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farm appraisals

Spurgeon Appraisals has provided farm valuation services for properties throughout northeastern Missouri, western Illinois, and southeastern Iowa. Below you will find a link to a page describing our normal service areas for farm appraisals. However, we have often done work outside of these areas, so you should still call us for appraisals in counties or cities near these. Or we could even refer you to another qualified appraiser in your area.

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On the remainder of this page, you will find our past newsletters on the topic of farm appraisals and related topics. Be sure to check this page often for updates, or subscribe to our newsletter for other kinds of helpful articles.

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FARMLAND PRICES: WHAT HAPPENED IN 2018?

by Mason Spurgeon, General Certified Real Estate Appraiser

February 2019

At the end of December 2018, I completed two farm appraisals on properties in Brown County, Illinois, that I had appraised previously in 2016.  One of the properties was over 80% tillable while the other property was more of a recreational tract, less than 40% open.  After completing the reports, I looked back to see how much the values hand changed.  The differences in value were shocking.  They had only declined in value between 2.6% and 3% over the past two years.  This is not a large decline in value and could be attributed to any of three factors. 

(1) Difference in Comparable Sales Data: I have always said that an appraisal is only as good as the data used, and this could have been the case for the small decline.  As appraisers we do our best to estimate the value of a property using the best market sales we have available from the area.  The sales data used in my farm appraisal reports could have been more like the subject in one year and slightly different in the other.  This is a matter of opinion and is difficult to quantify.  Also, the total number of comparable sales could have been different.  There were limited sales in late 2015 and early 2016, but more sales in 2018. 

(2) Commodity Prices: We often hear that commodity prices are falling. However, according to the chart below from macrotrends.net, the price of corn was on the rise in 2018.  While the prices are nowhere near the prices of 2011 and 2012, they are currently on an upward tick.  The change from 2016 to 2018 was upwards by about 6.5%, but everywhere you turn someone is talking about the falling commodity prices.  This may be a good indicator that popular opinion can be contrary to factual data.

Corn Prices Historic Annual Data

(3) Interest Rates: Again, we hear about interest rates on the rise. While this is true, they are not jumping to the extremes of the 1980s—but they are still jumping.  As you can see from the graph below from macrotrends.net, the 30-year fixed rates have fluctuated over the past five years.  In January of 2016 the average rate was 3.79%, and in December of 2018 the average rate was 4.55%. This is an increase of about 20%. While this appears to be a larger change in the interest rates on a percentage basis, it is still much lower than the 10-18% interest that was seen in the 1980s.

Interest Rate Changes 30 Year Fixed Mortgage Rate

While I still don’t know the exact reason for the small decrease I noted in my appraisals, it is evident that uncertainty in the market is a driving force.  Farmers still appear willing to pay a premium for higher end farms, while marginal farms appear to have held steady or declined somewhat in their prices.  This is evident from the farm sales that were seen at the end of 2018. 

In conclusion, I still have not seen the large drop in land prices that everyone in the real estate world has been predicting.  Sure, there are sales of properties that have sold at the upper end of the market and the lower end of the market, but nothing out of the ordinary.  Overall, the market appears to be holding steady and land is still a great long-term investment.

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.

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APPRAISING GRAIN FACILITIES

by Mason Spurgeon, Certified General Real Estate Appraiser

June 2019

Having recently appraised two different types of grain facilities, I was reminded of how appraisers may need to follow different methods even when appraising the same kind of property. To the uninitiated, a grain facility is just a grain facility: they store grain and usually sell on a per bushel basis. But my two recent projects showed me that grain facilities fall into different classes of their own based on various factors—especially highest and best use, and overall condition.

appraiser grain facility

The first facility I appraised was set up for a private farmer and was recently constructed. It was a very high capacity private facility with a loop system and over 230,000 bushels of storage. Sales for loop systems are very difficult to locate, but at Spurgeon Appraisals our sales research and appraiser network is second to none. After several hours of research, comparable sales for loop systems were finally located. Sales of newer facilities indicated a very low percentage of external obsolescence, which showed that these properties are in high demand, because a buyer is willing to pay what the seller has in the property’s construction costs, minus physical depreciation.  

The same cannot be said for older facilities. The second facility I appraised was an old feed mill that was still in operation. However, after inspecting the facility and equipment I determined that the highest and best use was as a private grain facility rather than a feed mill. Small feed mills are not as prevalent as they once were. Many have gone out of business or converted to other types of operations. Because of the condition of the facility, the external obsolescence on this property was much higher than that of the first property appraised. Buyers of these older properties recognize that there is less demand and higher maintenance costs involved and will expect a discount.

appraiser grain storage

Buyers of older facilities have to be vigilant. Maintenance costs and repair costs could be very high, which is the reason for the external obsolescence. Also, it may not be the exact setup or modern equipment the buyer wants, and the cost to add is very high. The overall setup of an older facility is typically not as well thought-out as a new facility. New facilities are often built with expansion in mind, whereas older facilities sometimes appear to be thrown together with little room for expansion.

At Spurgeon Appraisals, we strive to complete a thorough appraisal report with every aspect of the property taken into consideration. Call or email us today to see how we can help you with your appraisal needs.

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.

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SUBTRACTION BY DIVISION

by Matthew Roberts, Certified General Real Estate Appraiser

March 2017

For many purposes, appraisals providing an opinion of value for an entire property and rights of ownership are sufficient.  Many appraisers are primarily experienced in appraising complete ownership interests in a property because it is most commonly requested.  Other divided interests include “partial interests,” such as interest divided by leases or easements.  By contrast, “fractional interests” are undivided interests in the real property.

WHAT IS FRACTIONAL INTEREST?

A fractional interest of ownership in real estate exists when two or more parties each own an undivided fractional share of real property.  This interest arrangement is also known as tenancy in common.  Undivided fractional interests often occur as the result of inheritance or transfers between family members and by family or business owners acquiring real estate without an ownership structure already in place.

In the absence of a written ownership agreement specifying otherwise, all owners can possess and use the entire property.  Each owner will have the right to enjoy the property and have a share of the property’s income and expenses.  While each owner has equal right to use the real estate, they cannot partition or designate a part of the property as being their own, nor can they exclude other co-owners.  The more fractional owners that a property has, the more diluted one undivided interest may become.

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THE QUESTION WE GET MOST OFTEN

The unique traits of fractional interest can lead to some unique appraisal work, which in turn gives rise to some commonly asked questions. For example, I recently appraised a 25% undivided fractional interest in a motel property.  As with many fractional interest appraisals, we were eventually asked a question like this: “Why would the value of a 25% fractional interest not be exactly 25% of the overall property’s market value?”  The short answer is risk.

Undivided fractional interests often suffer a discount when they are bought or sold on the market, due to the lack of ownership control and the lack of marketability.  When comparing this type of ownership with 100% fee simple ownership, there is understandably less desirability and more risk from the standpoint of a potential owner or investor.  Attracting a willing buyer commonly requires a discount to the proportional share of the overall property value.  For these reasons, a fractional interest often has a market value below its pro rata share.  Attorneys, accountants, courts, and the IRS have all recognized that a discount should be considered for the market value of a fractional interest.

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WHY AN APPRAISAL OF FRACTIONAL INTEREST MAY BE USEFUL

A fractional interest may need to be appraised for several reasons.  In the event of a gift or inheritance, an appraisal may be required for compliance with estate tax regulations, but could be beneficial ahead of time for estate planning.  Or perhaps you are involved in a potential sale; whether buying or selling a partial interest in real estate, an appraisal can keep price negotiations reasonable and add leverage when dealing with the other parties involved.

We have experience in appraising fractional interests in real estate.  With reliable data and credible methods, we are able to determine the effect on market value of particular interests and arrangements.  If you require the valuation of a fractional interest, please feel free to call.  Also see what other customers are saying about our service on our Customer Reviews page.

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.

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VALUING LIFE ESTATES

by Mason Spurgeon, Certified General Real Estate Appraiser

February 2017

One of the common misconceptions about real estate appraisers is that our valuations are strictly concerned with real estate: acreage, location, buildings, soil types, and so forth. This conception is true in most cases. However, another important factor for appraisal work concerns cases of co-ownership. When a property is co-owned according to some special agreement, any market buyer will realize that he can only purchase that property “with strings attached.” This affects how much he is willing to pay for that property. And since appraised values are meant to reflect market values, appraisers must account for these forms of co-ownership.

One such example is the life estate. A life estate is an agreement whereby an individual’s interest in real estate is limited to that individual’s lifetime, with the property passing to other recipients at the individual’s death.  The creation of a life estate divides the fee simple estate into two lesser estates held by the “life tenant” and the “remainderman.”  The person who holds the life estate is called the life tenant, and those who receive the property at the death of the life tenant are called remaindermen.

farm appraisal northeast missouri

The life tenant will have some specified right to use, occupy, and control the property under the life estate until the life tenant passes away, at which time the life estate is terminated.  The remaindermen is then in control of the fee simple interest of the property, the full bundle of rights, and will have the total right to use, occupy, and control the property. Typically, someone who wants to ensure that the transfer of their property is smooth after their death will sell or gift the property to another person, but retain a life estate.  Life estates in our market area are usually formed between family members.

farm appraisal western illinois

Many life estates apply to the entire property, and the life tenant retains all the income from the property and the use of the buildings, and lives in the home.  However, some life estates are only applicable to the home and a few acres.  This is good for the remainderman, who can now use the farm ground and/or other parts of the tract to help pay the life tenant for the property, while the life tenant can remain in the home.

The existence of a life estate is usually listed in a deed near the legal description.  For this reason, we always ask for a legal description or deed for the subject property we are appraising.  These documents need to be reviewed with careful attention to detail.  Every life estate is written differently depending on the lawyer and the life tenant’s wishes.

Developing an opinion of value for a property with a life estate can be challenging for appraisers.  These arrangements must be viewed through the eyes of the market to determine how a potential buyer would pay for a property with such an agreement. However, at Spurgeon Appraisals, we are experienced at appraising these kinds of properties.  If you have questions about valuing your life estate, please do not hesitate to call us.  Our customer service is second to none.

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.

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APPRAISING HOG CONFINEMENTS

by Mason Spurgeon, Certified General Real Estate Appraiser

October 2016

There are several different kinds of hog confinements.  In this newsletter, I am going to concentrate on the buildings that are most commonly built in this area, wean-to-finish barns.  Piglets are placed in a wean-to-finish barn at between 10-15 pounds just after being weaned from their mothers.  There are several different styles of wean-to-finish buildings, and the style changes with each passing year.  New ideas and innovations are instituted to maximize the weight gain of the pigs and insure the health of the animals.  No expense is spared on these buildings.  They cost hundreds of thousands of dollars to construct depending on the head count of the building.

When appraising these barns, we must assess the overall condition of the building.  This is sometimes very difficult to determine, which is why we must perform a physical inspection.  Pigs are very hard on equipment, gates, and buildings, which is why the equipment is expected to have an economic life of 10 years and the building is expected to last only 20 years.  However, with proper cleaning and maintenance when empty of hogs, the life of the equipment and building can be prolonged.  For this reason, the effective age is sometimes much less than the actual age of the building in our reports.

appraiser for hog confinement

While the barn type and condition is very important when completing an appraisal on these types of properties, the most important part of the appraisal is the contract.  The integrator (the person or company that supplies the hogs and feed) and the operator (the person or company that owns the barn and cares for the pigs while they are in the building) must agree on terms and a price per head.  The most common type of building built in this area is a 2,480-head building, and the operator is paid based on the head capacity per year.  For this amount, the operator must care for the hogs and maintain the building.  If the operator loses too many hogs, the integrator could terminate the contract.  There are many clauses throughout the contracts that an integrator and operator must abide by, and the contracts could be terminated with reasonable notice.  This could leave the lending institution and the borrower in a sticky situation.

It is important to pay close attention to the contract and determine if it has renewal clauses.  If not, the building could be worthless after the contract expires.  Furthermore, many integrators do not want to renew contracts on older buildings without substantial upgrades.  The need to upgrade could even leave the building unusable if the cost-to-cure is much higher than the benefit.  On the other hand, buildings might continue in use without being upgraded if the buildings are well-managed.  For example, older style buildings use double-sided curtain buildings while newer style buildings are tunnel ventilated.  The older buildings can still be very effective if they are well managed, though they often have a lower per-head rate.

appraiser for swine facility

The last thing to mention about hog buildings is the manure easements.  This is often overlooked by many in our profession, but it is extremely important, along with local and state permits and zoning.  These buildings are often appraised on a small number of acres, less than 10, which is not enough ground to dispose of the manure.  There must be an agreement in place to dispose of the manure on neighboring farms.  It is usually not a problem to get a neighboring farm to take or buy the manure because it is a great fertilizer.  Many farms even build these buildings for the manure to save on crop input costs each year, which is just another benefit to owning a hog confinement building.  But if the manure must be hauled a long distance, it can get very costly.  The cost of this is often the responsibility of the operator.

appraiser for hog wean to finish building

At Spurgeon Appraisals, we strive to complete detailed and accurate appraisals on wean-to-finish barns and other specialty properties.  When accuracy matters, call Spurgeon Appraisals.

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.

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FARMLAND PRICES IN 2015

by Mason Spurgeon, Certified General Real Estate Appraiser

January 2016

I am often asked "what are land prices doing?" and I respond with "it depends on the type of property you are talking about."  This is a very difficult question to answer in general terms due to the many different factors in the market for different types of land and their locations.
 
In completing this market study, I used our internal database of extensive sales data to perform an analysis between 2014 and 2015 sales.  This is a very difficult task to perform because of the lack of true resales, the same property selling each year without being altered in any way.  This is the only true way to tell if the market has changed, but these types of sales are very rare, so appraisers are forced to compare similar sales to determine if there is a difference in land values from one year to the next.
 
I have analyzed sales in Hancock County, Illinois, and Lewis County, Missouri.  These two counties were used because of their location and amount of sales data, still a very limited amount but much better than other counties throughout the area.  Between 2013 and 2014 there was a sharp decline in the total number of sales in these counties.  However, between 2014 and 2015 the number of sales were similar.  The supply of market sales did not increase or decrease between 2014 and 2015.

appraisal of recreational land northeastern missouri

In completing my analysis, I started by breaking all of the sales into categories based on their percentage open and county.  Then I averaged all of the prices for the different land categories and the total land prices for all of the farms.
 
My findings after analyzing these two markets was very interesting.  According to the sales data it appears that the results are mixed.  In both counties it appears that farms that are highly tillable appeared to have stayed stable, but in Lewis County less tillable tracts appear to have fallen slightly and in Hancock County they increased.  However, these conclusions were drawn with very limited sales data, much less than would be ideal for this type of study; also, this data was taken from all areas of the county, and it is based on averages.  Averages are very dangerous in the appraisal world and should be used with caution.

appraisal of recreational land western iowa

As for the reason for the highly tillable tracts being stable in both Missouri and Illinois, this maybe because of commodity prices.  Farmers are waiting to see what prices are going to do before investing large amounts of cash.  On the other hand, the reason for the increase and/or decrease in less open tracts are unknown exactly.  There are many different speculations as to why the farming market changes over time and between states, and frankly this newsletter would not be long enough to explain every aspect.  All of these points could be debated for hours.
 
In conclusion, I have not seen a large change in the farm real estate market in our area.  Sure there are sales of properties that appear to be below market, and some that are at the upper end of the market, but overall, the market appears to be stable, despite the significant drop in the stock market and commodity prices.  It appears that the real estate market is still being propped up by the low interest rates and the lack of a better investment.  Where else can a person get a decent return on their investment and have a tangible asset that doesn’t depreciate?  Land has always been a good investment, when held for a long period of time, and it appears to still be a good investment.  Mark Twain said it best, “Buy land, they’re not making it anymore.”

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.

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VALUING DUCK HUNTING PROPERTIES

by Mason Spurgeon, Certified General Real Estate Appraiser

July 2015

Appraising duck hunting properties is a fairly difficult undertaking due to the many different variations of property characteristics.  However, every good duck hunting property needs the same basic features, and these features are the greatest factors in valuing the property.  Such properties need the ideal location near a flyway and population center, adequate wetland, and a good food source for the ducks.

Most often a duck hunting property is located in a river bottom near what is called a flyway, a route regularly used by large numbers of migrating birds.  Ducks and other birds that migrate south in the winter are looking for places to rest and eat when flying. Very rarely do the large rivers completely freeze, which make them great places for ducks to land and feed.  By contrast, bird activity is minimal in places which are further away from such flyways.  The map below shows the location of the rivers in and around Missouri and their flyways.  The major rivers in central United States all appear to flow into the Mississippi River around Missouri, making this area very good for duck hunting.

appraisal for duck hunting ground

However, the value of a duck hunting property is determined not only by close proximity to a flyway, but also by close proximity to population centers.  Many buyers do not want to drive several hours to their properties in order to hunt.  They want to leave the office early and be in their blinds within an hour.  Because of this, many properties located in close proximity to St. Louis (so long as they are easily accessed) have a higher value than those located further away.

Adequate water is another necessity for a good duck hunting property, and various methods are used to keep ponds flooded.  Most of these properties are deliberately flooded using wells. These wells are costly to install and use electricity to run, but they give the owner a lot of control over the water level, and the piping under the water near the blinds helps to prevent freezing. These wells help to make the property more attractive to traveling ducks.  Another method for flooding the property is the diverting of water from a natural waterway, such as a ditch. However, the success of this type of water source is dependent on rainy weather. Since many hunters do not want to put this kind of faith in Mother Nature, this method is not commonly used and wells are preferred.

appraisal for duck club

Often property owners think that a duck hunting property is made more valuable by having more wells.  This does not appear to be the case in the current market.  Most of the time, the higher number of wells on a property indicates a greater problem with seepage.  The ponds are probably really sandy or leaky in one-way or another, and more water is needed to keep the ponds filled.  But as long as the property has adequate water and retention, the value of the property is not altered by number of wells.

The best duck hunting properties will also try to provide a food source to attract a large number of ducks.  The owner typically drains a pond, opens the spillway, and allows the ground to dry.  A crop, typically corn, is planted and allowed to grow to its maturity, which happens around the time duck hunting season begins.  Then the spillways are closed and the ponds are flooded so that the ducks can land and eat while floating on the surface of the water.

appraiser for duck hunting ground

Difficult appraisals such as duck hunting properties do not discourage the professionals here at Spurgeon Appraisals. We will work hard to determine the value of each of the unique characteristics of your property. Call today and let us help you with your appraisal needs.

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.

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FARM PRICES: WHAT HAPPENED IN 2014?

by Matthew Roberts, Certified General Real Estate Appraiser

February 2019

Over the past few years, prices for tillable farmland have increased substantially.  However, in 2014, the frenzy seemed to fizzle out.  Throughout the year, many speculated that prices had leveled off or even declined.  Some very big changes happened in the market last year, but concluding what actually took place may be something that is disputed long into 2015.

To give you some idea of market trends, I have analyzed sales from Adams and Hancock Counties in Illinois and from Lewis and Clark Counties in Missouri.  Price per acre of tillable cropland tends to be higher in Illinois, but the change in prices on each side of the river moved in the same direction.  From 2012 to 2013, in Adams and Hancock, the average price per acre of farmland and tillable land types increased by 15% to 30%!  Comparing 2013 to 2014 indicated very different results.  Average prices actually showed a decrease of 7%-12%.  From 2012 to 2013, in Lewis and Clark, the average price per acre of farmland increased anywhere from 3% to 10%.  From 2013 to 2014, average prices decreased by 2%-7%.

But at the same time, another trend began in the market which may have dramatically affected average land prices.  The big change between 2013 and 2014 was the number of sales.  The number of sales was much lower in 2014 than previous years.  Not only that, there were far fewer sales of the highly productive farmland than in 2013.  Comparing 2014 to the previous year, on both sides of the river, showed that there were as many as 50% to 80% fewer sales of high quality tillable land types.  Having fewer sales of the highest quality farmland in 2014 may have resulted in downward pressure on average land prices.  Regarding the notion that the market for farmland had ‘fallen off,’ 2014 may not have been the year.  It seems that last year, prices did not necessarily decrease, but there were less sales of high quality farms.  When these types of farms did sell in 2014, their sale prices were still strong. Taking this into consideration, farm prices could possibly be relatively stable.

Understanding various market trends can greatly contribute to an accurate appraisal of agricultural properties.  At Spurgeon Appraisals, our customers are familiar with our professional level of detail and analysis in our reports.  We are well qualified and equipped to meet your appraisal needs.

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.

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