Assessing the value of a farm

By Matt Reese

In the current market, there are a number of important factors to consider when determining the best way to sell a rural property and its potential in terms of farmland, residential and recreational value.

“Recreational property, farmland and rural properties are our specialty. We sell farmland via the auction format or in the traditional listing format. It just depends on the specific situation. The first thing we do when we sit down to look at a farm that we’re going to sell is to think about who our buyers are. If it is all tillable farmland, we’re going to have an investor or a local farmer buy it and we may end up splitting it up into a few tracts to try to give an opportunity to someone who maybe can’t afford the full acreage. If there’s a house or there’s recreational or timberland on it, we always try to split those off,” said Devin Dye, with Dye Real Estate & Land Co. in Lima. “If you’re going to purchase a $2 million farm, you probably already have a nice house — you probably don’t need another one. We split the house off and allow it to sell separately. With the multi-parcel format, you can put it all together if someone wants a home to start over or they want a place for their kids. Then, as far as a recreational property, we’ve seen a huge increase in people that are interested in hunting land. And the timber market has just matured over the last 20 years and there are a lot of people interested in buying wooded acreage for the timber value. We try to always split the house and the timber and let somebody bid on those tracts individually.”

Different portions of the parceled properties have been affected in different ways by current economic factors, including rising interest rates. 

“If you’re going to go out and buy a $200,000 home and a year ago your interest rate was 3% and today it’s 6%, it’s going to impact bottom line,” Dye said. “But as far as farmland is concerned, our most recent sales within the last few months have been cash purchases. There’s no financing involved. To say that interest rates don’t play an impact is not true, but they obviously have less of an impact in the value of farmland if the buyer is not borrowing money. So, I see farmland continuing to remain strong. I’ve never known a time in agriculture that is not volatile, but right now we have pretty good commodity prices to sustain the value of farmland in the foreseeable future. We’re going to see good sales throughout the winter of 2022 and ’23. We’ve seen about a 30% increase in values across the board in our area in the last 12 months in farm properties we’ve sold at auction. We sold 14 farms totaling a little over 1,900 acres. Our average price is $10,036 an acre.”

The location of the farm plays the biggest factor.

“There are certain counties that we work in where we just know you can, in some cases, double other counties based on the farming community it’s in,” Dye said. “The quality of the farm does play a factor, but we look at that almost in the third tier. We look at it as what type of property it is then we look at its location and then we talk about its quality. If you have a not-so-quality farm, but it’s in a really desirable community, it’s still going to bring good money. On the flip side, if you have a not-so-desirable farm and a community that doesn’t realize a high price, an auction might not be the right format for that sale. But in most cases, if you’re going to sell a farm, you’re kind of crazy to price that property yourself. Just put the buyers in a room and let them tell you what it’s worth. The auction format has been a very successful way to sell a farm, but there are several things we have to consider when looking at those different value sets within a property.” 

While farmland may be holding steady, recreational land and homes may be a different story. 

“The residential piece of a farm is going to follow the residential market. Without a doubt, residential has seen a little bit of a slowdown. It’s not the catastrophic slowdown. We still have lots of transactions going on, but instead of having six offers on a house we may only have one full price offer on the house now,” Dye said. “As far as recreational and timber properties located on a farm, those usually are bought with discretionary income. If somebody wants to buy a 30-acre woods to hunt in, it doesn’t produce income. It is bought with expendable money. If the economy does turn and there’s more hardship in America, then you’re not going to see the increase in those parcels because there are not as many buyers for it. It’s just the economics at that point.”

Dye Real Estate & Land Co. is about farmers selling farms. For more, visit dyerealestate.com

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