Farm or Single Family Residence

[KRMDSM]

I have been asked to appraise a property on a 1004. The property is under a land use program and it includes a house on about 50 acres. Per the assessor it is in this land use program because of its agriculture status. I think it is a hobby horse farm but I have not seen it yet. The assessor said that it must maintain this AG use or lose its land use status and be subject to back taxes for up to 5 years. Any prospective buyer would need to have a knowlege of farming or be subject to back taxes. This limits the pool of buyers and affects the highest and best use. I was told that a licensed residential appraiser did this on a 1004 a while back but I have a problem with doing it on a 1004. I am a CG and I have done many farms and I have always done them in a narrative format. Any thoughts while I'm waiting to hear back from my client next week.

 

[residentialguy]

If it has AG use, it's because it is a farm. I would do it on a narrative format. You just need to instruct your client. Just because someone did it, doesn't mean they did it correctly. As a CG, I would hope they put a bit more credence in what you advise over a licensed appraiser. Why did he do it on a 1004? Answer: That's all he knew.

 

[Michigan CG]

I put a house and 50 acres on a 1004 report all the time, but a little more information is needed about the restrictions and the current use.

 

[KRMDSM]

Yea, I agree and that is how I see it. But I also know that many property owners qualify for an AG status simply for the lower taxes and then do the minimun to maintain the status. Thanks.

 

[Couch Potato]

How much is 5 years of taxes? It certainly affects the financial feasibility of other uses, but it does not automatically exclude them. The level of "farming" needed to maintain the agricultural use is typically quite low. Most anyone has the needed knowledge or can obtain it easily. Your area may be different, but typically the reduced taxes do not apply to the house, but merely the land.

All that said, I agree 1004 is not likely the best choice for the report, but with an appropriate addendum it can certainly be done. I would certainly discuss it with the client to be sure they understand the nature of the situation.

 

[BRCJR]

The "form" used is not the problem. It is explanation of the subject property. It could very well be completed on the URAR and not be misleading and compliant. It happens all the time.

A stipulation (OP) stated to keep the land use as AG:

"Any prospective buyer would need to have a knowlege of farming or be subject to back taxes".

I find that to be a difficult postion, to defend, as to the taxing of the land being changed.

You cannot measure the knowledge of a person and decide how to tax the land based upon one level of knowledge over another.

That is like saying, "he knows pig farming so lets tax him x and she only knows how to cut and bale hay so let's tax her xx.

I say the land use has to change to change the tax rate, not the ownership.

 

[Terrel L. Shields]

The assessor said that it must maintain this AG use or lose its land use status ... Any prospective buyer would need to have a knowlege of farming or be subject to back taxes. This limits the pool of buyers and affects the highest and best use. .... I have always done them in a narrative format. Any thoughts while I'm waiting to hear back from my client next week.

The form used has nothing to do with the use of the property. The property is likely a residence with acreage and that surplus acreage is likely "agricultural". The buyer of a 50 acre parcel is or should be well aware of it. And the back taxes surely do not go back 5 years simply for buying the property and changing that use to non-ag. It would only apply to any years where the property was not used for ag..

I think one of your big issues is exactly where is the property and is it in the path of development of the Marcellus Shale or other potential petroleum development. That might impact the value far more. Does the property have the mineral rights? Is the property leased for minerals? How close is the nearest old well or proposed well?

From Elkins to Hamiln, I've seen wells and recently visited the site of an old location I sat on 35 years plus ago... barely recognized it and it now has a manf. Home in the middle of where the rig sat.

The URAR, imho, is a poor reporting format although it can be done. I would argue that for secondary market, it is not appropriate. Fannie mae would generally examine whether actual farming or a significant number of agricultural buildings exist and all I could see is potential grief from presenting a report on a URAR to secondary market for a loan. But I have presented residential properties on a URAR up to 40 acres for non-secondary market.

 

[Mike Garrett RAA]

What is the nature of the purchase? Is it residential or is it agricultural? What kind of loan is it? I do many residential appraisals where there are more than 35 acres and the zoning is AG on the 1004 form.

 

[residentialguy]

The property is under a land use program and it includes a house on about 50 acres. Per the assessor it is in this land use program because of its agriculture status.

state land use programs typically mean it is a working farm where a good portion of the land is being farmed - aka commercial use.

 

[William K]

Simple questions to ask yourself,

Would someone be able to farm the "50 acres" and make a living to support a family to at least the local median income.

Could the future owner allow the AG part of the 50 acres to be farmed by agreement with another farmer (say a neighbor) and still keep the exemption.