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CSR’s in Appraisal. Corn suitability ratings are specific to the state of Iowa and are helpful in developing all three approaches to value in an appraisal of farm real estate. THREE APPROACHES TO VALUE IN THE APPRAISAL PROCESS: - Cost Allocation Approach - Sales Comparison Approach

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CSR’s in Appraisal

Corn suitability ratings are specific to the state of Iowa and are helpful in developing all three approaches to value in an appraisal of farm real estate.


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THREE APPROACHES TO VALUE

IN THE APPRAISAL PROCESS:

- Cost Allocation Approach

- Sales Comparison Approach

- Income Capitalization Approach


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COST APPROACH

  • The value of land in the Cost Approach is determined by analyzing unimproved comparable sales and allocating total value out to various land classes.


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  • Land classes may include several grades of cropland and other land types, such as pasture, timber, CRP, waste, etc.

  • Generally, CSR’s are most useful in determining cropland value. CSR’s may be used for other land types, such as pasture, but these may have other factors affecting value more than soil quality.


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3. Classifications developed from CSR classifications. Examples are:

ranges, i.e.,

Class I = 78+ CSR

Class II = 68-77 CSR

Class III = 54-67 CSR

Class IV = 40-53 CSR

Class V = < 40 CSR


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  • Assessor’s CSR’s are based on tax parcels, usually 40 acres each. Digital mapping software or hand-calculated CSR’s may be needed to determine CSR’s and soil inventories on cropland acres.

  • Appraisal spreadsheets can be set up to divide soil inventories into classes based on CSR, eliminating hand entry, especially if one can export soil inventories from digital mapping software.


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This is the soils data entry portion of my appraisal spreadsheet. Soil inventory is exported from digital mapping software (cut and paste). Classes and CSR’s are automatically calculated.


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The above-inventory is automatically linked to another page on the spreadsheet that allocates value per land class. Entries at this point are: total acres, non-crop acres, sale price, value percentages, and building value (if any).


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In Northwest Iowa, we can find $/CSR ranging from $30 to well over $50 per CSR point.

Example: sales in part of Sioux County, which is strong in livestock, can show 10-20% higher values than other areas with similar soils. Sioux County, being farthest west and one county from the top of Iowa, has lower CSR ratings than other counties with similar soils. Galva silty clay loam with B-slope in Sioux County is a 67 CSR but is 75 CSR in Sac County.


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SALES COMPARISON APPROACH today’s market:

The Sales Comparison Approach requires

comparisons and adjustments to account

for differences between the subject

property and each comparable sale.


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A major factor in the selling price of one farm to another is

soil quality. This can be measured by difference in CSR’s or

differences in values and percentages of each land class.

Example:


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Other factors may influence value as much or is

more than soil quality. These include:

  • Condition of Sale - i.e., an auction with two bidders under 1031 deadline.

  • Financing - example, favorable contract terms.

  • Time - rising or falling land values since the time of the comparable sale.

  • Size - large versus small parcel (maybe).

  • Location and Access

  • Terrain/topography - drainage issues, HEL vs. NHEL, terraces, etc.

  • Improvements

  • Field configuration - ditches, irregular boundaries affect efficiency

  • Others


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The amount of adjustment for each of these is

factors is determined by head to head

comparisons between sales. Usually

expressed in $ per acre. Keep these factors

in mind if you’re talking $/CSR.


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INCOME CAPITALIZATION APPROACH is

The anticipated net income is capitalized by

a rate determined from comparable sales

to arrive at a value.

Value = Income / Rate (IRV)

Example: $125 net income / 4.0% rate = $3,125 / acre


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The appraisal problem is to determine an accurate income is

stream from a piece of property. CSR’s are useful in

determining crop yields or rental rates.

If you are using a crop production income stream, you will need

to determine expected average yields for the comparable sales

and subject property. For example, if a property has 75 CSR

and you know that a factor of 2 is appropriate for the area,

the expected average yield would be 150 bushels per acre.

Lower CSR farms tend to produce better, percentage-wise,

than higher CSR farms, so know what factor would apply to a

given situation.


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Soybeans can be factored times the CSR or as a percentage of

the corn yield. In Northwest Iowa on Galva-Primghar-Sac

soils, corn may yield 2.9 times the bean yield while on

Clarion-Nicollet-Webster, corn may yield 3.25 times the

soybean yield.

Knowing the proper ratios for the area is key. Yield monitor

data laid over soil maps is golden information in determining

these ratios; however, one year’s data can be misleading. In

2002 in Northwest Iowa, late summer rains gave poorer soils an

advantage over good soils regarding Yield per CSR. Multi-year

data should even this out and provide more reliable

information.


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CSR’s can be used in a similar fashion to determine cash rental

rates. A factor of 2 would mean that a 75 CSR farm might

rent for $150 per acre while a 60 CSR farm might rent for

$120 per acre.

Again, lower CSR farms tend to produce better or draw better

cash rent, percentage-wise, than higher CSR farms, so know

what factor would apply to a give situation.

Example - we have handled cash rent bid situations where

lower-CSR farms had several bids at 3 times the CSR, while

higher-CSR farms in another area barely achieved 2 times

the CSR.


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SUMMARY rental

CSR’s are a great tool - a benefit to farm

management in Iowa, and a valuable aid in

land valuation. However, they only begin

to tell a farm’s story.

  • Compare apples to apples when comparing

    $ per CSR

  • Don’t forget all the other factors that go into the total value of a farm.


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