If you are trying to buy or sell a farm or a piece of land one would use for agricultural purposes, you may find yourself wanting to know more about an agricultural land appraisal. A common question is how they differ from commercial appraisals. The most obvious situation in which you would need an agricultural land appraisal is the sale of the land, but this would also include times when there are upgrades or improvements to the land.
For example, you may need an appraisal if an agricultural property is part of an estate undervaluation. Another reason to order an agricultural land appraisal is the division of property between family members. Lastly, you may need an appraisal for taxation purposes.
So what is unique about an agricultural land appraisal? How does it compare to a commercial appraisal? We will start by taking a look at the similarities.
How Is a Commercial and an Agricultural Land Appraisal Similar?
The basics of the appraisal process are similar for commercial and agricultural land. Both use the following three methods in determining value:
● Cost Approach: The cost approach estimates how much it would cost to duplicate any property improvements. An approximation of the formula is the cost of reproduction minus depreciation.
● Sales Comparison: The valuation method analyzes recent sales of comparable real estate transactions in the area.
● Income Approach: The income approach involves an in-depth study of rental income and the like and expenses for the property.
When considering the overall picture of the appraisals, commercial and agricultural land appraisals may look similar. However, when you drill down into the details, you begin to see why it is important to hire a highly experienced appraiser. You want someone thoroughly trained in the particular type of appraisal you need.
What Makes Commercial and Agricultural Land Appraisals Unique?
When valuing agricultural land, it is important to evaluate soil quality for the cost approach and the income approach. An appraiser experienced in these types of appraisals will need to understand the soil to determine the best use of the property. This knowledge will assist the appraiser as he or she estimates the possible future income for the property. It is also important for the appraiser to consider any improvements or buildings on the land and the cost of replacing them.
Commercial appraisals also have unique particulars that set them apart. These appraisals are a bit more subjective in nature. A commercial appraiser will base the value on rental rates received relative to expenses paid out. The replacement cost of the building is a factor as well. The appraiser must calculate the approximate cost of reconstructing the building. This includes labor and materials minus depreciation to account for any wear and tear the building shows. The value of these assets is important but not nearly as vital as specific improvements on agricultural land.
The data the appraiser collects and analyzes is the most important part of the commercial appraisal. This includes public ownership history and zoning records. It also requires analysis of demographic and lifestyle information for the area. An appraiser must take each of these factors into account when determining the value of the commercial property.
What Types of Reports are Available for Agricultural and Commercial Appraisals?
When a customer requests an agricultural land or commercial appraisal, they might choose three types of reports. The first is a “Restricted Use Report.” This is the shortest and least expensive option. The catch is that it is only useful to the client who ordered the appraisal. This report is not thorough enough to use for the sale of the property or taxation purposes.
The next type is a “Summary Report.” This report summarizes the data and analysis but does not go into full detail. This is the most common type of appraisal and is common for sales, estate valuation, and taxation.
The third and least commonly used appraisal report is the “Self-Contained Report.” This report contains all the details of the data and analysis in full.
As you can see, there is a great deal of knowledge required for both an agricultural land appraisal and commercial appraisals. Both types of appraisals have unique aspects that require specialized education and training. It is important to hire an appraiser who is not only qualified but who specializes in the type of appraisal you need.
Have more questions about an agricultural land appraisal or commercial appraisal? Contact our team of experts at Global Valuation today. Visit us online or call (770) 988-4498.