Location and Farmability Are Key Factors in Farmland Prices
I’m frequently asked by sellers, “What is my farm worth?” Most assume if the neighbor’s farm brought a certain price, that their farm will match something similar. That is not always the case.
Recently, two Iowa farms sold 16 miles apart on the same day and in the same county. Yet, the final sale prices were miles apart. One farm was located on the west side of the county and the other on the east. The farm in the west boasted an 86.7 CSR2 (productivity rate), and the other held an 85.6 CSR2. The farmland in the west was 193 acres, and the farm in the east was 155 acres. Typically, people would think that two farms in the same county sold on the same day would likely fetch a similar price. These two farms sold $3,300 apart. The farm in the east with the lower CRS2 sold for $11,000 per acre, and the farm in the west sold for $7,700 per acre.
Location and Farmability
So, why did one farm bring so much more than the other? My answer for that is location and farmability. The west farm had a creek that cut through the middle of it and divided the farm into a north half and south half with different access points. The creek also ran at an angle through the farm, creating point rows for the current farmer. That farm also had two acreages that split off some of the ground. This made for a cost to the potential buyer in that area, and they bid accordingly. The farm on the east was, as I say, “square, flat, and black.” This makes for easy farming and saves one of our most important commodities – time.
When comparing the two farms, most sellers would say they’re the same. After doing research on what the farms were selling for in that county, we found that the farms should fetch around $110 per CSR point. This would mean that both farms would be worth $9,350 to $9,460 per acre. All farm values start at the same point with a productivity score and land price averages. This is where most computer valuators and the assumptions put the value. I would disagree and would hope that all sellers would reach out to a land professional to assist with pricing farmland. The farms that have a more limited farmability aspect like the farm on the west will normally be discounted 10%. The farm on the west looked like four different tracts that needed to be farmed four different ways to the potential farmer/buyer. This would mean that the farm on the west should bring about $1,000 less than the farm on the east.
Location is my other reason for why farms sell for more or less money. In this case, the farm on the east should have sold for around $9,500, but instead brought $11,000 from competitive bidding along with the auction method of marketing.
Farmland on the west side of the county
|FSA Farmland Acres||193.34 acres|
|FSA Cropland Acres||173.39 acres|
|Soil Productivity||86.5 CSR2|
|Corn Base||87.1 acres, PLC Yield 165|
|Soybean Base||80.5 acres, PLC Yield 41|
Farmland on the east side of the county
|FSA Farmland Acres||155.64|
|FSA Cropland Acres||154.60|
|Soil Productivity||85.7 CSR2|
|Corn Base||107.9 acres|
|Soybean Base||38.89 acres|
At the end of the day, any farm is worth whatever the buyer is willing to give. The location of this farmland was the key factor that netted the seller more money. Different areas have different buying pools. Buyers can be different even in the same county. Most buyers have a type of land that fits with their program, location, equipment, farm ability, and budget.
When you start to think about selling your farm, make sure you get all the data you can. Buyers are educated investors and will do the diligence in valuing your farm before they make the decision to bid or buy. Make sure the company you choose to advise you on selling is one that has the data and the resources to effectively market your land and bring the top bidding buyers to the table.
Written by David Whitaker, the owner of the auction and real estate company Whitaker Marketing Group. Dubbed the "Iowa Land Guy," Whitaker specializes in farmland auctions and also farms with his family outside Ames, Iowa. If you or someone you know is interested in selling a farm, contact a Whitaker Marketing Group land agent and they would be happy to answer questions or provide a free evaluation of your property.