Understanding How Appraisals Work
When it comes to purchasing farm land for sale in Florida, securing an appraisal is a standard part of the buying process. An appraisal is the process of determining the land value of a property. The land value is a measure of how much a property is worth. When determining the value of a property, an appraiser may use a combination of three basic valuation approaches, which are also known as the “Three Approaches to Value.”
The Three Approaches to Value
1. Direct Sales Comparison Approach
2. Capitalization of Income Approach
3. Replacement Cost Approach
Direct Sales Comparison Approach
The method of direct sales comparison is a commonly used approach in valuing Florida farm land for sale. This method of valuation, which is sometimes referred to as the market data approach, estimates the value of a property based on the comparison of data on recent selling prices of similar properties in the area, usually three or four, which are known as comparables. To provide a valid comparison, the comparables must be extremely similar to the subject property and must have been sold within a year in a competitive market under normal market conditions.
Replacement Cost Approach
The cost approach, or the summation approach, is a method that is used to find the value of farm land for sale in Florida that has been improved by one or more structures. This method estimates the value of the building(s) with depreciation and the value of the land separately. The sum of the two estimated values equate to the land value of the improved property. This approach assumes that a reasonable buyer is not willing to pay more for an improved property than what it would cost the buyer in total to purchase a similar lot and have a comparable structure built.
Income Capitalization Approach
The income capitalization approach is generally used in combination with the direct sales comparison approach and the replacement cost approach to estimate the value of income-producing commercial and investment properties such as Florida farm land for sale. This approach bases the value of the land on the amount of income the property has, or its potential to generate income in comparison to similar properties. In using this approach, the appraiser must take into consideration revenues, operating expenses, insurance, maintenance costs incurred by owning the property, and the expected return on investment.
Other Factors that Affect the Value of Florida Farm Land
When determining the value of farm land for sale in Florida, the “Three Approaches to Value” alone can not accurately measure the true value of a property, and so other factors must be taken into consideration when assigning a market value to Florida farm land for sale. Some of the factors that must be taken into consideration include zoning restrictions, market inventory, comparable listing prices, desirability of the property, access to the property, soil conditions, water availability, and holding costs.