Wall Street is so volatile. Stock prices, commodities prices, they all fluctuate hourly, sometimes even by the minute. It’s a complicated world where a person can go from rags to riches and vice versa in a matter of seconds. Just as volatile, and equally confusing, are land prices; more specifically, agricultural land prices because there are so many variables to consider when buying or selling.
Anyone who owns a piece of earth owns a piece of heaven. As Will Rogers so amply said it, “Buy land. They ain’t making any more of the stuff.”
I am small fry, very small fry, when it comes to land ownership. My 37 acres is but a drop in the bucket when paired against others who own thousands of acres. Nonetheless, this is my little piece of the earth. I only share it with God. I am His steward of the land and, between the two of us, we decide each year what will be raised on it, if anything will be raised on it and how it will be cared for. I consider myself fortunate to be entrusted with my little corner of the world.
However, my little piece of the world is situated near a small town and rumors get started in small towns. That’s just a fact of life. Lately, the rumor has been going around my neck of the woods that I was looking to sell my land. Nothing is further from the truth. But it did get me to thinking that, hypothetically, if I did sell my land, “What would it be worth?” I literally had no idea how prices for agricultural land were determined and what factors were involved. After diving into the cluster mess of land values, I found some interesting facts.
First of all, there is no set standard. It basically boils down to what the land is worth to the seller and the buyer. Period. However, there are some generally accepted technical facts. Farmland value is typically based on expected revenues from agricultural production. After all, farmland is purchased with the intention of making it a livelihood or, at the very least, making a profit from it.
Land values usually rise with low interest rates and strong crop prices. Low interest rates lift farmland values by reducing the discount on the future income stream produced by the land. Low interest rates depress the value of the dollar, which in turn boosts agricultural exports, raises commodity prices and enhances farm revenue.
Conversely, rising interest rates can reduce farmland values by widening the discount on the value of future income streams. Higher interest rates can depress commodity prices, farm revenues and farmland values. High interest rates in a strong economy increase risks of falling farmland values which, in turn, could cut farm assets, boost leverage rates and impair farm balance sheets.
Furthermore, the type of land in a given area has a significant impact on its worth. Agricultural and other largely underdeveloped areas are generally worth significantly less than cities and suburbs. States with generally larger rural areas tended to have a lower value relative to their size, while more densely populated states that contain large urban centers had the highest estimated worth per acre. That’s a fact, but not in my book.
One fact that greatly impacts the value of land is the type of soil. This is one fact that no man can alter. It is what it is. Heavy ground, or muck ground, typically produces more bushel s of crop per acre than sandy ground.
For the buyer, the types of crops that will be planted also affects how much he/she is willing to pay per acre. Different crops prefer different soil properties and soil drainage. If underground drainage tiles have been laid to remove excess water from certain lands, it makes it much more valuable.
Water in itself is a big factor. It seems that most land has either too much or too little. Too little is even more of a problem. State Highway M-60 runs about a mile north of my acreage. It is a well-known fact in this area that water is hard to find south of M-60. No particular reason for this, it is just how the water veins run. This can be a huge issue , not only for homeowners, but for farmers too. When we needed a new well dug several years ago there were literally no veins with enough gallons per minute to support a well close to the house. Our water is piped 750 feet from the field to our house.
This lack of available water is a detriment to land values in this area. Farmers have to weigh the pros and cons of owning land that they may not be able to irrigate during dry spells because of the unavailability of ample water.
This matter of farmland value is sensitive to so many variables that it is hard to know how to put a price per acre on land. One place to start is to take a look at assessed value from the county taxation authority. The assessed value is the basis the county uses to figure property taxes. Remember, this is only a starting point.
Property appraisers are trained professionals whose job it is to take all variables into account in figuring land value. However, since this is their livelihood, there are fees involved and it is generally a good idea to get at least a couple separate appraisals.
Even a better starting point is to talk to real estate professionals. An agent who regularly buys and sells property in an area will have a good idea of what similar properties have sold for.
Setting land prices really boils down to a very personal matter. It’s worth what it’s worth to the individual. Sometimes you can’t put a price on it, especially if it has been in the family for generations. William Larson, who was the senior economist at the Federal Housing and Finance Agency estimated the combined value of all land in the contiguous United States to be worth nearly 23 trillion dollars. That’s a staggering amount.
Even with that said, to many like myself, land is worth so much more than the dollar amount. This is the first land I have ever owned. I was scared to death to buy it, land ownership comes with a huge responsibility. Now, I am scared not to own it. There is just something about owning a piece of the earth. It’s a warm and fuzzy feeling.