For What It’s Worth: 3 Tips to Accurately Value Your Farm
What’s your farm worth? Chances are, the answer to that question is as emotional as it is practical. After all, an independent farm is much more than just a business operation. It’s a way of life, a home, a calling — and how do you put a price tag on all of that?
Yet having an accurate picture of your farm’s total value is essential for several reasons, including everything from securing credit, planning your estate and setting rental fees to paying taxes, selling the operation or passing it along to the next generation (see Creating a Succession Plan That Works). At the same time, valuing a farm — with its land, buildings and expensive equipment — can be complex, above and beyond the emotional aspect. These three tips may help:
1. Beware of easy answers. Researching recent sales of similarly sized farms in your vicinity certainly gives you a starting point for estimating the value of your farm, but many other factors weigh into the valuation as well. Valuations take into account the quality of your buildings and equipment, the crops you raise, your customer list, and other asset and market factors beyond your farm’s acreage and location. A truer valuation would incorporate your capitalization rate (the ratio of operating income to the price you originally paid or current market value), along with the total value of all of the assets and the value of the underlying real estate.
2. Find a good appraiser. Given the potential complexity of valuing your farm, you may want to enlist the expertise of a professional appraiser. Look for a state-trained and licensed appraiser with experience in valuing farms and agricultural businesses in your area. Also, be sure your appraiser is independent, with no motivation other than to provide you with an accurate valuation. An appraiser will analyze your business operations in recent years and consider factors such as the current economy and the long-term economic prospects of your farm.
3. Keep good records. Of course, logic dictates that the numbers an appraiser generates will be only as good as the basic information you provide. Keeping meticulous records on production and harvest, expenses, equipment purchases and maintenance, and employee costs will help your appraiser arrive at an accurate assessment. With that assessment in hand, you can plan and execute your next financial steps with greater confidence, whether you plan to work your farm for one more year — or the next 50.
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