As a dairy owner, getting a professional appraisal is the best way to know the value of your land and buildings, both separately and as a whole. An appraisal is defined as “a valuation of property by the estimate of an authorized person.”
Appraisers are those who are certified — through a complex educational and experiential process — to conduct appraisals. They use “market-based data” to provide “an objective, impartial, and unbiased opinion of the value of your real estate property,” said Jade Kruschke, a certified appraiser with Compeer Financial, on an episode of the Dairy Business Association’s “Dairy Stream” podcast. “An appraisal doesn’t include the business’ income stream – just the acreage and buildings,” she noted.
For dairy farmers, it’s key to hire an appraiser who specializes in not just agriculture, but dairying. An understanding of the industry provides perspective not only in relation to valuation but in regard to appreciation for the many factors that go into bolstering an operation.
For instance, Kruschke, a dairy appraisal specialist, considers the role of milk and feed prices, the cost of new construction, the age of the facilities, and whether or not the property has a Concentrated Animal Feeding Operations (CAFO) permit when conducting valuations. Each of these is a key component of the future of any dairy and, thus, an exclusively necessary factor for appraising.
Milk prices in particular play a significant role in valuation, Kruschke said. This is because the higher the prices are, the more a farmer will be willing to pay for a property. However, this may be inhibited by the cost of rebuilding; in such a case, the price tag could outweigh the benefits of low external depreciation.
There are three approaches to conducting valuations: cost approach, sales comparison approach, and income approach. A seasoned appraiser will use a combination of all three in determining a farm’s value.
A cost approach determines the land’s value based on separating it into categories, then combining that value with the value of the buildings.
A sales comparison approach involves comparing similar properties to the one being appraised and setting a price based on their differences and current external depreciation.
An income approach considers the potential for generational income on the property, such as opportunities for financial gain.
Also of importance when considering generational changes is the act of including a dairy’s future farmers in any appraisal conversations, Kruschke said. This way, the next generation will be educated on how to make decisions moving forward, in terms of valuation and beyond.
