Licensed Appraisers And Farms

[Paul Ness MAI]

For the purposes of determining if a licensed appraiser can appraise a farm, is a farm considered complex/non-complex 1-4 residential or is it considered commercial?

 

[Austin]

Paul:
I live in a farm area in Virginia, and speaking from experience, to quote my good buddy Steven Santora: "It depends." It depends on the H & BU. It can be timber land, it can be mixed use as most farms are with a homestead, it can be subdivision tract development; it can have timber and crop allotments or product base, it can have any combination of the above. I think the answer to your question is that it requires the services of a certified general appraiser just to determine that the services of a general certified appraiser are required. Another littel quirk in USPAP. You have to know the answer before it becomes a question.

 

[Walter Kirk]

it's more than a residence and should be completed by a general appraiser unless only the house and a small portion of land is appraised ( an extrodinary assumption) then a residential appraiser can accept the assignment with no problems.

 

[Chris Colston]

Originally posted by Paul Ness MAI@Sep 26 2003, 02:38 PM
For the purposes of determining if a licensed appraiser can appraise a farm, is a farm considered complex/non-complex 1-4 residential or is it considered commercial?

Are there crops that need to valued, livestock that needs to valued, is it a "working" farm (business)? These items could effect the income approach. Barns or out buildings? How much land? These items also add to the complexity.

Maybe a residential appraiser with the help (supervision) of a general appraiser could accept the assignment. I had an assignement like that once, over 10 years ago, I did the residential portion and my MAI supervisor did the "farm" portion with the further assistance of an FmHA appraiser we had in the office who determined the crop and livestock value. This was in rural Maryland. It took close to a month to complete the entire process, too. Nice fee as I recall. :yellowblack:

 

[Restrain]

We have numerous quarterhorse ranches where the horses are worth more than the land and buildings. On top of that, the land is getting so expensive that it's getting to the point that it doesn't make economic sense to keep these as farms.

This is why General Certified appraisers do these.

Roger

 

[George Hatch]

Paul,

Trying to find out how your peers would classify such an assignment for the purpose of establishing "typical practice" for one of your review assignments?

I'm a CG and I wouldn't even consider doing a real farm. Competency. Riding stable, commercial nursery, or a boarding facility, no problemo. Land, structures, income streams - no sweat. But when you gotta start kicking dirt to see what kind of crops will grow there, that's far beyond my experience as a city boy. Heck, I can't even maintain a house plant.


Regardless of licensure, competency is the real question. My opinion.

 

[Oregon Doug]

Paul - The issue is one of an enforceable definition of "complex". We have struggled with this for years and do not yet have a good handle on it.

Does the "transaction" amount define it? What is a "transaction" amount anyway? Does it have to do with a scarcity of market data? Can you provide a blanket definition of "atypical" property?

In my little corner of the country, double wide manufactured homes on 20 acres of timber land are fairly common but 2 bedroom condos are not. So, what do I think is complex? How do you determine it on Maui, where the average price of a new home is often over a $1million where as some little town in Nebraska may not yet have seen a new home for much over $100 thousand.

Can you define "farm"? Out here we have lots of Christmas Tree farms. In some parts of the country it's wheat farms, someplaces it's corn, hogs, chickens or whatever. Does it have to be at least 5 acres, 25, 100 or more than 20,000? Does it have to produce income? How much? (one of my neighboors raises cut flowers for florests in his yard - about an acre - and he makes nearly $40K doing it - is that a farm?)

This can be a difficult issue to sort out from the enforcement point of view. If you come up with an answer, please let us know.

Thanx, Oregon Doug

 

[jtrotta]

Remember Paul, a complex problem often has complex answer's;

Is the "Farm" deemed a "Farm" for the sole/soul purpose of "tax reasons" ??

Ifn has over 5+ acres and your using "Lender Guidelines" the excess acres will only have the potential of minimal value (per their requirement, but in real life B) ) - that in and of itself - provides for a sometime "complex" amount of reasoning.

If the appraiser feels they do not have the experience, they should not do it - either residential OR commercial; holding a commercial license does not mean they can do the appraisal any better; I would think it's your knowledge of the "marketplace". I believe there are a lot of stock brokers with egg on their face - then again the Anderson CPA firm couldn't hold it's own either -

So as my buddy Austin says; it Depends*

h34r:

 

[Terrel L. Shields]

Nothing personal folks, but don't these answers suck? That question is one I have posed to the App. Foundation in a letter years ago. I did not get a reply. In a state "day with the board meeting" I got a adult diaper reply (Depends).

There are several caveats I suggest. 1- "Complex" is not defined by the appraiser. Complex is a word defined by the bank institution. We can argue that the assignment is complex or not, but it is the bank's call. Nevertheless, the competency provision applies based upon our assessment of the difficulty of appraising this property (a function of available data for the most part). So if the bank considers it commercial and a commercial loan officer is involved, then perhaps it should be treated as such. If the regular loan officer is making a residential loan, the size of the lot should not be a factor in deciding if the property is commercial. Clearly, any property with an occupied dwelling is Single Family Residential.

HBU - Large acreages with few buildings or single dwelling may be a beef ranch, but is it "commercial", i.e.- turns a profit or is used as a business? No, its a hobby 99 times out of 100.

Poultry farm with dwelling on 5 acres....OK, HBU with a contract is a commercial application but is it economic? Does the owner still "work out". How does that differ from say, an eBay business run out of the garage? Well, it does have barns dedicated to the business of raising birds AND (important to me) if the contract to raise birds is lost, the value changes and the H & B U changes....There are a lot of little chicken operations where the value of the property changes little when a contract is lost because the barns are small, old, or outdated. To me a commercial poultry operation would have employees, large houses probably 4 - 10 with absentee ownership or owner plus employee labor.

I believe the current definition of a farm by the government FSA office is that it is capable (not necessarily does) of producing $500 worth of agricultural produce. That makes about any ole truck patch a farm.

In my opinion, if a property value does not change when a farm operation ceases, then the property was not a farm, i.e.- it was already HBU as vacant as something else - possibly commercial, possibly residential, possibly for further subdivision into smaller tracts. So are tracts like the subject being sold for residence uses or to add to another farm or be operated as a farm?

Even growing crops are a poor way to define a farm. This is usually not all that profitable. I grow a few cows on 80 ac. I have an old barn, a middle aged barn, and a new barn and a 10 year old house and garage. I raise bermuda hay (baled the 4th cutting just yesterday.) It pays my insurance in a good year, and maybe the property taxes. It would be meaningless to appraise my place as a "farm." and I wouldn't hire anyone who would attempt to do so and charge a commercial fee.

Someone mentioned a horse farm. Very complicated to me. Most are very over-built and suffer large amounts of functional obsolescence. I have yet to see one sell in less than 1 year in my market.

Most of the "farms" being appraised in the South and Midwest are not economic. Their highest and best use is large tract residential properties in transitional stages to smaller tracts. As such I would think a good certified residential or state licensed appraiser could appraise them all day long with only a modest amount of training.

On the other hand, the state boards are as confused on the issue as anyone and they may think a CG should sign off making them dangerous properties to appraise for the uninitiated. I certainly would explicitly state that in the HBU I determined it was SFR with excess acreage, not commercial farm.

 

[Steve Wyrick]

Originally posted by Paul Ness MAI@Sep 26 2003, 01:38 PM
For the purposes of determining if a licensed appraiser can appraise a farm, is a farm considered complex/non-complex 1-4 residential or is it considered commercial?

Paul,

I am an Certified General, in the San Joaquin Valley of California, an area generally considered to the prime agriculture area in the United States and the world by those who make those kinds of designations. I do lots of rural residential, rural residential with secondary farm income and large commercial farming operations of various types from cattle/hunting ranches to open irrigated row cropland to permanent planting orchards. With that in mind please remember that my opinion is based on my area of the world.

In my opinion this is a scope of work question. I am also of the opinion that any home located outside of a city limit on anything more than 1 acre is complex, especially for any appraiser less than a certified residential, unless they have had a lot of experience in doing rural residential properties.

What is a farm? Yes you can find definitions from FSA, IRS etc. But, maybe a farmer's over the fence answer would be the best. If my crop makes enough money to pay property the taxes, pay the gas for the tractor, the seed, fertilizer and water and makes a buck more than those out of pocket cost then its a farm. If the land cannot make more money than my out of pocket, direct cultural cost to produce, then the farmer is not going to plant the crop or buy the livestock to put on it. Kind of like making investment that you guaranteed to lose on, you would not do it, neither will the farmer.

That definition virtually works for every property. The owner with a nice home on 1 acre, raising orchids in the hothouse out back and selling them through his roadside stand and making more money that it cost to produce, is a florculturist (farmer) and the property is a farm. The next door neighbor doing the same thing but has a black thumb and can't keep his yard green is not a farmer and property is not a farm. The rancher with 100 acres of native pasture land, with developed water sources and is able to support 1 cow/calf unit per 100 ac. is a rancher (farmer). The next door neighbor with a 100 acres of no water and land ability to 1 cow/calf unit per 150 acres is owner of a rural residential on large rural residential lot. In other words if it produces a profit over and above out of pocket cost it is a farm, if it does not then it is a home site.

Keeping my definition in mind, If it is left up to the appraiser, then in determining the scope of work and highest and best use determination the income producing abilities of the property will be have to be considered. At that point I believe that you have met the definition of a complex appraisal, one that is beyond the abilities of appraiser's with less the a Certified designation.

However, if the scope of work is being defined by the lender/client. Extraordinary Assumption, house and 5 acre only to be valued. Then, in my opinion the scope and the highest and best use have been narrowed and now the assignment may or may not be complex. Complexity will depend on other factors, such as location, distance from comparable sales, timeliness of comparable sales and availability of comparable sales just to name a few. I would not let a trainee do this assignment, beyond their expertise. A licensed appraiser closely supervised by experienced rural residential appraiser OK. Even with that being said a Certified with little experience in Rural Residential properties should not be doing this assignment for the first time without help, back to USPAP competency.

Chris,

Are there crops that need to valued, livestock that needs to valued, is it a "working" farm (business)? These items could effect the income approach. Barns or out buildings? How much land? These items also add to the complexity.

Remember the definition of Real Property vs. Personal Property. Real property is the land and those improvements permanently affixed to the land and not meant to be moved. Personal Property is movable. Unless you are talking about permanent crops like vines, orchards crops generally considered to be personal property, harvest and disked up annually or biannually. Livestock moves, personal property. Tractors, personal property, etc.

Appraising farms is very difficult for even experienced appraisers if they don't have an educational as well as a practical background in agriculture. That is one of the reasons why you find the Certified Generals many times will not take on a farm deal it is out of their competency area, it is one of the reasons why I don't take on business malls they are out of my area of competency.

Sorry long post but complex issue. Remember one size definitions and solutions doe not fit all properties and situations.