As a farmer, you probably think about this question regularly. Whenever you need to apply for a loan, determine rents, or see a neighbour list their farm for sale; you might ask yourself, “What is my farm really worth?”
Determining the value of a farm is complex and best left to the experts. Accuracy is important when it comes to securing financing, or knowing what price to list it at if you decide to sell.
So, how do you know what your property is actually worth? The short answer you’ll often hear is, ‘Whatever someone is willing to pay for it’. This is known as market value. But this is a very difficult question to answer accurately. There are many misconceptions surrounding farm valuation that we’ll explore.
Common Misconceptions About Farm Valuation:
"The neighbouring farm sold for 10% above last year’s price, that means mine is worth 10% more."
Appraisers use historical sales over an area, so a single sale may not influence the appraised value as much as we would otherwise hope. In a fast moving market, appraised values can lag behind the market.
"The property next door is listed for X and therefore my property is worth X, plus or minus any differences in the two properties."
Listings are not used in appraising property values, only known sales. Up until recently, it was very rare for a property to sell at or near its asking price.
"My property is almost identical to others on the market, so they ought to be priced the same."
While knowing the listing and final sale price for a neighbouring farm can serve as a helpful point of reference, it’s not a guarantee that your farm will be worth the same. Other soft factors can play a role in affecting market price such as length of time on market, history of the home, easements and land use restrictions not always seen prior to determining a list price. Your property might be worth more, or less than other almost identical properties.
"Property value in my region is trending up by a certain percentage, so my farm value will increase by the same amount."
While there may be a regional trend of an average increase in value, there’s no guarantee that the same increase will apply to your farm. Each property is unique. Some trend higher, some trend lower.
"The buildings on my farm will always increase its value."
What has value to you may not have value to someone else. For example, adding new buildings to your farm property may be seen as an extra and unnecessary overhead cost to a prospective buyer to remove or repair. Lenders often discount buildings because it makes the property harder to sell in short period of time, as finding a buyer willing to pay the full market value of that building can be difficult.
"My realtor told me what my farm is worth. They are the experts, so they know what the market is doing, right?"
Realtor opinions can be helpful, but a realtor approaching you to win your business may not be as objective in their valuation. Many more factors go into a formal appraisal than an Opinion of Value offered by a realtor.
Using an Appraiser to Determine Your Farm's Value
Appraisals are conducted by unbiased, trained and certified professionals who are licensed to objectively determine the value of your property. As seen in the misconceptions above, personal bias and opinion play a heavy role when we assess the market value of our own real estate, so an objective third party is the best way to understand the realistic value of your farm.
Appraisers take into consideration a wide variety of factors, including general market direction and influences, relevant comparable sales, and soil and building conditions.