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Estimating Realistic Marketing Prices

Estimating Realistic Marketing Prices. Put properties into the context of current markets. Objectives. Read and construct credible analyses of market transactions to justify price Know how to adjust sales to a subject Describe major agricultural activities

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Estimating Realistic Marketing Prices

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  1. Estimating Realistic Marketing Prices Put properties into the context of current markets

  2. Objectives • Read and construct credible analyses of market transactions to justify price • Know how to adjust sales to a subject • Describe major agricultural activities • Understand estimating value by replacement cost • Examine results of different estimates to derive a value RLI - AgriLand Brokerage and Marketing

  3. Analysis of Comparables • Continuous information collection • Information clarifies possibilities • Property variation limits use of raw sales information • Rigorous analysis yields real knowledge RLI - AgriLand Brokerage and Marketing

  4. Systematic Sales Analysis • Identify value determining features • Specify measurable units for comparison • per acre • per animal unit • per farm • per ranch RLI - AgriLand Brokerage and Marketing

  5. Example • High percentage of Class I soils • Versus mostly Class III soils • Class I increases price per acre RLI - AgriLand Brokerage and Marketing

  6. Adjustment Process • Simulates market of identical properties just like the subject RLI - AgriLand Brokerage and Marketing

  7. Animal Unit (AU) • Production versus space • Focus on forage production • Composition varies greatly with geographic variations • Technology varies greatly as well RLI - AgriLand Brokerage and Marketing

  8. Animal Unit Month (AUM) • Soil surveys often provide estimates • AUM is 1/12th of AU • Six AUMs is 1/2 of AU • Acres per AU = 12 / AUM per acre • Six AUMs per acre = 2 acres per AU RLI - AgriLand Brokerage and Marketing

  9. Comparable Sales • Ideal — Array of recent sales that are identical to the subject • Reality — Substantial variation, often older sales • Correct for differences (adjust) RLI - AgriLand Brokerage and Marketing

  10. REMEMBER • Always adjust the comparables to the subject! RLI - AgriLand Brokerage and Marketing

  11. Direction of Adjustment • Subject is superior — adjustment is added • Subject is inferior — adjustment is subtracted RLI - AgriLand Brokerage and Marketing

  12. Information Gathered • Property rights conveyed • Financing terms • Date of Sale • Location • Legal description • Sale price RLI - AgriLand Brokerage and Marketing

  13. Information Gathered • Volume/page • Grantor • Grantee • Acreage • Selling agent RLI - AgriLand Brokerage and Marketing

  14. Information Gathered • Productivity information • Descriptions of improvements • Assessment information • All special conditions • Confirmations of buyer and seller RLI - AgriLand Brokerage and Marketing

  15. Sources of Sales • Mandatory disclosure • information must be analyzed • confirmation still required • No disclosure • real estate agents • bankers • lawyers • etc. RLI - AgriLand Brokerage and Marketing

  16. Sales Comparison • Grid ensures systematic approach • Focus on important differences • Cases by case judgment about which items to include RLI - AgriLand Brokerage and Marketing

  17. First Adjustments • Property rights • Financial terms • Market trends RLI - AgriLand Brokerage and Marketing

  18. Remaining Adjustments • Location • Physical • Economic • Use • Non-real estate items RLI - AgriLand Brokerage and Marketing

  19. Adjusted Price RLI - AgriLand Brokerage and Marketing

  20. First Adjustments • Property rights • minerals • easements • Financial terms • favorable rate, etc. • Market trends • time RLI - AgriLand Brokerage and Marketing

  21. Adjustments • Location • Physical • size • soils • topography • etc. RLI - AgriLand Brokerage and Marketing

  22. Remaining Adjustments • Economic • crop base • lease provisions • etc. RLI - AgriLand Brokerage and Marketing

  23. Remaining Adjustments • Non-real estate items • equipment included • growing crop • etc. RLI - AgriLand Brokerage and Marketing

  24. Example Adjustment RLI - AgriLand Brokerage and Marketing

  25. Example • Half of minerals reserved • Favorable financial terms • Market upward trend • Inferior location • Large property • Inferior lease • Crop included RLI - AgriLand Brokerage and Marketing

  26. Adjustments • Percentage • Dollar • Quality-based • Objective criteria RLI - AgriLand Brokerage and Marketing

  27. Adjustments • Quality-based • experience • rules of thumb • Objective criteria • statistical analysis • cost • income capitalization RLI - AgriLand Brokerage and Marketing

  28. Exercise RLI - AgriLand Brokerage and Marketing

  29. Exercise RLI - AgriLand Brokerage and Marketing

  30. Exercise RLI - AgriLand Brokerage and Marketing

  31. Irrigated Cropland • Land • Irrigation systems • Drainage systems RLI - AgriLand Brokerage and Marketing

  32. Irrigated Cropland • Land classes • Surface topography • Irrigation system • Water rights • Water quality • Drainage systems • Crop base • Etc. RLI - AgriLand Brokerage and Marketing

  33. Irrigated Cropland • Soils determine ability to use water • Topography important for flow and drainage • Water rights establish quantity and quality of water RLI - AgriLand Brokerage and Marketing

  34. Irrigated Cropland • Surface water rights • prior appropriation • riparian • Groundwater rights • prior appropriation • absolute ownership • Water marketing RLI - AgriLand Brokerage and Marketing

  35. Drainage • Needed for tight, ponding soil • Ditch systems • Tile systems RLI - AgriLand Brokerage and Marketing

  36. Water Measures • Acre foot • 43,560.2614 cubic feet • 325,853.3837 gallons • 12 cubic feet per second in 1 hour RLI - AgriLand Brokerage and Marketing

  37. Livestock Operations • Soils Topography • Types of forage and timing • Water availability • Estimated carrying capacity • Noxious plants • Improvements • Recreational amenities RLI - AgriLand Brokerage and Marketing

  38. Livestock Operations • Fee owned land • Government leased land • federal • state RLI - AgriLand Brokerage and Marketing

  39. Horticultural • Fruits • Berries • Nuts • Grapes • Trees • Flowers RLI - AgriLand Brokerage and Marketing

  40. Horticultural • Soils • Development stage • Irrigation (availability and adequacy) • Varieties and rootstock • Quality of product • Climate (frost protection, wind patterns, etc.) RLI - AgriLand Brokerage and Marketing

  41. Horticultural • Pollination agents (bees, etc.) • Pest control • Improvements • Local processing and marketing facilities • Number of similar operations RLI - AgriLand Brokerage and Marketing

  42. Horticultural • Life stages • development (limited or no production) • maturity (full production) • decline (limited production, quality limited) • redevelopment RLI - AgriLand Brokerage and Marketing

  43. Timberland • Stumpage (value of timber) • Plus land • Industrial style operation RLI - AgriLand Brokerage and Marketing

  44. Timberland • Soils • Topography • Type of timber • Volume of timber • Stage of timber growth • Health of timber • Location of mill RLI - AgriLand Brokerage and Marketing

  45. Timber Harvest • Critical factors • terrain (slopes, creeks, etc.) • forest density • defective trees • mill nearby RLI - AgriLand Brokerage and Marketing

  46. Timber Cruse • Sampling of forest to establish volume of merchantable timber • Measures • board feet • dbh — diameter at breast height • Characteristics of trees • Numbers of trees • Normally requires consulting forester RLI - AgriLand Brokerage and Marketing

  47. Stumpage Value • Often years in future • Frequently little income prior to harvest RLI - AgriLand Brokerage and Marketing

  48. Dairies • Industrial style process • Complicated improvements and mechanical systems • feed • milking • milk storage • sanitation RLI - AgriLand Brokerage and Marketing

  49. Dairies • Improvements important to value • milking parlors • loafing lots • feed storage • barns • houses (for employees) • etc. RLI - AgriLand Brokerage and Marketing

  50. Farm and Ranch Improvements • Depreciated cost • Plus land value • Building contribution often less than construction cost even when new RLI - AgriLand Brokerage and Marketing

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