An appraisal is an opinion of market value on a specific effective date, completed by a state certified appraiser. Appraisals can be completed for many reasons, such as for lending purposes, estate planning, negotiating) a purchase price, etc. Appraisers are non-biased parties who rely on sales and market data to arrive at a value conclusion.

Farmland values are dependent on many factors, such as the general and local farm economy and location-specific characteristics. The highest and best use of the land also affects its value. Putting an exact value on land is complicated, but a farmland appraisal can assist in identifying the most probable value of a property that can assist in arriving at credible value for your intended use. A farmland appraisal provides an estimate of a property’s fair market value. Appraisals are conducted by a state-licensed appraiser who has been trained to properly determine the value of agricultural land.

The Farm Credit Services of America appraisal team completes customized appraisals for active customers. In a customized appraisal, the customer is listed as the client and intended user and is billed directly. Appraisals for lending purposes are requested by the lender, with the lender listed as the client and intended user, and the customer typically pays a fee to the lender, which is typically included as part of loan closing costs.

Customized appraisals are offered to shareholders of Farm Credit Services of America. This includes customers with ag real estate loans, lines of credit, term loans and insurance. We do not issue shares for loans through AgDirect® or Ruralst® therefore, customers with only these loan types are not eligible for the service.

An appraisal is an unbiased opinion of value. Appraisers are specially trained and licensed to understand the methods of valuation, including considering the three approaches to value: sales comparison, cost, and income. Appraisers identify a scope of work, which identifies the property to be appraised, the purpose of the appraisal, any special conditions or requirements, and the work required to develop a credible opinion of value.

An appraiser must determine which combination of the three approaches to value will produce credible results:

• Cost approach – The cost approach is rooted in the principle that the value of the whole is equal to the sum of the parts. The cost approach is typically applied to improved properties for which there is good cost information and total depreciation can be supported.
• Sales comparison approach – The sales comparison approach is rooted in the principle of substitution, meaning a given property is worth what other similar properties have sold for. An appraiser may apply quantitative or qualitative adjustments during this process to account for differences between the subject property and the comparable sales.
• Income approach – The income approach is rooted in the concept that a buyer of real estate is buying the net income stream that the property produces. The most common application is income capitalization, where net income divided by capitalization rate equals value. The income approach is typically applied to properties that have reliable or predictable income and expense information.

The Dictionary of Real Estate Appraisal (Seventh Edition, published by the Appraisal Institute) defines market value as:
“The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

• Buyer and seller are typically motivated.
• Both parties are well informed or well advised and acting in what they consider their best interests.
• A reasonable time is allowed for exposure in the open market.
• Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
• The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”