Montana Land Trends
In The Re-emerging Market
Looks Like We’ve Weathered The Storm
Norman C Wheeler & Associates
Bozeman & Missoula, Montana
May, 2014

Please Note:
Opinions
Ideas
Observations
Shameless Projections
Values or Scenarios
These are of a small minded appraiser and may not be coherent or representative of those who govern over us.

The Land Ranch market is re-emerging
What is the Market Rewarding?
Productivity
&
Good Buys
Not Speculative Development or Values
Not the best environment for beneficial
Conservation Easement valuation.

Historically
One Market
The “Other
Market”

State Project

Average Land Sale Values Per Year
$2 500
$2 000
$1 500
$1 000
$500
$505
$655
$960
$874
$785
$1 135
$1 361 $1 325
$1 909
$1 795
Annual Land Report - Norman C.
Wheeler & Assoc. - Summary of data compiled from annual ranch study of land sales > 640 acres in MT recreational land market
$880
$610
$798
$776
$1 164
$-
Note – this is the Western Land Survey
2004 verses 2013

500 000
450 000
400 000
350 000
300 000
250 000
200 000
150 000
100 000
50 000
-
Annual Land Report - Norman C.
Wheeler & Assoc. - Summary of data compiled from annual ranch study of land sales >640 acres in
MT recreational land market
Deeded Acres Sold Per Year
Sale Year
464 074
Lowest Price Point on
Average since 1990s

Volume of Sales & Land Sale Values Per Year
$610
500 000
450 000
400 000
350 000
300 000
250 000
200 000
150 000
100 000
50 000
-
$505
$655
$960
$874
$785
$1 135
$1 361
$1 325
$1 909
$1 795
$880
$798 $776
$1 164
Annual Land Report -
Norman C. Wheeler &
Assoc. - Data compiled from annual ranch study of land sales > 640 acres in MT recreational ranch market
Average Land Value
Deeded Acres
Also a factor of Supply & Demand
Later

2004
2005
2006
2007
2008
2009
2010
2011
2012 sub 2012
2013
Larger Ranch Sales Annually - Western Market Bifurcated
Rural Land Sales 640 acres or greater in deeded acres within primary recreational influenced markets - Volume
Norman C Wheeler of confirmed sales - Land Value Expressed as
& Associates - 2013
Year Sales
Unimproved
Deeded Acres Sale Value land survey
Average
Acres
Average
Land Value
1990 10 22,300 $ 11,053,890 2,230 $ 505
33 101,541 $ 68,032,470 3,077 $ 655 1995
2001
2002
2003
61
51
52
320,861
217,546
200,379
$ 313,160,336
$ 192,310,664
$ 159,100,926
5,260
4,266
3,853
$ 960
$ 874
$ 785
Average Per Acre
$899 up 30% up 37%
54 265,394
83 323,895
53 174,229
46 159,061
31 91,999
$ 309,184,010
$ 459,283,110
$ 237,996,000
$ 319,715,000
$ 172,040,000
4,915
3,902
3,287
3,458
2,968
$ 1,135
$ 1,361
$ 1,325
$ 1,909
$ 1,795
Average Per Acre
$1,476 up 64%
17 66,822
41 464,074
47 323,779
46 327,029
$ 60,125,004
$ 291,405,710
$ 273,994,314
$ 258,632,689
37 88,793
34 114,804
$98,254,689
$ 147,851,010
3,931
11,319
6,889
7,109
$ 880
$ 610
$ 798
$ 776
Average Per Acre
$748 down 49%
Average Per Acre
2,400 $1,107
3,376 $ 1,164 $1,135
Up 52% or up 5%

$1 600
$1 400
$1 200
$1 000
$800
$600
$400
$200
$-
$899
2001 to 2003
Average Land Value
$1 476
Annual Land Report - Norman C.
Wheeler & Assoc. - Summary of data compiled from annual ranch study of land sales >640 acres in MT recreational ranch market
$1 135
$748
2004 to 2008
Sale Period
2009 to 2012 2012 to 2013

2012 was $776 per acre overall
Year Sub Class Acres Sale Volume
2012 sub class one 88,793 $ 98,254,689
2012 sub class two 238,236 $ 152,570,205
Land Per
Acre
$ 1,107
$ 640
Sale sample
37
5
73% of market
2013 sub class one 64,753
2013 sub class two 50,051
$ 81,829,548
$ 42,006,210
$ 1,264
$ 839
2013 was $1,164per acre overall
12 up 23%
20 up 31%
Strong Value Influence Based on Commodity Prices

Listings:
Quick Sample over
640 Deeded Acres
194,603 Acres
$1,920 Per Acre
Less IX Ranch
134,603 acres
$2,309 on Average
Overall
$ 16,349
$ 8,699
$ 8,455
$ 8,954
$ 7,619
$ 7,061
$ 6,916
$ 4,659
$ 4,788
$ 4,026
$ 3,839
$ 3,511
$ 4,053
$ 3,339
$ 3,328
$ 2,967
$ 2,368
$ 2,361
$ 2,467
$ 1,839
$ 1,724
$ 1,766
$ 1,759
$ 1,433
$ 1,492
$ 1,224
$ 1,075
$ 1,011
$ 950
$ 962
$ 818
$ 655
Deeded
734
1,138
2,661
1,396
1,050
5,665
2,964
5,366
731
934
1,068
1,965
950
1,782
2,930
3,017
6,291
1,652
1,125
10,605
4,640
9,600
5,060
12,910
2,011
9,800
60,000
4,750
10,000
7,539
5,870
8,399
Imps
$ 2,500,000
$ 750,000
$ 1,500,000
$ 2,000,000
$ 500,000
$ 500,000
$ 5,000,000
$ 1,000,000
$ 300,000
$ 500,000
$ 400,000
$ 450,000
$ 750,000
$ 500,000
$ 1,500,000
$ 500,000
$ -
$ 700,000
$ 750,000
$ 1,000,000
$ -
$ 1,500,000
$ 1,250,000
$ 750,000
$ 500,000
$ 500,000
$ 1,500,000
$ 200,000
$ 400,000
$ 500,000
$ -
List Per
Acre
$ 12,943
$ 8,040
$ 7,892
$ 7,521
$ 7,143
$ 6,973
$ 5,229
$ 4,473
$ 4,378
$ 3,490
$ 3,464
$ 3,282
$ 3,263
$ 3,058
$ 2,816
$ 2,801
$ 2,368
$ 1,937
$ 1,800
$ 1,744
$ 1,724
$ 1,609
$ 1,512
$ 1,375
$ 1,243
$ 1,173
$ 1,050
$ 968
$ 910
$ 895
$ 818
$ 655
Land
$ 9,500,000
$ 9,150,000
$ 21,000,000
$ 10,500,000
$ 7,500,000
$ 39,500,000
$ 15,500,000
$ 24,000,000
$ 3,200,000
$ 3,260,000
$ 3,700,000
$ 6,450,000
$ 3,100,000
$ 5,450,000
$ 8,250,000
$ 8,450,000
$ 14,900,000
$ 3,200,000
$ 2,025,000
$ 18,500,000
$ 8,000,000
$ 15,450,000
$ 7,650,000
$ 17,750,000
$ 2,500,000
$ 11,500,000
$ 63,000,000
$ 4,600,000
$ 9,100,000
$ 6,750,000
$ 4,800,000
$ 5,500,000
2013 Average
$1,164 Per Acre
194,603 $ 373,735,000 $ 1,920 overall Avg
134,603 $ 310,735,000 $ 2,309
Overall Less IX
Ranch
January
2014
2013 Market
Average
$1,164 Per Acre

• Who’s next behind the Boomers?
– GenX’ers: born between roughly 1965 and ’82
….now 31 to 48 yrs old.
– Millennials: those following, now 18-30 yrs old
Millennials
GenX
Source: BabyBoomer
HeadQuarters – www.bbhq.com

So when looking at Montana’s Rural Land Markets now, post-RESET….
GenX
Millennials
Location and
Highest & Best Use
(Really) Matter
Changing Matrix – Buyers
Desires – Land Ethic

Native Range
$600
CE – Historically changes to H&B Use- Greater
Mountain Pasture
$850
Irrigated –
Pivot - $4,000
CE – Historically
Limited Change
Productivity
Riparian
$6,500
Features

Typical Matrix s e s
L e a
Native Range
Mountain Pasture
Irrigated –
Pivot -
Riparian
Buildings

Western Markets
Land Class
Pivot Irrigated
Wheel Move
Flood
Irrigated Meadow
Sub Pasture
Dry Crop
Dry Crop - North Central
Mountain Pasture
Native Range
General Value Range Per acre - Land
$ 3,250
$ 2,250
$ 1,500
$ 1,000
$
$
$
$
4,500
3,250
2,500
1,800
$ 500
$ 550
$ 700
$ 600
$ 550
$
$
1,500
$
$
$
800
1,050
900
650
Typical
$ 4,000
$ 3,000
$ 2,500
$ 1,500
$ 750
$ 800
$ 900
$ 800
$ 600
FCS -
Medium
Irrigated
$ 3,000
Dry Crop
$ 715
Dry Pasture
$ 700
Eastern Market
Land Class
River- Irrigated
Flood Haylands
Dry Crop
Timber/Rec Pasture
Native Range
General Value Range Per acre - Land
$ 2,500
$ 800
$
$
3,500
1,500
$ 400
$ 350
$ 275
$
$
$
750
650
500
$ 3,200
$ 1,200
$ 650
$ 600
$ 425
FCS -
Medium
$ 3,200
$
$
715
494

2013
Irrigated
Dry Crop
Dry Pasture
State Of
Montana
$ 2,800
$ 710
$ 580
Avg Rent
Per Acre
$ 86
$ 24
$ 6
Return
3.1%
3.4%
1%
2013
Irrigated
Crop
Dry Crop
Dry Pasture
FCS - All
Montana
$ 3,150
$ 715
$ 475

• 100 to 320 Deeded
Acres – 24 Sales
• $12,846,000
• 4,430 Deeded Acres
• $2,900 per acre
Improved
• $2,348 Per Acre
Unimproved
•
• 321 to 1,000 Deeded
•
•
Acres – 25 Sales
$24,167,843
14,076 Deeded Acres
• $1,717 per acre
Improved
$1,394 Per Acre
Unimproved
Appears to be an upside to selling smaller parcels
Based on averages – averages Good

Water Class Values - 2013
Class One Water
• Land Value Per Acre- Overall
• $5,877
• Non CE - $6,460
• CE Encumbered - $3,958
• 38.73% Property Rights
Adjustment
Class Two Water
• Land Value Per Acre-
Overall
• $4,227
• All Non CE Encumbered

Southwestern Montana
River Trending
• Madison County
Madison Only - Riparian Trending
2003 2004-’05
$3,056 $4,301
2006-’07
$8,432 No Sales
2010-’13
$8,536
• Beaverhead County
Beaverhead Only - Riparian Trending
2003
$1,150
2004-’05
$2,385
2006-’07
$3,858 No Sales
2010-’13
$5,896
Not Appreciation – Changing
Property Features Spring Creeks
Averages Good

• Average Site - 78.86 acres
• Average Site - $810,000
• $10,272 per acre
Unimproved
• High Amenity
• $914,000
• Lower Amenity
• $595,000

2013 River Sites
$20,550,000
15 Sales – 1,427 Deeded Acres
95.13 acres per site
$1,370,000 Per Site - Improved
$14,401 per acre overall

Average $960,000 Site/Land Value Only
$10,091 Per Acre
Unimproved

2012 2013
• Sales Volume
$81,000,000
• Sales Volume
$51,000,000
• Deeded Acres
208,000
• Deeded Acres
117,000
• $390 Per Acre - Deeded
• $436 Per Acre – Deeded
(11.8% Increase)

Eastern Montana – “The Other Market”
Predominately Agricultural H&B Use
2005: $175 to $225 Per Deeded Acre
2010: $225 to $275 Per Deeded Acre
2010 - Emergence of N Bar Sale & Expanding Western Market
Mid State - Spanning Two Market Areas
More Recreational Influence - $400 to $500 Per Acre
2012: $350 to $400 Per Deeded Acre
2013: $435 to $496 Per Deeded Acre

Effect of Transitional Market On Animal Unit Values - 2010
Avg AU Rec Influence
Avg AU Grass Ranch
$ 11,730 Per AU Unimproved
$ 8,043 Per AU Unimproved
Effect of Transitional Market On
Animal Unit Values - 2012
Avg AU Rec Influence
Avg AU Grass Ranch
$ 15,000 Per AU Unimproved
$ 11,000 Per AU Unimproved

Regulation began in 1990
Grandfathering
Lack of Mentorship
(intelligence)
IRS Enforcement ( Intimidation) 2006
Overstatement Penalties - Sanctions
Lack of Effective Support or Pushback
By Appraisal Organizations

Pushback was Limited
Errors and Misleading
Reports Flagged - Bad
No Logical Defense
No Real Standards in Place
IRS Walk Over Appraisers & Land Trusts
Subsequently Decreed Rules
“Standard Procedures”
Property Rights Adjustment Gutted for CE Valuation
But Still Fully Acceptable for any other Damages Measurement
Access
Fire
Environmental
Virtually Whole Appraisal Practice is based on Property Rights
Adjustment

USPAP
Report Credible Results in a
Non
Misleading Manner
Based on Standard of your Peers
No Review – Until?
Maybe Never
As dictated By Your Experience/Ethics
Review and acceptance by a qualified reviewer based on a statement of work
Yellowbook
Report all undeniable elements
In a Supportable Format
IRS Qualified
Appraise As Ordered
Based on Non Regulated Rules
Radom –based on unlicensed IRS Engineer
Only Federal Agency that has not adopted USPAP

Unity of
1-Ownership
2-Location
3-Unity of Use
4- Highest and
Best Use
Mom & Pop
CE Subject
640 Acres

Unity of
1-Ownership
2-Location
3-Unity of Use
4- Highest and
Best Use
Mom & Pop
CE Subject
640 Acres
Mom and Pop
160 acres No CE

Mom & Pop
CE Subject
640 Acres
Mom and Pop
160 acres No CE
USPAP
640 CE Subject - Encumbered
Yellowbook
Before 800 acres
After 640 Encumbered
160 Non – different H&B Use
Mom & Pop
CE Subject
640 Acres
Mom and Pop
160 acres No CE
IRS – 800 acres Partially Encumbered
With Analysis of Benefit to Remainder and Enhancements

Unity of
1-Ownership
2-Location
3-Use
Ex Son
In-law
Mom & Pop
CE Subject
640 Acres
Daughter
Mom & Pop – No CE

Unity of
1-Ownership
2-Location
3-Use
Ex Son
In-law
Mom & Pop
CE Subject
Daughter
640 Acres
Mom & Pop – No CE

Unity of
1-Ownership
2-Location
3-Use
Ex Son
In-law
Mom & Pop
CE Subject
Daughter
640 Acres
Mom & Pop – No CE
Now for IRS
920 acres Partially
Encumbered Larger Parcel
640 encumbered
Benefits
Enhancements

Unity of
1-Ownership
2-Location
3-Use
Ex Son
In-law
Mom & Pop
CE Subject
Daughter
640 Acres
Son
Mom & Pop – No CE
Now for IRS
920 acres Partially
Encumbered Larger Parcel
640 encumbered
Benefits
Enhancements

Legally Permissible
Physically Possible
Financially Feasible
Maximally Productive

Topography
Access
Floodway
Size/Shape
Soils

KEY
Probable
Measurable
Predictable

Probable
Foreseeable
Future
Interim
Bullshit

Value Analysis
Discounted Cash Flow
NO-NO
Bulk Sale
Unhappy Client

Joe Bag of Doughnuts
Buys a 320 acre tract
At market - say $1500 per acre
Or $480,000
Based on Buyer Logic:
A = $100,000 - 20 Acre Lot
Then regardless of input costs
My 320 acres = 16 times $100,000
Or B - $1,600,000
$5,000 per acre
CE Reserves 2 build sites and no division
So
After Value
2 times $100,000 = C- $200,000
D- (duh)= CE value $1,400,000

320 acres – assuming zoning and all that:
Infrastructure - $10,000 per lot- $160,000
Cost of Sale at 12% - $192,000
Retail less $352,000 – net $1,248,000
After – “IRS” two enhanced build sites at $150,000
280 acres of permanently restricted pasture
At $500 = $140,000
After Value - $440,000/ $1375 per acre
CE Value - $808,000

But wait - What about
Financial Feasibility?
Demand-?? Why of course.
Supply – not like this.
Absorption – It is “red”hot.
Cost of Money – Who cares.

Rural Recreational Investment with
Agricultural Influences in
Anticipation of Appreciation
Based on value and use measured by
Non Economic
Intrinsic Personal Use Benefits

Oh Yea
Measure the Effects of Super Adequate Buildings
On land values within CE sale Analysis

Average $960,000 Site/Land Value
Only
Real World –H&B Use
Remember average River Class One
504 acres at $6,400 per acre
$3,225,000
So CE allowing 2 sites within 504 acres
Two 78 acre sites at $960,000 each
$1,812,000
$10,091 Per Acre
Unimproved
Average 78 acres
Take Down $21,000
Yea so you can’t divide to capitalize on two sites -
But do I have any sales to go down that roador is it an Extraordinary Assumption
Remainder 348 acres restricted at CE Value of $4000 per acre
$ 1,392,000
After Value - $3,204,000
Sites $1,812,000
Open Space - $1,392,000

Assume Identical CEs – No Splits- No Homes
Assume water/ systems /productivity - similar
Irrigated Cropland
Bozeman Proper
$10,000 Per Acre
Irrigated Cropland
Holland Settlement
$5,500 Per Acre
Irrigated Cropland
Toston
$3,500 Per Acre
Consider Change in H&B Use

Highest and Best Use a Function of:
Irrigated Cropland
Bozeman Proper
$10,000 Per Acre
LOCATION
PRODUCTIVITY
SUPPLY
DEMAND
Irrigated Cropland
Holland Settlement
$5,500 Per Acre
Consider Change in H&B Use
Irrigated Cropland
Toston
$3,500 Per Acre
Remember
Financial Feasibility
Maximally Productive

Assume Identical CEs – No Splits- No Homes
Irrigated Cropland
Bozeman Proper
$10,000 Per Acre
LOCATION
PRODUCTIVITY
SUPPLY
DEMAND
Irrigated Cropland
Holland Settlement
$5,500 Per Acre
Irrigated Cropland
Toston
$3,500 Per Acre
Consider Change in H&B Use

Do we even have a sale of encumbered irrigated cropland?
Well I have sales that contain lands including irrigated cropland.
Those sales say 30% property rights adjustment - overall.
Oh yea – those are at Dillon and they are 4 years old.
I have non comparable pasture sales in this area that show a
Property Rights adjustment of 40%.
I have county and NRCS purchases of CEs on Irrigated cropland that were funded at 20 % of market value.
Oh yea
IRS and courts can try to default to established Programs.

Highest and Best Use a Function of:
If This was Entitled
It would Sell at $25,000
Per Acre
Irrigated Cropland
Bozeman Proper
$10,000 Per Acre
Consider Change in H&B Use
Financial Feasibility
Maximally Productive
Simple – Entitled to Speculative
$25,000 to $10,000- 60%
But wait - $10,000 was “fee simple” and
Who really puts an entitled tract under CE?

Case solution
Based on a preponderance of the data my $10,000 speculative land could be assumed to be affected
60% bringing $10,000 per acre down to $4,000 per acre which somewhat equates to Toston irrigated sales, with some unexplainable consideration that
Toston sales are “fee land”, whatever, but considering location I have to adjust $4,000 per acre up 57% to $6,280 based on locational premium of Settlement lands as compared to
Toston lands; and by the way that ends up as a
37.2% property rights adjustment that just happens to coincide with the average of every non comparable easement sale in my database that occurred in Montana over the last 10 years, that wasn’t a riparian property sale.

Irrigated
Cropland
Semi Arid
Native
Rangeland
Dry Cropland
Highest And Best Use
Considerations
Ex Urban
Lands
River - Riparian
Buildings
Mountain
Pasture

Irrigated
Cropland
Site
Semi Arid
Native
Rangeland
Site
Dry Cropland
Site
River - Riparian
Mountain
Pasture
Highest And Best Use
Considerations
Buildings

River - Riparian
Historically Discount Based on
“Principle of Substitution”
In the Maturing Montana Market
You have to ask yourself
Is there a substitute?
And realize that for high end property
Most are Encumbered!

Parting Thought – What Drives Value in Your market?
Gallatin
Avg Site
Paradise
Avg Site
Bitterroot
Avg Site
Acres
1,592
Volume
$ 11,855,000
200 unimproved
Land Value Avg
$ 7,447
$ 7,384
3,082 $ 23,900,000
770 unimproved
$
$
7,755
6,328
1,688 $ 19,875,000
562 unimpoved
$
$
11,774
6,120

Thanks For Your Time !