Dairy farms are one of the more difficult special use properties to perform a valuation for. This is because of the limited market dairies have and the many different aspects you need to consider when appraising dairies. “Appraisers generally utilize three common approaches in estimating the market value of real property. These approaches are known as the Sales Comparison Approach, Cost Approach, and Income Approach” (Appraisal Report).
In valuing dairy properties the Sales Comparison Approach is most often used. This is typically due to the availability of recent market sales in the subject area. The Sales Comparison Approach is considered to best demonstrate the current market value of dairy properties (Appraisal Report). In the Sales Comparison Approach there are elements of comparison for each type of property. In dairy properties these elements of comparison are often areas of concern. Each subject property must be analyzed to identify the dairy’s capacity, i.e. animal units, and the compliance of the dairy with all regulations such as zoning, state water quality, air quality, special use or conditional use permits, and Williamson Act Status. Examples of other elements of comparison are physical attributes of the facility, which include; milk barn capacity, freestall barns/corral capacity, feed storage facilities and support structures(San Joaquin Valley Ag Lenders Society). Once these elements of comparison have been established, and comparable properties selected, this approach will help to indicate a value for the subject property.
The Cost Approach helps provide market value of the real property, estimates the replacement cost to build the facility, and accounts for depreciation due to the age and the physical deterioration of the improvements of the dairy. “This approach for estimating the market value of a new or relatively new dairy can be used when the land value is well supported and the improvements are new and suffer only minor depreciation” (Appraisal Report). In California it is becoming very difficult to obtain a permit to build a new dairy facility because of the environmental regulations. Because of this the Cost Approach is not the best indicator in valuing a dairy.
The Income Approach is generally not used when appraising dairy properties. “Market prices do not correlate with the income earning capabilities of the land and as such the income approach is not considered applicable to dairy properties in the valuation process” (Appraisal Report).
Appraisers must be specifically educated in the appraisal of dairies because it is a highly specialized field. “The dairy industry is facing continued challenges in its operations, expansion and relocation activities including the ability to construct new dairies. The dairy industry brings many jobs to an area and allows associated businesses to grow and flourish. This creates further conflict between local communities, governments and the environmentalists” (Dairy Farm Operating Trends). Therefore, it is important that an appraiser is highly informed of the different aspects that need to be considered when appraising dairies.
An Appraisal Report of the”: Vander Weerd Property San Bernardino County, CA.
31.50 Acres of Irrigated Cropland w/ Dairy Facility Improvements. Date of Appraisal: January 15, 2009. By: The Ranch Co., Inc.
Frazer Frost, LLP. (2009). Dairy Farm Operating Trends: December 31, 2009.
San Joaquin Valley Ag Lenders Society. (2001). 2001 Dairy Short Course: AgTAC