Expanding the Scope: Why Residential Appraisers Should be Qualified to Value Agricultural Land
In the dynamic world of real estate appraisal, the valuation of agricultural land has often been considered a specialized domain, reserved for appraisers with specific commercial expertise. However, there is a compelling case to be made for expanding the qualifications of residential appraisers to include the valuation of agricultural land. In this article, we will explore the reasons behind this proposition, emphasizing the unique characteristics of agricultural land that make it well-suited for to be valued by residential appraisers.
1. Residential Components on Agricultural Land:
One distinctive feature of agricultural land is the all to often presence of a residential structure on site. Unlike most other commercial properties, agricultural land often includes the owners home which is required to be included in the appraisal. Residential appraisers, already adept at valuing homes, can seamlessly incorporate these structures into their assessments. Their familiarity with residential valuation methodologies makes them well-equipped to evaluate the residential aspects of agricultural properties.
2. Similar standards To Rental Properties:
Agricultural land is not exempt from utilizing the income approach in valuation, especially when considering aspects like income from farming activities. Residential appraisers, who routinely apply the income approach to assess the value of rental homes, can leverage their expertise in this area. The parallels between valuing a rental home and an income-generating agricultural property clearly suggest residential appraisers are capable of executing skills satisfactory to the Appraisal Institute’s standards.
3. Accessibility of Comparable Data:
One of the challenges in valuing commercial properties is the availability of comparable data. However, agricultural land stands out in this regard. Comparable data for agricultural land is readily accessible through Multiple Listing Services (MLS) and Municipal property assessments. Residential appraisers can leverage these existing databases, streamlining the process of finding relevant comparables for accurate valuations.
4. Rural Challenges and Broadening Supply:
Agricultural land is often situated in rural areas where finding qualified appraisers can be challenging. By extending the qualifications of residential appraisers to include agricultural land, the supply of qualified professionals can be broadened. This not only addresses the scarcity of appraisers in rural regions but also ensures that the valuation process benefits from the local expertise of residential appraisers.
5. Residential Appraisers are Often Already Indirectly Reconciling Agricultural Values
It is worth noting the irony in the current practice where residential appraisers are not permitted to directly value agricultural land. Despite this restriction, it is a common industry practice for residential appraisers to reconcile a value for both the house and the associated farm property, only to subtract the value of the land in order to establish the value of the residence. Effectively, this means that, in practice, residential appraisers are indirectly establishing the value of agricultural land, showcasing the disconnect between regulations and common appraisal methodologies. Permitting residential appraisers to directly assess agricultural land would not only acknowledge this existing practice but also streamline the valuation process, potentially offering a more accurate representation of the property's overall value.
6. Historical Security of Agricultural Investments:
Historically, agricultural land has been recognized as one of the most secure investments. The intrinsic stability of farm investments reduces the risk associated with valuation. Residential appraisers, often known for their conservative approach, can contribute to ensuring a prudent and cautious valuation of agricultural properties, aligning with the historically stable nature of farm investments.
7. Cost Benefits for Homeowners:
One notable advantage of involving residential appraisers in the valuation of agricultural land is the potential cost benefits for homeowners. As a general rule, residential appraisers often charge significantly less than their commercial counterparts. By incorporating agricultural land into the scope of residential appraisers, homeowners stand to benefit from a more cost-effective valuation process compared to engaging a commercial appraiser. This not only makes the appraisal process more accessible but also aligns with the cost-conscious nature of residential appraisers.
Expanding the qualifications of residential appraisers to include agricultural land makes practical sense. Their familiarity with residential structures, experience with the income approach, access to comparable data, ability to bridge the rural-urban divide,and cost-effectiveness position them as ideal candidates for assessing the value of agricultural land. By embracing this interdisciplinary approach, the real estate appraisal industry can benefit from a more versatile, accessible, and cost-efficient pool of professionals.
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*The framework of this blog was constructed with OpenAI technology and edited by Dwayne Grantham P.App, CRA, JD.
