Intricacies of Farm Land Valuation: A few things to consider to maximize value.

January 16, 2019 1:00 pm
(as seen in the Winter 2018/19 edition of Orchard and Vine Magazine)

This summer and fall brought some unique challenges for growers in the Okanagan. Now that winter is here, orchardists can enjoy the calm after the storm; a time for regrouping, new undertakings and future planning. If you intend to sell, refinance, bequeath or simply upgrade your orchard or vineyard next season, here are a few things to consider over the cold months. Sometimes, it just takes a little rethinking and ingenuity to maximize your value so you’re ready to strike when the market is hot.

Commercial Real Estate Appraisers are regularly called upon to assess the value of agricultural properties and businesses for acquisition purposes and succession planning. More often than not, financial Institutions require a formal Market Value Appraisal report in order to approve financing for those looking to purchase orchards, vineyards and farms. Below are a number of characteristics an accredited Commercial Appraiser is bound to consider when evaluating a producing agricultural property.

LOCATION

Certain locations bring unique advantages. It’s important to know your area and maximize on its benefits. Similkameen Valley orchards, for example, are relatively isolated from the larger, well-established fruit producing regions of the Okanagan Valley. For anyone looking to acquire or create an organic orchard or vineyard, the benefits of such a secluded location are extremely attractive. Organic fruit and wine production continues to be a growing and well organized market segment. If your land is located in an area favourable to organic production, now might be the time to consider steps toward certification.

Increasingly, Orchardists situated along busy roadways are taking advantage of their locations to sell directly to the consumer. Setting up a successful farm-to-table fruit-stand remains a quantifiable improvement unique to a well-placed orchard.

SIZE

While farming less than 5 acres is typically considered a “hobby”, cultivating anything on 10 or more acres denotes a bona fide agricultural endeavor. As a result, farms in the 5 to 10-acre range remain in high demand due to their ability to accommodate either venture. Growers looking to alter the size and marketability of their land can do so by expanding or reducing farm size within the Agricultural Land Reserve (ALR) through the elimination of common lots lines, or through a boundary adjustment, providing a few conditions and approvals are met.

Recent trends show orchardists and viticulturists expanding operations and increasing economies of scale through the purchase of neighbouring properties, as discussed in our last article. For those farming over 10 acres, growing through consolidation and the purchase of adjacent land parcels reduces the cost of operations per acre, making the agricultural business more attractive to potential purchasers.

WATER

Does your orchard or vineyard benefit from access to a natural water source? If so, your land offers a rare benefit in these increasingly hot, dry times. This is especially true for those who have Provincial rights or licenses to surface or ground water. Once formal rights are secured, it’s important to ensure they are enforceable and transferable to new owners once you sell your farm. It’s also necessary to use the water and maintain any infrastructure related to its distribution so the provision remains relevant and functional. Otherwise, water rights risk being forfeited.

SOILS

An understanding of soil types is fundamental to agricultural management practices and best results. Knowing the type of soils your farm is situated on can also help you market your property to purchasers looking for specific soils to support the growth of certain crops. Wine grapes, for instance, benefit from choice soils found in a selection of areas throughout the Okanagan. A qualified Commercial Appraiser pays close attention to soil types, referencing BC Ministry of Environment mapping and reports to calculate the accurate value of an orchard or vineyard.

FRUIT VARIETALS

Productivity differs greatly between grape vine types and orchard tree varieties. Fruit trees in particular can remain productive for lengthy periods of time (over 20 years) while the popularity of fruit varieties may decline quickly due to changing consumer demands. As a result, it’s nearly impossible for orchardists to predict, and immediately react to, market fluctuations. Yet, it’s essential to know the current popularity of your existing varieties. Provincial statistics, coupled with industry knowledge, regarding the dollar per pound value of both tree fruits and wine grapes are readily available and should be consulted when planning to remove, replace or start new plantings.

PAPERWORK

When the snow falls, one can always catch up on dreaded paperwork. The title to your land holdings, for example, may need attention if it includes redundant or unenforceable encumbrances that might worry a potential purchaser. These can include covenants such as shared irrigation agreements that were valid 50 years ago but no longer have meaning. To safeguard your agricultural land value, its best to review and remove any obsolete encumbrances from your land title documentation.

When it comes to property taxes, most growers are well-versed in the intricacies of the ALR and its benefits. For those not located within the ALR, only the farmed portion of your land is valued at legislated farm rates. To maximize farm classification, it’s important to ensure BC Assessment is calculating property value based on accurate land use.

Lastly, up-to-date business financials are always beneficial to the valuation of a producing agricultural property. These reflect your ability to run your orchard, operate your business and sell your crops. If you are thinking of selling, pull the shoebox of receipts off the shelf this winter and have an accountant prepare financial statements based on your latest sales season.

Brian Pauluzzi is an Okanagan-based Commercial Appraiser (AACI) and owner of NCA Commercial Inc. in Kelowna. www.ncacommercial.com

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