Appraisals a valuable tool

Cattle Market & Farm Reports, Editorials
Oct 9, 2006
by WLJ

— Producers can benefit from an appraisal.

Ranchers can witness value in having their property appraised, despite their intent to sale. Appraisals are often associated with selling property, but according to real estate experts, the value far exceeds the mere selling component. By having an appraiser evaluate property, giving the landowner an approximate value of their ranch, producers can obtain the given knowledge to use for an array of options. Producers do have the option to sell, but can also use the information to refinance their property, obtain a loan, valuing limited or family partnerships, ranch partitioning, solving probate and estate tax issues, financial planning, litigation issues and just simply peace of mind knowing the value of the ranch if a circumstance arises where the information is helpful, according to Derry Gardner, co-owner of Gardner Appraisal Group which specializes in ranch appraising in Texas. In addition, a land appraisal can even assist in dictating the future of the ranch, aid in purchasing property, and determine the best use for each portion of the ranch, be it livestock, crop production or hunting and fishing purposes, said Gardner.

A small investment

Appraisals can ease many burdens for ranchers and are an affordable way to do so. Although appraisals vary in price, Gardner said cattlemen can usually find a reputable appraiser to do the job for approximately $300, give or take, for roughly 200 acres. The price, of course, varies with the size of the ranch and improvements on the property, such as center pivots, houses, outbuildings, and ponds and streams.

According to John Childears, appraiser for Agri Affilates based in North Platte, NE, an appraisal for 10,000 acres can range anywhere from $1,500 to $3,500. He is now appraising a 22,000-head feedlot and said the price for that appraisal can range from $3,000 to $8,000, depending on an array of factors.

Childears, who has been in the appraising business for the past 30 years, said this is little money when referencing the future of the property, and even less when compared to the future of the ranching operation and the next generation.

“When making decisions on a multimillion dollar property, $5,000 for an appraisal is a very small, but very cheap investment.”

Having the knowledge

With land being a hot commodity, despite the economy, ranchers can use appraisals to find ways to add value to their property and even shift management practices and usage of the ranch in order to maximize profits at the end of the year.

It’s all about having the knowledge. Farm and ranch owners who make decisions knowing exactly what they are working with definitely have the upper hand, according to Childears.
“For example, a farmer may want to put a center pivot on their property, which sounds good, but in reality, doesn’t make good financial sense,” said Childears. “Also, farm and ranch owners may want to build a nice, fancy home to enjoy life in, expecting property values to increase. If they don’t get an appraisal, they may find the only way to get the value back out of that home is to live long enough to use the value out of it.”

He said farmers and ranchers too often rely on gossip and listen to Joe at the coffee shop.
“I am not saying farmers and ranchers can’t be astute at knowing what their property is worth, but oftentimes, the gossip is totally off base. Even though Joe may just live down the road, the property value may be totally different when compared to yours,” Childears said.

Appraisal uses

He said what he is witnessing in Nebraska is farmers and ranchers realizing that selling off portions of their property for other uses, or even leasing out the property, is a profitable venue. More specifically, property that may not be very useful for farming or ranching may be very valuable for sportsmen wanting to lease or purchase hunting property.

“You hit a good nerve here,” said Childears. “What has happened here in the last thirty years is amazing. Thirty years ago, land bordering the river was taxed at $50 an acre. Today, lo and behold, it is being valued at $1,250 to $2,000 an acre. A lot of ranchers now are selling off that land along the river because it is worth more to a hunter than it is to attempt to winter cattle on it. A lot can change while ranchers are rolling up their sleeves and focusing on managing the ranch.”

Another reason to have an up-to-date appraisal on hand is to have leverage when negotiating a loan or other investments with a banker.

“When trying to get a bank to lend more money or the banker is pulling the purse strings, it’s good to have the appraisal on your side,” said Childears.

He said a lot of times, bankers don’t have any better knowledge of what property is worth than the farmer or rancher. Having the appraisal, can be very beneficial.

Another reason can involve estate settlements after the ranch owner has passed or when family disputes need to be solved.

Scott Shuman with the Westchester Group, which is a farm and ranch auction company based in Champagne, IL, said appraisals can be very helpful in an array of circumstances.

“Obviously, if you don’t understand what the market is doing, an appraisal can give you a snapshot of what is going on,” said Shuman. “They are a great thing to have around and can be helpful to use in a will to prevent headaches in the future in the event of an unfortunate circumstance.”

In the event of selling property, however, Shuman said they may or may not be helpful depending on the method of selling. He said they are a must for private treaty sales, but in an auction scenario, they are not.

“When we auction off a farm or ranch, we do not suggest the seller get an appraisal,” said Shuman, who is in the process of starting a branch of Westchester Group in Eaton, CO, which is just east of Fort Collins. “We do a market analysis for our clients to see what other similar properties have sold for, but we feel that an auction will effectively establish the true market value. If it is advertised and marketed correctly, an accurate value will be established.”

He said “at the end of the day” if the room is full of people approved for financing, it would be difficult to argue whether the true value was achieved.

“Although appraisals are helpful, you have to realize that the appraisal is just a snapshot and is only one man’s opinion,” said Shuman. “For example, if the appraisal was done on October 15 and you wanted to use the information on October 20, it may not be completely accurate, as a lot of things can change in this business in just five days.”
Quite simply, Shuman said, there are times appraisals are valuable, but in the event of an auction, he wouldn’t recommend it.

Finding a good appraiser

Finding an appraiser who is the very best for farm and ranch properties can oftentimes be the most difficult chore in the appraisal process.

“In this business, like any other, there are the good, the bad, the ugly and the worthless. There is a big difference between appraising residential versus farm and ranch property, although some commercial appraisers still try to do both.”

He said the best tool in locating an appraiser is to locate appraisers who are associated with the American Society of Farm Managers and Rural Appraisers. Childears said affiliated appraisers are required to take courses, have experience, pass detailed testing, and a long list of other criteria. Another association is the Appraisal Institute, which Childears said is primarily a commercial appraising group, but some try to appraise farm and ranch property as well. He advises against trusting their criteria until you do your homework.

“It’s tough to hire the best,” said Childears, who said Agri Affiliates appraise ranch property in Nebraska, Colorado, South Dakota and Wyoming. “Study and search around. Talk to people and find out who they have used. Don’t just find the cheapest appraiser in the yellow pages.”

The value of having land appraised can be simplified to the value of knowledge, which can aid in making sound decisions. Having an appraisal on hand, even if you don’t think you need it, may be a solid tool to making solid choices now and relative to the next generation. — Mike Deering, WLJ Editor