tom Woolford]

With the long term water woes you folks are undergoing in CA, and with no end in sight, I would think small scale farming operations like that would become unprofitable very rapidly. Future earnings would seem to be highly questionable.

 

[Peter LeQuire]

Back in the dark ages I owned an interest in a grapefruit, orange and avocado grove. My admittedly deficient memory is that it took longer than 3-4 years for an avocado tree to begin to produce any significant yield. I would guess that their present ag use is, at best, an interim use. If each of the tracts is a buildable site, the trees are simply bulldozer bait.

 

[SanDiegoBrian]

I like all the comments and they are useful. They are under a 20% mandatory water reduction right nowso it is an issue. The other interesting thought on this is that the wildfires raged to within a few hundred feet (before the huge MC80? tanker dropped retardant), so buying and building has an added element of risk. The owner said the trees, since they are water intensive, don't burn, only the ground layer (leaves, irrigation lines etc.it happened in 1995).