How to value ranch land

Question

A elderly family member has a 1,300 acre ranch that she's looking to sell. She claims it's worth at least $1M, but she's willing to sell for $750K to family, in exchange for a minor concession (i.e., another family member gets to keep his job there for at least 3 more years). I have looked at a few commercial listings of similar land in the area, and based on price per square foot of the *list* price, it looks like the land should conservatively be worth anywhere from $1.5M to $7.5M. However, I admittedly know nothing about ranches. How do I go about finding a better estimate of the value? How do I find out if it can be divided and sold in smaller increments.

I obviously have a lot more research to do. Where do I start?

Jon Klaus · Answer

I know this is an older thread, but I found a really good article on valuing ranches.

http://www.stockmangrassfarmer.net/cgi-bin/page.cgi?id=461

Jon Holdman · Answer

Where is this land located?  If its here in CO, or many states in this part of the country, water rights are a HUGE issue.  Probably not an issue if you're in the wet parts of Oregon.

In our area, every drop of water belongs to someone.  You cannot capture rain that falls on your land. You cannot catch your bathwater or washer water and use it to water your garden.  You certainly cannot just drill a well and use the water.  There is whole system of water rights and even a "water court" system that is used to resolve disputes.  A piece of land with no water rights has very little value.  In many cases, the water rights may have more value than the land, and water rights are often sold separately from the property.

To try to address your questions, determining value can be difficult.  You will need to find sales of similar properties.  Similar in this case could mean similar use, similar timber, similar slope, anything that affects the value.  Anything that's prices per square foot sounds like its already been somewhat developed, or is being marketed to commercial people used to thinking in square foot.  Ranch, farm, or timber land is always priced per acre.    If you can find some sales of similar land, figuring a per acre price is easy, and should give you a good value.

If you want to subdivide this property you need to speak with the city or (probably) county.  They may have regulations about subdivision.  The state may also have regulations.  It may be you can just draw up a plat map of the subdivision, sell the pieces and tell the buyer's they're on their own for surveying.  Happens all the time where I grew up in rural MO.  City people (ok, I live in the city now) buy, thinking fences are on lines only to discover we all built fences 10-20' on our side of the line to make maintaining them easier.

You say its already 12 "plots".  What does that mean?  Cattle ranches are often crossfenced so you can keep the cattle in one area for while and let another area grow back.  If you mean its already legally subdivided, then breaking it up may be easier.

However, you may also mean there are 12 separate parcels.  That's the case on our family farm.  That's mostly an artifact of the sections used to survey the area.  Any particular parcel is a piece of a section (640 acres), a quarter section (160 acres), or a quarter quarter section (40 acres).  The descriptions will say "starting from the southwest corner of the northwest quarter section of the southeast quarter section of section 17 township 15 range 21, thence north 110 feet then east 88 degress 250 feet", etc.  Just because you have a bunch of such pieces doesn't mean its been subdivided.

You'll also have to worry about access, too.  If it has been subdivided, and all the pieces lie along a public road, you're probably good to go.  If not, you'll need to carve out easements across some of them to get to the landlocked ones.

Account Closed · Answer

Depending on where it is located, sometimes it is not possible to divide agricultural land.
          
          Water rights: every drop of water is owned by someone. In dry areas, you probably won't be able to buy water rights, which means no water. You won't be able to sell a parcel with no water, unless you can trick some city slicker from back east.
          
          (In Western Oregon, with all the rain, every drop of weater is still owned by someone.)
          
          In most western states, you can't sink a well without a permit, because the water table water is all owned by someone.
          
          A cattle ranch should be valued by how many head of cattle it will support. Plus the board footage of any timber growing on it.
          
          Some ranches sell for high prices as hunting ranches, if the terrain is exceptionally attractive and there is a lot of game.
          
          Ranches generally don't generate much income. You'd have a big payment with not much coming in.
          
          The old joke is: if I had a million bucks, I'd just keep ranching until it was all gone. Cattle ranch is a lifestyle, not a money maker.

Bill Gulley · Answer

LOL, got a story;

Examined a Ag bank in Arkansas and a guy had a high concentration ($$$) of loans in cattle. I thought the amount was high considering the price. I went out to that "ranch" and counted heads, about 70 on the place. I got the address from the legal description and checked the plat map in the file.

I went back to the loan officer and asked why he loaned so much on the collateral, he claimed it was based on 200 head, so I asked where they were. He took me out there and stoped along the road and showed me a good looking heard and he took out binoculars to count his collateral. We took a different route to get out there, but as we left, I saw the house and asked him, does your borrower lease any pasture? He said no, then I informed him he was at the wrong palce and was counting the wrong heard.

He disagreed and said that's where the borrower took him and that was the same heard......hmmmm?

We got back and I showed him on the plat map where the subject was located.....yep, the borrower had snowed him!

So, Jon, Take care in financing things that move and don't have ingraved indentification numbers or plates on them!

Cattle are tagged, but those can be changed. All the paperwork in the world won't tell you if your collateral was moved or how many spots it has.

I have also seen loan officers count head in one pasture, say the south range, starting just before the day runs out and have to come back the next day to finish, when they go to the north range......and the borrower moved the heard, so many were counted twice!  Good luck cowboy!

Bill Gulley · Answer

Hi, that's a new one, I'll seel my land but you must hire my relative! It's common to have employment contracts with the sale of a large business, usually senior management, but never for a ranch hand, but I guess you could. That could be a killer since such an agreement would need to be well defined and requirements set, otherwise the guy could show up late, drink coffe all day, take off early or whatever and you would not be able to fire them! Under your state law, it may not be possible to place such a restriction on land. Obviously the lady is concerned about her family member, but why not just buy him out at a reasobale wage?
As to valuing the land, the very first rule is to look at the property in it's highest and best use, which may or may not be its current use. If that much land is available near a city that could support mini-ranch/farms or mini-estates, with equestrian trails, perhaps a golf course and maybe a C-store along a highway, a ranch may not be the best use of the land. In my area, about the same amount of land was on the market for about fifteen years as a ranch and it was then converted to an upscale residential area. Not knowing anything about the location aspects of your property it's hard to say where to begin.

Jon Holdman · Answer

I grew up farming, and we ran a few cattle, too.  There's an old joke for that business.

A farmer dies and by some miracle actually has some money.  It gets divided up among his three sons.  The lawyer asks them what they're going to do.  The first one says he's going to the city to become a lawyer.  The second says he's going to the city to become a doctor.  The third one says "I guess I'll stay here and work the farm until I run out of money."

Vikram C. · Answer

Bill, the article said that the investor does not finance cows but will finance stockers.  That's why I was confused.

From your explanation, it appears as if the article is referring to the high desert areas near the Mojave desert near Palm Springs.

Jon Klaus · Answer

Ha, beware not only portable collateral, but edible collateral!  Thanks for the story/warning, Bill.

Jon Klaus · Answer

Last month I went to Equity Trust's conference on SD-IRAs and there were investors there who bought cattle or financed cattle with their SD-IRA's.  I'm going to look into it next year.  Trade in some stock for some stockers.

Bill Gulley · Answer

V. peppermint is a plant, stockers=cattle, winter desert=non-productive land and HO pasture is fertilized pasture or highly productive. CA, is out of my area, but from the context, that's my take.

It's odd too that Denny does not finance stock and wants to increase the heard by 50% in 5 years. Denny must be able to turn the heard, many like to keep reserves for the unforseen and finance that inventory, he must have a cash cow!

How to value ranch land

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