What constitutes a Farm/Ranch Appraisal?

[Robert Dunkle]

I see this as a common sense issue but since no one has responded to your question, I'll take a stab at it.

A farm/ranch appraisal is just that. An appraisal of a farm/ranch. If you have to ask what a farm/ranch is, you probably shouldn't be appraising one but for purposes of discussion, I believe that a property that derives reasonable income from agricultural endeavors would qualify as a farm/ranch.

Furthermore, the definition of farm/ranch varies from person to person and from location to location. I know several city folks that consider themselves proud owners of 5 acre farms or 10 acre ranches. Although it is possible to generate substantial agricultural related income from 10 acres or less, it is not the norm in my market area. Ten acres is often not enough to even be a hobby or "gentleman" farmer.

To answer your question as to the qualifications to appraise a farm/ranch, check with USPAP. To obtain competency, I belive you must have proper education/training and experience working with a seasoned veteran. I often see reports of farm appraisals where residential appraisers list a house and 5 acres on a URAR and on the "other" comment line, list 100+ acres and adjust for it. They don't realize that the 100+ acres is worth substantially more than the house and 5 acres. They don't know the soil type, productivity, condition, or utility of those acres. They don't comment on noxious weeds (or know what they are), they don't mention water sources for pasture or cropland, they don't mention the ag related buildings and if they are functional or not. They don't understand the use or capacity of grain storage facilities.

In short, I have seen many farm appraisal reports performed by residential (and commercial) appraisers who don't know what they don't know. If you're interested, check with ASFMRA or contact a local ag appraiser.

10-04 on the reports performed by incompetents (my words). I refinanced my ranch (300 acres, 36,000 sf indoor arena, 2400 sf horse barn, 80 acres flood land, 220 upland, some deep soil, some eroded with no topsoil). The dufus (CGA) that the MB sent out reported it on a 2055 int/ext.

There are far too many variations between soil types and flood vs upland, crop vs pasture, etc. to report large acreages as a residential property with adjustments for additional land.... unless the land of the subject and the comps are very homogenous.

Of course, here in Oklahoma and Texas (other places, too, I'm sure) people are buying large ranches for recreational uses. Then the "carrying capacity" of pasture and crop yields of cropland kinda go out the window!1

 

[Donny Lindner]

Well, I am finally glad to see some response.

I wanted to know if there was some defined way to establish if you have a farm/ranch appraisal or if it is a single family with acreage. Sound to me like, there has to be some degree of production to constitute a farm/ranch. That make sense. However, I do see properties which are 5-10 acres in size and have some form of livestock. They probably do generate some revenue, but I would not considered them to be production. It would appear to be more recreation. Or maybe, to have ag exemption.

I would not consider my place, house, barn, tank, fencing and 9 acres to be a ranch. Would not think someone would want to buy it for production. Good luck.

 

[Damon Pedersen]

Back to the original question though, the question was pertaining to the write up of an offer on a farm/ranch purchase agreement. Just because an offer is written up on a farm or ranch purchase agreement, that doesn't mean the property is a farm. And vise-versa. If an improved farm acreage on say 80 acres is written up on a typical residential purchase agreement, that doesn't mean it is a residential property. I think your individual market would determine what the property is as well as the actual use of the property.

In my area, we have what I call rural residences on anywhere from 1/2 acre to 30 acres. We also have what I call farm acreages on 2 acres to 320+ acres.
What form the purchase agreement is on basically means nothing. We have some realtors around here who consistently sell residential properties so if they ever sell a farm acreage it gets written up on the same standard purchase agreement that a 1950 style ranch home would. We also have realtors who typically sell farm land that occassionally write up a residential house on a purchase agreement that very cleary states farm and land purchase agreement on the top.

Don't know if I agree with the income part because we have 20 acre and 40 acre pieces of what is now prime tillable land that people are buying for a site to build a new house on. They have no intention of farming and will turn the tillable land into grass or pasture for horses. That returns minimal income in comparison to the present use.

 

[TEL2002]

Can I suggest you find the nearest chapter of the American Society of Farm Managers and Rural Appraisers. Go to some of their meetings, you will find them most enlightening and enjoyable...at least the ones in Ohio are.

 

[Terrel L. Shields]

Just because the USDA calls something a farm doesn't mean that is the definition I would use in an appraisal.

OK, then who's definition would you use???

Really, a "farm" is that but what is the highest and best use? An ECONOMIC farm or a HOBBY farm or RECREATIONAL land? Nobody can define that. If 40 ac. with a house and 10 43' x 500' poultry barns generating $250,000 annual gross is a "farm" but 40 ac. with a house and a 10' x 20' coop with 15 hens is not a farm, then how many chix does it take to be economic?

Back to basics. 100 acres worth $300,000 with a house worth $40,000 is a land appraisal. The bulk of the value lies in the land. 100 acres worth $300,000 with a $1,000,000 home is a mansion or "executive home" appraisal. "Recreational" ranches purchased for non-income purposes although the buyer may intend to divide and flip the smaller parcels at a profit, or sell off River frontage to fishermen, etc.

"Farm", ie.- income producing land tract or building intensive farm needs to have more value in the "farm" improvements than in the house and land not farmed.

A $50,000 house on $450,000 worth land is not adjusted like a $50,000 house on a $15,000 lot. The critical adjustments go to the LAND, not the house. So long as you keep that in mind..no problem.OK?

 

[Austin]

Farm Managers and Rural Appraisers

Can I suggest you find the nearest chapter of the American Society of Farm Managers and Rural Appraisers. Go to some of their meetings, you will find them most enlightening and enjoyable...at least the ones in Ohio are.

I signed up for a week long course with Farm Managers and Rural Appraisers about 15 years ago. They sent me the class study manual to study ahead of time then the class was canceled. I studied that manual and learned more about appraising than any other course I have taken which includes all MAI classes with exams and 15 years of CE. They had the best example off using and explaining regression I have ever seen. They give a designation like the MAI designation and the manual had three demo appraisals prepared by candidates.

It was really interesting. They taught about soils and how you can identify soils by the soil triangle. They even made adjustments for different soil types on a farm. If you ever get a chance take that course or get a copy of their class manual jump for it. Most people involved with them are out in the mid-west. They are a first rate outfit.

 

[Wayne Tomlinson]

I think that the definitions posted came from definitions utilized by the census bureau and have little relevance to appraisals.

It is recommended by the ASB that licensed and certified residential appraisers can appraise one to four unit residential properties and land that has the highest and best use is residential, and not including subdivisions without cosideration of value.

Certified general can appraise all type of properties with no limit on the value.

In each classification, it requires competency. By Statute, in Illinois now, the ASB regualtions are automatically included in the law. This came about in the 2005 Illinois Appraisal Law after Illinois was threatened with being decertified to regulate appraisers with a law that allowed 75 hour licensed appraisers to take their test and become full appraisers, hire staffs, and run an appraisal business.

Now the law does not allow it, but there are quite a few who are doing it anyhow. Why allow a change in the law to affect a perfectly good business.

It appears that the Illinois law does not have enough teeth to stop it,

Many local rural banks use certified residential appraisers to appraise farms on a regular basis. The banking law does not prohibit it up to $1,000,000.


Wayne Tomlinson

 

[Terrel L. Shields]

Agreed, but again i think you have to decide what is the Dominate estate. The Unit Rule. Is the property a SFR house with a few acres farmed? Or a farm that has an old farmhouse on it? Who are the buyers and how do they identify themselves? many ranches in my area are owned by independently wealthy folks who happen to raise cattle (some very nice cattle usually), go to farm shows, etc. but the DOMINATE estate is that of the Wealth class ownership where the DOMINATE use is a show place, "Recreational Ranch" "Ranching" per se is about dead in the U. S. especially in the Rockies.

So if the income generated by the farm is insufficient to capitalize into a major portion of the value of the whole property, its not a farm.

 

[Stone]

OK, then who's definition would you use???

Really, a "farm" is that but what is the highest and best use? An ECONOMIC farm or a HOBBY farm or RECREATIONAL land? Nobody can define that. If 40 ac. with a house and 10 43' x 500' poultry barns generating $250,000 annual gross is a "farm" but 40 ac. with a house and a 10' x 20' coop with 15 hens is not a farm, then how many chix does it take to be economic?

Back to basics. 100 acres worth $300,000 with a house worth $40,000 is a land appraisal. The bulk of the value lies in the land. 100 acres worth $300,000 with a $1,000,000 home is a mansion or "executive home" appraisal. "Recreational" ranches purchased for non-income purposes although the buyer may intend to divide and flip the smaller parcels at a profit, or sell off River frontage to fishermen, etc.

"Farm", ie.- income producing land tract or building intensive farm needs to have more value in the "farm" improvements than in the house and land not farmed.

A $50,000 house on $450,000 worth land is not adjusted like a $50,000 house on a $15,000 lot. The critical adjustments go to the LAND, not the house. So long as you keep that in mind..no problem.OK?

I'm not quite sure what part of any comment I wrote lead to your post. All I was relating is that a blanket statement such as Shane mentioned:

Definition of a farm: Any place of 10 or more acres from which $50 or more of agricultrue products were sold during a census year or sales of $250 of product sold in a year (less than 10 acres).

does not relate to every (around here) definition of a farm, not even hobby farms.

I believe this type of definition varies quite a bit, from a geographic standpoint. Frankly, I feel fairly certain that what is considered a farm in southern WI is probably quite different than in TX, or Springtown America. HBU is what drives it.

You basically hit it with a subsequent post:

So if the income generated by the farm is insufficient to capitalize into a major portion of the value of the whole property, its not a farm.

And that is contrary to the USDA quote posted earlier. (10+ acres w/ $50 per year in sales or $250 in sales on a property of less than 10 acres)

Nearest I can tell, you seem to be arguing with yourself about this as nobody has contradicted your basic premise here.:new_smile-l:

 

[Thomas N. Morgan]

I don't do horse farms any more. Appraising farms is a specialty within appraising. Sort of like waterfront. Don't do one unless you plan to make it your speciality.