There comes a time when you need to sell your farm for one reason or another. Every owner has a very close attachment to their farm, considering that it requires a lot of input to run smoothly; you, therefore, do not want to undervalue your farm because then you leave money that is truly deserved. On the other hand, you do not want to overvalue it because you will end up losing potential buyers.
Valuation is a very important process; it helps you understand exactly what your farm is worth. The valuation you do will directly impact the returns you get after selling, and it is, therefore, important that you seek professional appraisal to know the exact value.
When seeking professional services, you should choose someone knowledgeable in the farming industry. This way, you can be sure the farm examination and value determination will be on point. With such services, all you have to do is set the price and advertise the farm to potential buyers. Your appraiser can use different methods to calculate your farm value; they might even advise you on what you can do to add value to your farm before selling. Some of the factors likely to be used in calculating farm value are:
The farm income
Farm investors will mostly be interested in how productive the farm is. The income produced is, therefore, a crucial factor because no one will want to invest in something with no potential to pay back returns. A strong return puts you in a good place when selling, especially if there is clear consistency in the farm’s performance. The amount of crop it can grow, its consistency, and the market response to the crop are all important. When calculating the income, your appraisal will look into indicators such as:
- Historical yields, especially in the last five or so years
- The soil quality and what crops can do best on the farm
- The field quality, in terms of shape, types of soil, and nature, is it hilly, or is it flat?
- The water quality and how much can be pumped, salinity, and reliability even in future
- Commodity distribution to the market and the options available for it
All these indicators have a direct impact on farm income. When everything is in order, the buyers will be more than willing to invest. You can make any possible changes to increase the value without overwhelming yourself, considering you are selling.
The land market
This is a question of whether the land is in demand within your locality. Are people buying land within that area, or maybe the neighboring one? Even with a good income, selling your farm at a good price can be hard if the buyers are few. High land demands generate high prices for what is available. But by having the market checked when calculating your farm’s value, you will be in a better position to price it reasonably. A professional appraiser will use indicators like:
- The number of recent sales, especially within the last two years, their sizes, and the buyers and seller involved
- The behavior of similar farm properties sold in terms of quality, size, and tillable acreage
- The locality of the investors and the investment funds available in the region
With this information, you will manage to price the farm properly and decide whether the advertisement should be local or target other areas to reach more interested buyers. Valuation experts will know exactly how to calculate your farm value, even using factors you would have never thought were important.
The farm assets
Your farm’s value can also be determined by the assets you have and other non-farming income sources you might have. Even though things such as hunting leases may not be consistent, they could go a long way in supplementing your property’s income, thus adding value to it. When looking at the assets, farming equipment, irrigation systems, rentals, grain storage, and even wells can all add great value to the farm and should be considered when calculating. Heavy farm machinery can be very expensive, and the buyer might be interested in keeping them all, so you must know their value and include that in your asking price. Some of the questions the appraiser will ask when evaluating the assets include:
- How much farming equipment and machinery do you have? What is their condition and importance to the farm?
- What condition is the irrigation system in, including any diesel engines available?
- What is the condition of the rentals, their size, and what amenities do they have?
- Are the grain facilities adequate and reliable? Can they be leased? Are there other facilities like dairy or poultry within the farm, and what is their potential?
- If any hunting leases exist, are they long-term or short-term, and what are the market rates and possible improvements?
The projected future earnings
Appraisers use the discounted earnings formula to arrive at possible future earnings. Having this done when calculating the value of the farm is important because the higher the projected cash flow, the higher the appeal your farm will have to potential buyers. Besides buying a farm already performing well, investors need to trust that the same results or even better ones are achievable and sustainable. If there are quick changes you can make to improve on this, then you should consider that to add value to your farm.
Conclusion
When it comes to how to calculate the value of your farm, you might not have all that it takes even though you are the owner. You may overlook important aspects of the farm, thus increasing the chances of either underpricing or overpricing the farm. It is always advisable to seek the services of professional appraisers for such a serious process. Your farm holds meaning to you and should therefore ensure that you do justice to it and yourself when selling.
After calculating the value, you will be better placed to settle on a price and start with the advertising process. If the appraiser did everything right, you should have potential buyers knocking on your door sooner than expected. Don’t be too quick to take an offer when selling, but don’t turn them away, either. Have a strategy of how you will deal with the proposals and how low you can go, and also set a price boundary you can’t cross no matter what.