The market has different buyers with varying risk appetites. The mega farmers base their purchase of agricultural land on the ever so popular “ROI” return on investment on the capital layout. This investment approach tends to be considerably lower than, than what the general buyers’ market demands.
To determine an arm’s length sale transaction, it is imperative that actual buyers and sellers be interviewed, for the following reasons:
Items found to be included in the purchase price are the take-over of existing operational debt, movable items, stock on hand and more. The other issue of concern is transferable water-rights, the valuer is to establish proof on the availability of the registered water capacity per land portion.
When evaluating an operational farm, the plantings, and the future demand for such should not be uncertain. Last but not lease operational improvements such as cold storage, packaging, and cooling facilities which form a rather integral part of the operations can represent 20%-35% of the purchase price.
I believe agricultural valuations require a vast amount of research and that the face-value of information available in the general public domain can be misleading.
Although the Profits Valuation Method is considered second to the Comparable Sales valuation methodology, it offers a selective insight into the cost-effectiveness of the operational activities. A good farm being poorly managed versus an average farm being well managed determines the potential and future growth of such agricultural business. So, then a comprehensive valuation report should include the various land use values (plantings and water rights), building improvements and business analysis, based on the Income and Expense Statements.