The Altario Quaterly (April, 2013)

Don’t let coffee shop talk cloud your judgement about land values

 

Click here to read the entire April, 2013 newsletter

 

It’s always interesting to hear people talk about their own property values, especially in the case of agricultural land.  Producers whose judgement is impeccable at any other time lose all perspective with regard to their own land (and perhaps especially so when division of matrimonial property is involved), with the cause usually being something they’d heard from a neighbour at that source of all rural wisdom – the local coffee shop.

The logic goes something like this:  “Well, I heard land down at the correction line was selling for $2,700 an acre, so that must mean my land is worth $2,700 an acre.”  Sound familiar?

 

It should go without saying (although it apparently needs to be said repeatedly) that no two parcels of land are exactly alike.  Each one has its own characteristics in terms of the following: 
 

·         parcel size (all else being equal, smaller parcels will sell for more per acre than larger ones)

·         arable/cultivated acres

·         soil and sub-soil quality

·         location (including, but not limited to, distance to an urban centre and distance to hardtop)

·         services/site

·         buildings, bins, other improvements

·         surface lease installations that generate revenue

·         gravel

·         development potential

·         access

There are also issues of how the land was purchased: 
 

·         open bids will usually fetch a higher price

·         is the sale arm’s-length?

·         does the purchaser own land contiguous to other land that he/she is already farming?

If a person doesn’t know all this information (and it’s a pretty safe bet that it won’t be at anyone’s fingertips at the coffee shop), it’s probably not a good idea to conclude with any certainly that one parcel is worth the same as another, even under the grand assumption that the information one is hearing is correct in the first place.

 

In one recent appraisal assignment, I was asked to value an agricultural parcel with house and buildings in a part of one of the area’s counties a bit north of the Battle River.  It has #3 soil and is about 95% cultivated.  The interesting point, though, is that soil in that specific area varies widely, anywhere from #1 to #6, with the #1 soil germane to a very specific part of the county, not far from the subject.  The comparable sales with #3 soil were all close by, and sold for approximately $1,000/acre, while other comparable sales in relative proximity to the subject were indeed well over $2,000/acre.  This is, of course, the figure on which the owner focussed.

 

However, the ones over $2,000/acre were all either #1 or #2 soil, and some of those had significant amounts of surface lease revenue.  These parcels were clearly superior to the subject in several ways and could in no way be considered as defining the subject’s value, despite their relative proximity.  It was no surprise that my valuation reflected the recent sales of other parcels with #3 soil in the area, although that was certainly not what the owner expected or wanted to hear.

 

Every parcel is unique so, next time you’re with the neighbours discussing farmland values, it might be wiser to forgo the sugar and take your coffee with a grain of salt instead.  Remember:  There is no “one price fits all”.

The Camrose Housing Market in Q1 2013

Click here to read about the Camrose housing market update and the entire April, 2013 newsletter