The appraisal of rural and agricultural properties can sometimes tend to be more complex than standard urban appraisals, as the properties typically include acreages, recreational influences, lakefront benefits and/or farmland features. Rural and Agricultural appraisals range in complexity and value, based on an assortment of factors. These include workability, natural features, the construction of improvements, soil conditions,severability etc.
Notwithstanding, these types of valuations can exponentially vary within their scope, depending on the parameters set out in the appraisal consultation and/or the critical assumptions used in estimating value. Cash-crop production and income levels of a property affect value in the maketplace in instances and may need to be considered, at the discretion of the client.
There are three common methods used:
Direct Comparison Approach – A look at similar properties listed and/or sold, where the value can be converted into a unit price equivalent, taking into account any differences that may affect the value. The appraiser will describe and classify the property and select appropriate properties for comparison, when reconciling results.
Income Approach – A look at future income potential of a property with different approaches available.
- Gross Income Multiplier- A rough measure of the value of an investment property, obtained by dividing the property’s sale price by its effective gross income.
- Overall Capitalization – The ratio between the net operating income produced by an asset and its expected rate of return.
- Discounted Cash Flow – A long term study of future rents over the going-in economic horizon of a property and its land value, using inflation and risk rate applications.
Cost Approach – A look at replacement cost taking into account any depreciation and/or obsolescence. The appraiser would estimate the value of the land, estimate the replacement cost of improvements and take into account any depreciation. When property is highly unique and no data can be uncovered, greater reliance can sometimes be placed upon the findings of this methodology.