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The most important part of an appraisal is
the analysis of the market data available
The market is telling you what people are
willing to pay for land in a given
circumstance
Improved and unimproved sales
What you are looking for is a sale with a
single land class or something that you can
use as the basis for making the comparisons
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Supply and demand; remember that the
appraisal is made at a specific time and you
have to know the effective demand and the
supply of properties
Substitution; REMEMBER the value of the
property is set by the price paid to acquire a
substitute property; changed by special
circumstances and the appraiser has to be
aware of these
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Externalities; neighborhood, services;
roads, access to markets, …
Balance; appraiser has to constantly stay in
touch with what is happening not only in
the neighborhood but throughout the
industry
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Obtain information on sales, listings and offers
for all properties similar to the subject
Verify that information; too many tall tales
with respect to land; be aware!
Get the right unit for comparison; dollars per
acre; per square foot; other
Compare the subject property and the
comparable sales and adjust the price of
comparables as needed or eliminate them
Reconcile the values from the comparables into
a single value or range of values
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Property rights conveyed; if there are leases
and other encumbrances on the property and
the desire is for a fee simple appraisal then
adjustments may be necessary to make the
subject and the sale the same; this adjustment
should be done first
Financing; the terms of the sales can have an
impact on the price that is paid; appraisal
should be adjusted to cash or cash equivalency
basis for the appraisal
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Assume we have a 160 acre farm that sold
for $600,000 with a $120,000 down
payment and the seller financed the
mortgage of $480,000 for 20 years at 5%.
The market interest rate was 8%. The 20%
down and the 20 years are within market
parameters so only the low interest rate
needs to be considered.
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$480,000 mortgage at 5% for 20 years has a
payment of $38,516 per year.
The present value of $38,516 for 20 years at
8% is $378, 156.
$378,156 + $120,000 = $498,156 cash
equivalent price
$600,000 - $498,156 = $101,844 or $637
per acre adjustment
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Appraiser has to be careful in how they do
this and what values they assume.
If a financing adjustment is made it should
be the second adjustment made
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This can be a sale under duress or a sale as
settlement of a divorce or something similar
where there is a need for the sale.
Sale to a relative;
Purchase because of some special reason
(sentimental)
All these factors can influence the price paid
It is best to not use such sales as a
comparable but if you have to then be
careful; this should be the third adjustment
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This is the basic idea that times changes and
so do market conditions. Remember that
the appraisal is made as of a specific date
If conditions have not changed then there is
no need for an adjustment, in other words
don’t change the comparable simply to
change it for time
This should be the fourth change made
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This can be a major difference depending on
the circumstances (3 most important things
in determining the value of a piece of
property)
Roads, markets (ethanol plant, river, rail
lines, etc. )
Urban centers ( farming opportunities,
highest and best use)
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Land type ratios
Ranges
Land quality
Timber
Slope
Percent tillable
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Percentage
1) Subject equal to comparison; no adjustment
 2) When presented as “subject is…” then use
multiplication
 3) When presented as “the comparable is…”
then use division
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Subject is 10% superior to the comparable
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Subject is 10% inferior to the comparable
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Multiply the price of the comparable by .9 to estimate
the value of the subject. % adjustment to the price of
the comparable is minus 10%
Comparable is 10% superior to the subject
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Multiply the price of the comparable by 1.1 to estimate
the value of the subject. % adjustment to the price of
the comparable is plus 10%
Divide the comparable by 1.1 to estimate the value of
the subject. % adjustment to comparable is minus 9%
Comparable is 10% inferior to the subject
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Divide the comparable by .9 to estimate the value of the
subject. % adjustment to comparable is 11%
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Type of rights being conveyed
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Fee simple
Financing conditions
Conditions of the sale
Market conditions
Location
Physical adjustments
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The key is to be consistent; don’t mix
comparable to subject, and vice versa
Dollar adjustments; Most common; dollars
are added to or subtracted from comparable
to obtain the value of the subject
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Provides market evidence for amount and
direction of a particular adjustment
Pair only two sales for the adjustment and
check them against other sales
Appraiser has to use some judgment “but
judgment without market evidence is
simply not acceptable appraisal practice.”
Sale A
Sale B
$800
$750
160
160
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Selling price
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Acres
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Financing
Cash
Cash
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Market conditions
Current
Current
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Size
0
0
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Location
?
?
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Land
0
0
•
Buildings
0
0
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Adjusted price
$800
$750
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$50 per acre impact from the paved vs dirt
road
Appraiser will keep checking this amount as
they find sales that let them make the
comparison
Once one adjustment has been ‘proved’ in the
market it can be used for other comparisons
Assume two similar sales except location and
size
• Sale C
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Selling price
Acres
Financing
Market
Size
Location
Land
Buildings
Adjusted price
Sale D
$700
320
$750
160
Cash
Current
?
-$50
0
0
$650
Cash
Current
?
0
0
0
$750
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Adjustment is $100 per acre assuming that
the adjustment of $50 for location holds
Next is time adjustment
Remember with time adjustment that the
percentage adjustment is a reflection of
compounding too
Sale two years ago at $1000, next year at
$1,100 and this year at $1,200 What’s the
percent change due to time?
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Selling Price
Acres
Financing
Market conditions
Size
Location
Land
Buildings
Adjusted Price
• Sale E
Sale F
$780
320
$950
150
Cash
Current
$100
0
0
0
$880
Cash
1.5 yrs.
0
0
0
0
$950
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What is the percentage change due to time?
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$880 - $950 = -$70
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-$70/950 = -7.4%/1.5 = -4.9%
Sale 1 yr. ago for $600,000
Sale this yr. for $742,000 but property had
$65,500 in improvements
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Sale A: 160 Ac. on Hyw. 6, two miles from
Growthville, all Class II soils, no
improvements, sold 1 year ago for $1,200,
Cash
• Sale A
Sale B
Sale C
Sale D
$1,000
$860
$905
140
180
150
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Price
$1,200
Acres
160
Financing
Cash
Market
1 yr.
Location
2mi.
Land
0
Improvements 0
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5% decrease in land values over past year
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Subject
160
Cash
Loan Cash
Cash
Now
Now
1yr.
Now
4 mi
6 mi.
7 mi.
6 mi.
0
0
0
0
0
0
0
0
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First thing to do is to find a control sale.
This is the sale as similar to the subject
property as possible.
Comparisons will be made to this sale
Assume that we are interested in finding the
market contribution of location using these
sales.
Time adjustments have to be made first
Which is the most like the subject?
• Sale C
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Selling Price
$860
Acres
180
Financing
Cash
Market conditions
Current
Size
0
Location
6 miles
Land
0
Buildings
0
Adjusted Price
$
Difference due to location
Sale A
$1,200
160
Cash
0
2 miles
0
0
$
• Sale C
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Selling Price
$860
Acres
180
Financing
Cash
Market conditions
Current
Size
0
Location
6 miles
Land
0
Buildings
0
Adjusted Price
$
Difference due to location
Sale B
$1,000
140
Cash
Current
0
4 miles
0
0
$
• Sale C
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Selling Price
$860
Acres
180
Financing
Cash
Market conditions
Current
Size
0
Location
6 miles
Land
0
Buildings
0
Adjusted Price
$
Difference due to location
Sale D
$905
150
Cash
0
7 miles
0
0
$
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Appraisal of improved land starts with
determining the value for each land class
through evaluating sales of unimproved
land
These land classes will then be used to
determine the value of the land to the sale
and the residual will be the value of the
improvements
The value of the improvements will then be
allocated among the buildings, etc.
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Assume that the appraiser knows that
unimproved sales indicate this division for
each land class
Class I
 Class II
 Class III
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100%
60%
40%
What is the value of each land class if we
had a sale for $260,000 with 100 acres of
Class I, 200 acres of Class II and 100 acres of
Class III.
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Class I 100%, Class II 60% and Class III 40%
100 ac. Class I, 200 ac. Class II, 100 ac. Class III
$260,000 sale price
100 * 100% = 100
200 * 60% = 120
100 * 40% = 40
260
$260,000/260 = $1,000 Class I
$1,000 * .60 =
600 Class II
$1,000 * .40 =
400 Class III