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Farm with 6 large outbuildings - Functional?

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jeanwillick

Thread Starter
Junior Member
Joined
Jun 2, 2003
Professional Status
Licensed Appraiser
State
Michigan
Have a 45 Acre farm with a decent livable farmhouse. There are 6 large metal pole buildings approx 20 years old with anywhere from 4,000 to 8,500 square feet. The farm is used as a potato farm and one brother is trying to determine a price to buy it from his brother.

I have comps of other 40 to 45 acre farms with similar type farm houses, however, none in a 5 county area with this many large barns.

These barns are used for a specific type of farming and this many large square foot barns would have limited value to most purchasers unless they were in the same type of farming. I understand that they must have demand before they have value, but how to measure this value with no comparables? How to measure this depreciation?

The purchasing brother leases other properties for farming, so the barns are practical for his purposes.
 

Michigan CG

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Joined
Nov 1, 2006
Professional Status
Certified General Appraiser
State
Michigan
You need to determine the contributory value of the improvements.

Since there is a lease in place (market or not) you need to consider the income approach. Find out what the lease rates in your area are for various tillable acres, you need to consider the quality of the land and the productivity of the land.

Furthermore, how much is tillable, how much is recreational.....quite a task, I would call it complex, and with the income producing capabilities of the property I would say might be above your license level.

The last farm i did (actually all farms I do) are in a narrative format.

Sure you want this one....You don't want to upset one of the parties involved?
 

Wayne Tomlinson

Senior Member
Joined
Jan 25, 2005
Professional Status
Certified General Appraiser
State
Illinois
Tim is correct. It is usually a real problem finding the contributory value of farm buildings.

Many time I find that there just may not be any at all.

In reviewing comparable, and analyzing them, it you compare an improved farm with an unimproved (no buildings) I find if I have allocated some value the improvements, then the remaining value of the land turns out to be too low.

In your case, since you have an interested buyer, you just have a larger problem. You have to justify the amount that is allocated to the improvements.

Tim is also right in that it is a complex assignment. I would suggest that you find a qualified appraiser to work with to assist or to do it. Count the result as a part of the learning process. You will make nothing if you turn it down, you make a little if you have help, and yoy may learn a lot.

By the way, did you inform your client of your lack of expertise in this area? Eminent domain is not a simple process, and often ends up in court.

Wayne Tomlinson
 

jeanwillick

Thread Starter
Junior Member
Joined
Jun 2, 2003
Professional Status
Licensed Appraiser
State
Michigan
The land that is leased IS NOT this property. The buyer leases OTHER land and wants the barns for storage of those crops.

I have costed out the barns and depreciated them. The problem is how to determine Functional for these buildings when there are no other comps with this many barns and no real demand. I already know what the vacant farm acreage is worth (100% tillable--no wooded areas) and have several comps to prove it's value, but have nothing with large barns. I have enough comps with homes and 1 barn on 40 acres to determine that value. I have this appraisal complete except for figuring out this number.

In order to have value, there must be a demand. The typical buyer of a house on 40 acres with 1 or 2 barns would not consider this property with 6 very large barns, therefore, Functional. Or would this be a super adequacy? Thanks to the above 2 answers, but does anyone have another solution -- I don't want to pull a number out of the air.
 
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Mark K

Elite Member
Joined
Jan 27, 2004
Professional Status
Certified Residential Appraiser
State
Indiana
If there is an agricultural use, as you stated, for storing potatos, etc., then they have value to a certain market segment.

You probably have two potential buyers: A local farmer that can use the barns and land and might lease out the house, -- or -- you have an owner-occupant non-farmer that will use only one or two barns for an RV, tractors, etc. In that case I'd include value for one or two barns and call the rest over-improvements.

If its an ag area, I always include all outbuilding at their depreciated value on farm appraisals. Some large older buildings ( 100 yr old wood frame dairy barns) are given only a lump sum value while others are based on MS depreciated cost approach.

I just appraised a 20 ac. mini-farm with an average condition 6,000 s.f. newer pole barn and four older barns in various conditions. I gave the new barn about $30K value and lumped the remainder of the barns in at $5K total contributory value.

Functionality is in the eye of the beholder. Decide which market segment is the most likely buyer and go in that direction.
 

jeanwillick

Thread Starter
Junior Member
Joined
Jun 2, 2003
Professional Status
Licensed Appraiser
State
Michigan
Mark -

Thanks for the input. I have been leaning toward a value based on the market segment that this property would be of most value to, which is another potato farmer (who would be the purchasing brother). However, this property as it stands only has 45 acres and this many barns would not be required to farm 45 acres and would be an over improvement.

As for the other market segment, it is unlikely that a typical buyer would want to purchase a house with all these barns and it would have market rejection for this type of purchaser.

The problem of two market segments, one who would consider the barns valuable, and the other who would consider the barns an over improvement have been an obstacle in my thinking as to what to do.

I think all these facts together solves my dilemma as to which way to go--just needed some outside input.
 

stefan olafson

Senior Member
Joined
Apr 2, 2003
Professional Status
Certified General Appraiser
State
North Dakota
Jean,

"I have costed out the barns and depreciated them."

"I don't want to pull a number out of the air."

Seems if you've already depreciated the barns, you've pulled a number out of the air!

It doesn't appear your license allows you to complete complex assignments such as this!

"However, this property as it stands only has 45 acres and this many barns would not be required to farm 45 acres and would be an over improvement."

Okay, you have two family members who own this jointly? Right... There are how many tillable acres and how many acres are under these barns? What type of barn are they? Are they specialized potato storage facilities? Are they pole barns? Are they dairy, turkey, pig, sheep barns? What is the current use of the barns?

There are so many questions with no answers, it's impossible to assist you properly.

I'd contact the client and follow USPAP, let them know you are probably not qualified to complete this assignment under your license level, let them know you are reading up on the valuation of farm type buildings and are associating yourself with a CG Appraiser with a background in the appraisal of specialty ag properties.

If you proceed on as you are, the appraisal will be so full of holes you will not be able to properly value the property.

Just my opinion...
 

jeanwillick

Thread Starter
Junior Member
Joined
Jun 2, 2003
Professional Status
Licensed Appraiser
State
Michigan
Stephan -

You're assuming a lot regarding my education and experience appraising over the past 16 years in our rural market and 35 years of selling farms and homes in this market.

My husband and I are semi-retiring after our trip to Florida this Jan thru March and don't feel the need to upgrade our license level--we're both licensed appraisers since 1992 and are happy about being at this end of our long careers.

For your Info: One brother is buying from another brother. The barns are metal pole buildings with concrete floors--nothing special except for their sizes. They are used for potato storage--could be used for any other type of storage. The typical potato farm in this area does not have this many larger than typical barns, even if they have 100 to 300+ acres under use. Buildings are: 74 x 120 with a 60 x 96 addition, 46 x 180 , 50 x 150, 38 x 98, and 70 x 116 all minimum of 14' high.

Since posting here, have talked to the selling brother and he had an appraisal completed 2 years ago with house, barns and only 6 acres and I am within reason allowing for the additional 39 acres to be included in this sale.

Thanks to all for their assistance--never had a farm with this type of over improvement before. Sometimes we all need just a little input to help with our reasoning--I have completed the appraisal and feel confident in the value. Did a LOT of narrative.
 

farmguy

Member
Joined
Jun 27, 2007
Professional Status
Banking/Mortgage Industry
State
Texas
Jean, sounds like you finished report. Would be interested to know how you handled it. Sounds like you decided to call it a potato farm - barn have value equal to physically depreciated value or there a bouts.

Based on original post it sounded like there were no similar properties within several counties. I know there may be other factors but would sound to me like the highest and best use is not a potato farm.

I just bid on an appraisal of a dairy in a part of our state that is not dairy territory. I explained to client that highest and best use was not a dairy ( I appraised it about 9 years ago and I concluded it wasn't a dairy then) It is a free stall dairy and has a lot of shed space. They are still milking, but highest and best use says it should be something else. Most of my support for H&BU analysis comes from 150 miles or so away where there are more old dairies this size that have sold for rural ranchette type places.

Anyway I visited with the client a good while and told him that I would most likely determine what "was typical" equipment storage, hay barn, shop etc for a 200 acre place (subject size) Told him that the typical square footage would contribute but all square footage over that would see some market resistance. I have some old poultry buildings that sold a couple of years ago in an area where an intergrater pulled out. The barns added about $0.50 per square foot for marginal storage. If I get the bid I imagine I will conclude some contribution of the "extra" barns and sheds in that range.

Again not trying to nitpick what you did, (don't know all the particulars). Just curious, I might get some valuable insight.
 

stefan olafson

Senior Member
Joined
Apr 2, 2003
Professional Status
Certified General Appraiser
State
North Dakota
Jean,

I wasn't assuming anything about your experience or years in the business. I was just stating that completing a complex assignment was most likely above your license level.

I was just stating that if you had already completed the cost approach and had developed an opinion of depreciation that you were more than likely pulling that out of thin air. Depreciation is typically derived from comparable sales. I'm working on a 2 story 100 year old commercial/apartment property in a small town right now. Nothing like it anywhere nearby so I'm looking within 200 miles, if I can find any sales they will be the basis for the depreciation I would use in the cost approach if I were to complete that approach to value. Because of the age of the improvements I'm not doing the cost approach and am commenting why in the report. Those sales from up to 200 miles away are going to provide me with a cap rate for the income capitalization analysis and will provide me with a basis for adjustments in the SC Approach.

I wasn't reading too much into your post, I was just pointing out that you were stepping where a licensed appraiser should not be. Not without disclosing to the client your lack of knowledge and how you were acquiring that knowledge, it's in USPAP.
 
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