Land Values and Pricing a Farm in Today’s Market

IowaLandValues

LAND VALUES AND PRICING A FARM IN TODAY'S MARKET

BEYOND THE DIRT | 03.17.2022

Here in Iowa and across the Midwest, we have seen a tremendous resurgence in land values.  Prices are at an all time high in many regions.   Though, some say its not really a surprise.  After all, as once famously said by Mark Twain, … “they’re not making it anymore”.  Though, why is this occurring, and what does it mean if you’re looking to buy or sell land?

Simply put, land is a solid asset.  You can walk out on it, enjoy working it, and it can’t be taken away from you overnight.  Returns are generally positive over the long haul, and Economists have most recently described farmland as a hedge for inflation and a security for cash storage in a volatile stock market.  Crop prices have continued to show strong gains starting in the fall of 2020 and continuing throughout the time of this writing here in late 2022.

As a result of the overwhelming positivity in the market, land values have soared, rivaling and in several cases surpassing what was seen at the previous peak of land values in 2011 to 2012.  In fact, just in September, an Iowa farm sold for the highest price per acre, ever.  Granted, the property did have a wind turbine supplying additional revenue to the farm, but it still demonstrates directionally that the land values are surpassing levels ever seen before.

This is great news for farmland owners who are considering selling their property.  Owners of Quality farmland should expect to receive top dollar for the foreseeable future.  However, therein lies the challenge….what price should you expect? 

Iowa Land Values

In appraisals, the phrase Fair Market Value refers to the price a reasonably informed buyer would pay, and a reasonably informed seller would accept for a particular property.  The conditions must be that the property is on the open market where neither party is under duress.  

When selling a piece of property, the Fair Market value is generally estimated prior to the actual sale.  This lets the owner set an asking price in a listing or learn what to expect from a Land Auction.  The value is derived using several data points, many of which include recent sales from comparable properties.

The challenge in the current market is that land values are escalating quickly.  So, historical data is not a great indicator of the current fair market value.  At KILOTERRA, we use an extrapolation method of the land value trends to project a sale price.  However, even this mathematical projection of the value cannot consider the number of other factors that may be at play.

If a landowner decides to List a piece of property, we generally provide a bracket of prices they should expect..  The prices range from what we calculate as an absolute minimum to the extrapolated potential if the rise in prices continues.  We often recommend that an owner anticipate a price close to the middle of the range, and plan to be surprised if it is more. 

Also, it is important right now as an owner to be reactive to the market.  If you aren’t seeing any activity in a strong market, then it is likely that the asking price is too high.

Fortunately, if you own a property that is ideal for a Land Auction, you don’t necessarily need to worry about setting a price.  Simply define the terms of the sale and the day you want it sold, and let the potential buyers fight it out.

If you have questions about how to price your property in today’s market, please contact one of our Land Specialists, here at KILOTERRA.  Our team will be happy to assist you with all your Land Sales and Auction needs.  Please call us at 515-442-7709 or email: info@kiloterra.com

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