Questions to ask when determining land value
by Enrico Villamaino
Cornell Cooperative Extension of Oneida County continues its series of online seminars to better assist both aspiring farmers and current landowners. The latest installment of the “Accessing Farmland Zoom Series” was “Determining the Realistic Value of Land and its Best Use.” The session was presented by Farm Business Management Specialist for the Central New York Dairy, Livestock & Field Crops (CNYDFC) Program Nicole Tommell.
The NYS Department of Agriculture and Markets’ Farmland for a New Generation program has helped to facilitate the recent escalation in non-operating landowners (NOLs) leasing their holdings to farmers. The COVID-19 pandemic spurred an uptick in urban dwellers scooping up tracts of rural expanse, though according to Tommell they are not entirely sure what to do with it once it’s acquired. Many out-of-state purchasers are eager to take advantage of the fact that, despite higher property tax rates, substantially lower land valuations make NY farmland purchases much less expensive than other options in the western U.S. All of this makes knowing the accurate valuation of a plot more important than ever.
“It’s important for farmers, non-operating landowners and real estate agents,” said Tommell.
When attempting to ascertain an acreage’s true value, Tommell remarked that it’s imperative to begin with four starter questions:
- What is the current use of the land? “It’ll have an effect on the value. Is the land being used as a dairy? Is it cropland? Or is it just sitting there?” A freehold containing a dairy will fluctuate in value as the overall dairy market experiences profitable or lean times. Depending upon the buyer’s or renter’s needs, a field left fallow might fetch a different price.
- Is there a market for the land? “It’s supply and demand. Is there nearby competition? That can affect the potential profitability of the land. What are the statistics for the area? Knowing the stats can make a big difference.” Tommell recommended interested parties consult with USDA-NASS.
- Are there any sales in the area that are comparable? Knowing what similar allotments have sold for can be a useful yardstick against which a parcel may be appraised. “What is the regional and median and average sales price per county?” Tommell pointed out the NY Farmland Sales Webtool as a comprehensive clearinghouse of cash and covenants. “It contains data from all farmland sales in the state from 2006 through 2019… It’s important to remember that sales prices may reflect improvements as well as development rights, recreational opportunities and mineral rights.”
- What is the basis of the ag assessment? What is its perceived market value? “You need to determine the value the land has to a potential client. Is there a scarcity of this type of property, or is it easier to come by in a given area? If so, are there pricing wars?” Tommell noted that in the Midwest and the western U.S., pricing wars have drastically slashed what would otherwise be conventional asking prices.
Tommell drove home that while these four questions are an excellent way to start, there will always be other considerations to factor in. “You also need to review the land orientation. If it’s on the north side of a mountain, it’ll be getting a lot of cold and wind. If you want to get more sun, you have to look for something facing south or east. Sometimes a bigger parcel can scare people off. I heard of buyers who were looking for 75 to 100 acres who balked when looking at a piece with 200.”
Finally, she warned not to forget that ever-present bane of potential property swaps: zoning implications. “There have been a lot of energy interests, solar and wind, looking to buy up farmland and set up shop. But you have to be aware that that entails rezoning from farmland to commercial, and in New York, that includes a five-year lookback on property taxes. That’ll have to be paid.”
For more information visit farmland.dyson.cornell.edu.