Dynamic Factors Affecting Land Values
Land, as an investment, has physical characteristics that distinguishes it from all other assets.
Those characteristics include the following:
1. Land is unique in location.
You may have heard it said the three things that affect real estate values are location, location and location. Value based on location is affected by physical characteristics of the property and on the socioeconomic characteristics of the surrounding area.
The following is an example of a physical characteristic. Fifty years ago, a farm with a stream was desirable. Quite often there was a stream going through the barnyard. Due to current environmental policies that same stream is a liability because it increases costs in everything you want to do and limits the use of the property. However, for a lifestyle property that same stream may have an aesthetic or recreational appeal that would enhance the subject’s value.
Several examples of socioeconomic characteristics include the distance a property is located from a thriving population center (such as a college town), religious communities or expanding farm operations. These all provide strength of community and support strong land values.
2. Land is unique in composition.
There are no two identical properties when it comes to soils. Soil types are the foundation for the valuing of land. This is why AgChoice appraisers determine soil qualities for the subject property (the property being valued) and the comparable sales we are using to compute the subject’s land value.
However, soil and fertility management can either enhance or diminish overall value. A farm with soils that are maintained in the optimum range of fertility lowers the out of pocket costs to a potential buyer. Properties that control excess surface and subsurface water should have more market appeal. This is due in part to actual physical costs and permitting required by current regulations.
3. Land is durable.
Provided adequate conservation practices are employed, land is a long lasting asset. Land as an investment lacks liquidity; however, long-term trends indicate land is an appreciating asset.
4. Land is in finite supply.
They don’t make any more land. This is why you see concentrated animal farm operations willing to pay above market prices to purchase and/or lease near-by acreage. Once a property is developed for residential or commercial purposes, it is almost impossible to convert it back to farmland.
5. Land is useful.
When completing an appraisal, the highest and best use of the property needs to be determined based on the following factors: size and shape of the property, land quality and topography, industry infrastructure of the surrounding area, uses of surrounding properties, governmental regulations, market influences and current property improvements. The highest and best use may not be the current use of the property.
The previous factors interact with each other to determine land values in the market area. As appraisers, we know every property is different. It is our task to analyze the subject’s unique properties and compare the subject to recent sales of similar properties. The comparisons between the properties are used to arrive at an opinion of market value.
Featured Writer: Mike Goss, AgChoice Appraiser
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