Orange Grove And House On The Property On A Divorce Situation

[RickGrove]

I am a real estate broker in Florida. This case pertains to my primary residence.

I live in a 10 acre parcel. There is an improvement (single family residential) of 2,650 sq. ft.

In the remaining 7.5 acres I have an orange grove. The trees are in decent condition. I'm the caretaker.

The age of the trees is approximately as follows: ~50 % are 3 to 4 year old, 40% less than 3-years old, and the remaining 10% about 20 years old.

I am in the process of getting a divorce. Because there is an orange grove in the property, my wife and I hired an appraiser that claims to be qualified to appraiser orange groves.

This appraiser decided that the highest and best use it would be to split the property in a house with a 2.5 acres and valued the orange grove as vacant land since the grove is not generating any income and that the trees are relatively young. He valued the property at $439,000.


Here is my problem: My wife believes that the property is worth a lot more. So she decided to hire an Tree Appraiser (arborist). The arborist came up with a value of $300,000 just for the trees. Now my wife wants to add those $300k amount to the highest and best value of $439K to use that as the value to consider if I want to buy her out.

I am not an appraiser, but this makes no sense to me. The problem is that I don’t know how to approach this:


a) How do I interpret an Arborist valuation? What basis is he using to make this calculation? Does is make sense for an Arborist to valuate an orange grove? It makes no sense since 1 year old trees are only $9/tree.

b) Should I obtain another Highest and Best from a different appraiser?

c) Does anyone know an certified orange grove appraiser in Florida?

d) Is the arborist appraisal useful in court, if there was no highest and best analysis?

e) Is there such a figure of an expert that I can hire to help me out fight this case?

f) Why should my next step be?

I think that my wife is just trying to price me out to force me to sell, but I want to keep the property.

Thanks in advance.

 

[Terrel L. Shields]

Arborists are idiot appraisers who value by the inch diameter using a chart. Find a third party appraiser to value it. I suspect your first appraiser is correct. I see no reason to split it however. I'd want a 3rd appraiser to settle the issue OR, simply say, "I'll set a price and YOU take your half or pay me that other half." I saw a 50 million dollar business split that way between brothers. Their father wisely required it in the operating papers of the business. Take or Pay.

 

[JTip]

Arborists are idiot appraisers who value by the inch diameter using a chart.

Put him on the stand....."$300k for trees? That's a LOT of orange juice. Explain to the court where you got this from......"

$500 for the appraiser court fee (show up fee), put the arborist on first, walk out before lunch.

 

[Terrel L. Shields]

Using such charts, my yard trees are worth $15,000 on top of land value.

 

[Meandering]

Magic math to the rescue!

Just wondering if the value of the trees is for fruit that is harvested over the life of the tree with residual firewood, or cuticle sticks at the end of the life of the tree? Or the value if you dig them up and sold them?

If the first scenario, does it include rent for the land, or, the opportunity cost that the land could be up to a more profitable crop?

I should take some farm appraisal classes. This sounds like fun.


.

 

[KHS445]

Someone needs to explain to the Arborist that while the color is nearly the same that those were eatable oranges and not solid gold balls growing on those trees. Not sure exactly where you are located in Florida, but if you know a lender that specializes in agriculture or know a real estate broker/agent that specializes in agriculture share the Arborist report with them and see what their impression is. Ask the lender how much they would lend based on that report. I strongly suggest that you retain the services of an experienced agricultural appraiser to review the Arborist's report and to provide you with an accurate market valuation. The reason I would go with an experienced agricultural appraiser is his/her credentials will be stronger in valuing the trees than a typical residential/commercial appraiser. The agricultural appraiser would have specific information regarding sales, cash flow, residual rights, production, maintenance, life span, etc. Just because someone says the trees are worth "X" they are only worth what someone will pay for them.

As a tongue in cheek alternative, agree with the other side that the total value of the property is $739,000 and that you will split it 50/50 or $369,500 each. Since it sounds like you want to keep the house and the property offer the opposing side $69,500 cash and the orange trees (no real estate) only. Additionally you will continue to pay tax on the property, maintain the land and the trees. The opposing side can have 100% of the production of these trees, except for a reasonable amount of personal use by you, and you will also give them 100% of the salvage rights to the trees when they go out of production. Since orange trees remain productive for 50 years given the right conditions, I would include a depreciation clause and a first right of refusal (ability to match) any offer the opposing side receives for the trees only. If the opposing side has an ounce of brains they would never accept this deal, but I have seen stranger things happen in a divorce.

 

[JTip]

Just wondering if the value of the trees is for fruit that is harvested over the life of the tree with residual firewood, or cuticle sticks at the end of the life of the tree? Or the value if you dig them up and sold them?

I do a lot of tree valuing, but we don't have oranges, avocado or almond trees around here.

I value three ways: Firewood (by the tri-axle), Standing Timber (I've posted a link to current values here before), Landscaping (M&S).

Orange trees.....I wonder what the 'fruit-on-the-tree' value is.....do you get a dime per orange and, after expenses, end up with a nickel? How long (years) does it take for a tree to begin producing adequate harvests? Do you get one crop of 300 oranges per tree annually?

I should take some farm appraisal classes. This sounds like fun.

Me too, it does sound like fun. I would bug the crap out of the teacher with 100 questions.....

 

[Meandering]

. Me too, it does sound like fun. I would bug the crap out of the teacher with 100 questions.....

We have Christmas tree farms all over the place. So retail and wholesale sales, cut or balled for replanting. Most other sylva culture has aged out here, but the standing natives are fun. Took the timber cruise classes with DCNR a few years back. Find us some classes and I'll join you. That really has to be more fun than appraising office buildings and FHA classes. Finished CE for the cycle, but heck, this sounds like too much fun to pass up.

.

 

[Michigan CG]

Interesting.

I have appraised many agricultural properties in the midwest dealing with corn, beans and wheat.

I know nothing about oranges other than I like the orange juice and has bananas in it.

I would assume that orchards are appraised just like other agricultural properties. If my assumption is wrong than one can disregard everything else I say.

First of all I have a hard time believing the arborist valuation of $300,000 which would mean the 7.5 acres is worth $40,000/acre.

There are two acceptable approaches to value agricultural land, the Sales Comparison Approach to Value and the Income Approach to Value.

The premise of the SCA is to find sales of other small acreages with orange trees and compare them to the subject property.

The second way to value an agricultural property is the income approach and this is where many appraisers who don't know what they are doing get it wrong. The income approach is not the cost of putting the crop in, managing the crop, fertilizer, chemicals, harvesting the crop and then getting what money left over as profit. That is the WRONG way to think about it.

The income approach for an agricultural property uses the amount of RENT the property can produce to the owner of the land minus the expenses of the owner of the land. We will use a typical midwestern parcel of land as that is what I know. The land may be used for corn, bean, wheat or some other commodity (tomatoes, cabbage, etc.).

Joe buys 100 acres of good land for $550,000 ($5,500/acre). It is simply impossible for Joe to buy a tractor, combine, planters and other equipment to farm his 100 acres as a combine alone is $400,000. Joe buys the land with the intent of holding it and renting it and eventually having his loan paid off and hopefully reaping the benefits of higher land value in the future.

The amount of rent Joe will collect is based mostly on the amount of productivity of the land and corn is king, the amount of corn that can be produced per acre will pretty mush set the rent. The amount of corn that can be produced is a factor of a few things which include the quality of the soil (loamy soils are the most desirable), the slope of the land and drainage of the land.

Let us say that Joe's land can produce 175 bushels of corn per acre and drainage is adequate (except this year where the corn crop is going to be late with all the rain we have had). In the current market Joe can expect to get about $150/acre in rent from his 100 acres or $15,000 in RENT. The RENT is his gross income, not his NET INCOME. The income approach has GROSS INCOME, then expenses and then NET INCOME with net income being what Joe gets.

100 acres x $150/acre = $15,000

Minus Expenses: $750 (5% of GI) for management (Joe must collect the rent, pay taxes, the management fee is for his time and effort of maintaining the income stream)
$2,500 Property taxes, Joe has to pay this, his tenant farmer will not pay this.

Joe's NET INCOME is $11,750 for his 100 acres.

We then capitalize the net income into value. If we use a cap rate of 2% the value of the land is $587,500.

Good job Joe, you purchased for $550,000 and it is worth $587,500.

If the cap rate jumps to 2.25% the indicated value of the land is $522,222.

(The above is very simple and Joe may have other expenses we won't get into.)

=============================================================

I have a hard time believing that it is not the same for orchards, but I could be wrong.

The following article is a little dated but supports my theory of orchard valuation.

http://flcitrusmutual.com/news/heraldtribune_chapter10_121608.aspx

Notice the article talks about 50, 100 or thousands of acres, not 20 or 10 or 7.5 acres.

Joe moves to Florida and purchases 7.5 acres of orchard. There is simply NO WAY Joe can buy the equipment necessary to run an orchard, heck, even buying 100 acres there is no way for Joe to buy the equipment so he will rent it out to someone who can produce oranges.

The article talks about costs and NET INCOME towards the bottom and the 100 acres has $303,250 in GROSS INCOME before expenses. After expenses the guy doing his own 100 acres is getting $53,250 or $5,325/acre in profit. That is not the same as rent. The guy doing the work is entitled to profit, the guy who owns the land is entitled to rent. If a guy is farming his own land then he gets both the profit and the rent (hypothetically paid to himself).

You have 7.5 acres, it is barely a hobby and certainly not a viable orchard, the ONLY way to make any money on the land is to rent it.

I am guessing the first appraiser is correct in that the Highest and Best Use is to split the land into two parcels and I am going to guess that the Highest and Best Use of that remaining land is for future residential development, not as an orchard.

 

[CANative]

It's a complex issue because it could involved just land with some citrus as opposed to land which has development potential. Just oranges, maybe $20k/acre on top of the underlying land value? But that depends on a lot of things too. Size and type of orange, market demand, location to markets, costs of water and care, etc., etc.

Pretend math:
80 trees per acre x 7.5 acres = 600 Trees
200 oranges per tree per year = 120,000 oranges
60 oranges per bushel = 2,000 bushels
$18 per bushel = $36,000
Costs (share 50/50 with a company that harvests and processes)
Net $18,000
Use a safe cap rate of say 12 = $18k/.12 = $150,000?