Brownfield stresses it’s important to understand a market price is not the same as a value on which lenders set equity levels and establish loans.
“In the case of equity and collateral for a loan, it’s important to know what you’re bringing to the table in terms of the value of land. Lenders generally have their own appraisers on staff, or you can retain an appraiser yourself to be sure your land is correctly valued.”
THE VALUE OF LAND SURVEYS
One of the most common tools in the agricultural land business today is the survey. Todd Kuethe, Purdue associate professor and author of the Purdue Farmland Value and Cash Rents Survey, says surveys show trends and provide current sales and rental rates.
Asked if surveys like those done by Purdue, the ASFMRA or the USDA provide true transparency in the land market, Kuethe believes they do. Surveys, he says, are reliable largely because of the respondents.
“These are generally surveys of experts in the area. The USDA survey goes directly to landowners, but most of the others, including ours at Purdue, pinpoint experts in the field, brokers, appraisers, professional farm managers, rural land lenders, Extension and some landowners. This is not a big universe to start with, but these are people who follow the data consistently. These are people with truly valuable information to contribute, and they have good coverage of their areas of expertise.”
Asked if pricing land is more art or science, Kuethe says it’s really a little of both. “I like to say that all models are wrong, but some are useful. Both appraisal and empirical models have things they don’t anticipate, don’t know or can’t measure. They are all a combination of art and science.”
With farmland, Kuethe notes there are tremendous variables to the point that any particular sale is not informative of the next. “Just knowing what a parcel next to me sold for is not going to tell me what I need to know about the specific value of my land. We often gravitate to high-profile sales as indicators, but they are not usually representative.”
GOING ONLINE FOR DATA
Online land price applications using public data and what may be called “science-driven intelligence” are gaining respect in the community of appraisers, economists and marketers. But, like anything else, they are a tool, not the final answer.
Kuethe says sites like AcreTrader, AcreValue or CIBO reveal patterns over time, but valuation always comes down to what the land is worth in today’s market and what it will be worth in the future. At the end of the day, the economist concludes, the buyer ultimately makes the decision about what any parcel of land is worth.
“When you go to an auction, the bidders justify price based on their own purposes. Whatever is paid that day by that winning bidder is what that land is worth.
“We can give you ranges, we can tell you if the land is priced over its earning potential, but we can’t tell you what it’s worth to an individual buyer. That is where the market comes in.”
FOR MORE INFORMATION
— Bierschwale Land Co.: www.bierschwalelandco.com
— Land Pro: www.landprollc.us
— Purdue Agricultural Economics Reports: ag.purdue.edu/agecon/Pages/Purdue-Agricultural-Economics-Report-Archive.aspx
USDA Land Values Survey: www.nass.usda.gov/Publications/Todays_Reports/reports/land0820.pdf
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