Farmland appraisals are essential in understanding the value of your property when considering selling, buying, refinancing or estate planning. I’ve encountered misconceptions about what an appraisal will and will not tell a landowner. Take a look at five common misconceptions, plus more insight into the process:
1. An appraisal provides the exact sale price of a property. Reality: An appraisal estimates the market value of the property as of a specific date, based on the data available at that time. This is not a guarantee of what the land will sell for; it’s a professional opinion supported by comparable sales, market trends and relevant property data.
Market value is influenced by factors such as demand, interest rates and buyer motivations, which can fluctuate. For example, a property appraised at $10,000 per acre may sell for more or less, depending on the negotiating power of the buyer and seller, recent sales in the area setting new benchmarks for pricing, or rising or falling crop prices influencing buyer perceptions of value.
2. An appraisal includes recommendations for improvements. Reality: The purpose of an appraisal is to provide an unbiased opinion of value — not advice. Appraisers are objective analysts, not consultants. If you’re looking for recommendations on how to enhance your property’s value, such as improving drainage, adding irrigation or making other capital improvements, you need to seek input from agronomists, contractors or farm management consultants.
An appraiser may note features that impact value, such as poor drainage or limited road access, but they won’t provide a plan to address these issues. Their role is to focus on what’s there today and how it compares to the market.
3. An appraisal determines what a lender will loan. Reality: While appraisals are an essential tool for lenders, they don’t determine loan amounts. Lenders use the appraisal as one factor in the lending decision, guided by the five C’s of lending: character, capacity, capital, conditions and collateral. The appraisal primarily informs the collateral aspect, providing an independent assessment of the property’s value.
For example, if a lender typically loans up to 60% of an appraised value, and your land appraises at $1 million, you might qualify for a $600,000 loan — but only if your finances, creditworthiness and other criteria align with the lender’s requirements. The appraisal doesn’t guarantee the loan amount; it only sets the collateral benchmark.
4. An appraisal includes a detailed analysis of soil productivity or crop history. Reality: Appraisals typically include a general analysis of the property’s productivity, such as soil types, productivity index and their contribution to value. They typically do not delve deeply into specific agronomic details, such as historical crop yields, input costs or soil fertility tests, unless the information is public knowledge or advertised. And even then, the analysis may only extend to how the information impacts value.
If you need detailed agronomic analysis, consult an agricultural consultant or farm manager.
An appraiser’s focus is on how soil quality and land use compare to similar properties in the market. For instance, if two farms have similar soil types but one has installed system tile drainage, the appraiser evaluates how the installed tile influences market value compared to other sales in the area.
5. An appraisal is valid indefinitely. Reality: An appraisal reflects the value of the property as of a specific date. Markets are dynamic, and an appraisal can become outdated quickly due to changes in commodity prices, interest rates or government policies like the farm bill.
Your property’s value might differ significantly a year, a month or even a week later if there’s a major shift in the farmland market.
More appraisal insight
To ensure you’re getting the most value from an appraisal, here are some practical steps to avoid these misconceptions and use the process effectively:
Know what an appraisal really is. Ask your appraiser to explain their process upfront. A good appraiser will be transparent about what their report includes and what it doesn’t. This conversation can help align expectations and avoid misunderstandings.
Book a pre-appraisal consultation. Before commissioning an appraisal, discuss your goals. Are you planning to sell, borrow or settle an estate? A pre-appraisal consultation can help clarify what information the appraiser will need and how you need to prepare. For instance, if you’re settling an estate, how the property is owned can have a big impact on the estate’s valuation.
Expand your team. Appraisals are part of a larger picture. Agronomists, financial advisers and attorneys can provide additional insights into areas outside the appraiser’s expertise. For example, an accredited agricultural consultant can analyze factors that influence production and suggest improvements, while an attorney can provide guidance on tax implications.
Use the appraisal as a benchmark. It’s not a blueprint. Treat the appraisal as a starting point for decision-making, not the end. If the appraised value surprises you, dig deeper into the report. If you don’t understand, reach out to your appraiser.
Farmland appraisals are a vital tool for landowners, but it’s important to understand their scope and limitations. If you’re considering an appraisal, take the time to ask questions and engage with your appraiser. The more informed you are, the more useful the appraisal will be. After all, an educated landowner is an empowered landowner.