“I need an appraisal of my farm, so what do you need to know?”
That’s what I often hear when I get a call from a prospective client looking for an appraisal. What’s my answer? Here’s a look at the next five questions I ask. And if you can answer them, it will help the appraiser understand precisely what you need.
1. What’s the purpose of the farm appraisal? Often, it’s for IRS tax purposes for an estate when a landowner has passed away. Other times, it’s to obtain or refinance a loan, to divide the farm equitably among multiple landowners, to gift a farm to an individual or charity, for litigation purposes, or to appeal property taxes. The appraisal’s purpose will ultimately dictate a current, retrospective or prospective value date. For example, if you need an estate valuation, the farm will be valued as of the date the landowner died; for lending purposes, the value date will be the date the farm is inspected.
It’s also possible you don’t actually need an appraisal. If you are looking for a price so you can sell your farm privately, or you need a price for personal asset management reasons, a Brokers Price Opinion may be sufficient. Essentially, a Brokers Price Opinion gets you the relevant details for these situations without the additional documentation required for a full appraisal — and that reduces both time and cost.
2. What’s the property look like? We’re talking single or multiple tracts, location, and number of acres. The best way to describe the farm location is by a legal description with the section, township and range. Or, use a tax parcel identification number (PIN). Most counties now have GIS, or geographic information system, websites where you can easily search a map and locate properties by PIN or landowner name. Be sure to let the appraiser know if the property has any buildings, different land use types or any other significant details.
3. Who’s the client and the intended user? According to the 2020-21 edition of USPAP (that’s the federal regulations for appraisers), the client is “the party or parties who engage an appraiser by employment or contract in a specific assignment, whether directly or through an agent. The intended user is the client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser, based on communication with the client at the time of the assignment.”
The appraiser can discuss the appraisal, answer questions and disclose results to the client. Due to the confidentiality requirements in USPAP, the appraiser must get permission from the client before discussing the appraisal with an intended user. This may seem odd, but the intent is to protect and respect the appraisal client.
4. What is the ownership interest to appraise? The most common and absolute type of property ownership is fee simple. However, there are times where additional analysis would be beneficial for partial ownership interests, leased fee ownership or ownership of a life estate. Many times, ownership is held by two or more people. In the example of a partnership buyout, you may need the value of an undivided ownership interest. This becomes even more helpful if the undivided ownership interest becomes an estate with tax consequences. If the farm has a wind turbine or solar lease, and the landowner receives payments from the utility company, then the leased fee ownership is valued for the income stream. If you question what type of ownership interest you need appraised, get advice from your attorney or accountant.
5. By when do you need the appraisal? Understand that an appraisal of a farm property can be complex and is not something to rush. These days, a limited number of appraisers specialize in agricultural appraisals, and it is common for an appraisal to take four to eight weeks. If the appraiser knows the appraisal needs to be completed by a specific date — for example, a real estate closing — it may be possible to accommodate your schedule. Don’t delay if you know you will need an appraisal. Call as soon as you have all the information, and get your project scheduled.
Halpin is an appraiser with Hertz Appraisal Services, Kankakee, Ill., and a member of the Illinois Society of Professional Farm Managers and Rural Appraisers. Email questions to firstname.lastname@example.org. The opinions of this writer are not necessarily those of Farm Progress/Informa.