Valuing your farm and assets is important, especially when you are ready to sell. How do you know what the fair value of the land and assets is at the time of the sale? If you make the price higher than the value, no one will buy it. If you make it too low, you stand to lose money.
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Understanding the
different valuation methods can help you determine just the right price for your farmland and assets.
Valuing the Farmland
First, you’ll want to know how to value the farmland. This is the larger piece of the pie when it comes to selling, so you’ll want to make sure to ask a fair price for it. The most common method is the market value method. This method compares your farmland to the other farmland in the area that is for sale. Of course, this only works if the other farms for sale are about the same size and have the same features in terms of the location.
A couple of other less common methods of valuation include:
- Net worth – If you have a working farm, it has a net worth. Some buyers may be interested in this net worth to see what the farm is capable of producing. Keep in mind, though, this only tracks the cash coming in; it is not a true value of the land itself. It can be a good measure for potential buyers, though, as it helps them determine if the farm is capable of producing what they have in mind.
- Discounted earnings method – If you have farmland that has a lot of potential, the discounted earnings method may work well. The appraiser will determine the
expected earnings of the farm, translating it into the future value based on today’s dollar. This can help potential buyers see the capabilities of the farm to determine if it fits their needs.
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Valuing Assets
There are two basic ways to value the assets on your farm – fair market value and book value. Just like the land, the fair market value is the amount the market is willing to pay for the asset. The book value is the cost of the asset after taking away the depreciation.
Typically, you will look at the
fair market value if you are talking about selling your assets. This is what the market will pay, so it’s the value you need to know. If you are looking at your assets from a bookkeeping perspective, the book value might be a better valuation, but this is the more complex method that continually must be updated to keep it current.
Talking with a professional about the value of your farmland and/or assets is the best way to make sure you price your land and assets right and that you get the most money for them.
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