How Farmland Is Valued

Farmland values go up, they go down, they remain steady. Your neighbor’s land might be valued higher or lower than yours. Why is that?

Wendong Zhang is an extension economist at Iowa State University. He says in general, the value of an acre of land is the negotiated price between a buyer and a seller. It also depends on the characteristics of that land such as soil quality, location, and income from the land.

"The source of income could be coming from better productivity, so better soil quality, percent of prime farmland versus more of a sandy soil," says Zhang. "And also whether you have proximity to urban centers or highways which give you what is primarily the option value of future urban development, so you have the option to convert the land into a non-ag use. That is increasingly important."

Put simply, land values equal income divided by interest rates. Land prices go up when interest rates are low, and when there isn’t much land for sale but plenty of buyers. On the flip side, land values can go down because of what’s happening economically in your area.

"For example, if you look at the 2019 ISU survey, only northeast Iowa showed a decline and that’s because they are home to more than half the milk cows in the state," he says. "The milk prices haven’t been high at all, and the financial distress in the dairy sector got translated into the localized income and also showed up in the land values."

Zhang notes that it takes time, often more than a year for all these influences to affect land market prices.