Inherent Difficulties in Appraising Farmland
The Farmland Exchange, the official podcast of CLHbid. com. Expert insights on buying and selling farmland in Western Canada.
Devon Davidson:Welcome back to the Farmland Exchange, the official podcast of CLHbid. com. I'm Devon Davidson, your host and digital media strategist for CLHBid. Media strategist for CLHBid. Today we are going to be talking about inherent difficulties in appraising farmland. And joining me in that conversation CEO of CLHbid. com, roy Carter and Alle Carter, legal and member of the executive team for CLHbid. com. Thanks for being here, guys. Thanks, tim, to our listeners. Quickly, before we get started, please take a minute to subscribe and follow the show on your podcast platform of choice and let's get into it. Perfect, all right. So the first question I had was why is it so hard to value farmland? It seems far less standardized than other forms of real estate, and who wants to answer that one?
Roy Carter:I'll maybe start. I think there's several reasons. One is the unit that we talk about. They're not the same. You know, it's not a unit of wheat, it's not a unit of canola. Or say in, you know, diamonds, it's cut, colour, quality or clarity rather, and I think in carrots it's like it's physics, it's science. Like it's physics, it's science. And so you know, and in that case a diamond in Vienna or one in New York or one in Toronto, it's got. There's no reflector, no variance on the value because of location, it's all because of those variables. So basically it's science, it's all because of those variables. So basically it's science.
Roy Carter:And with farmland, even if we ignore external factors, these units are all different. You know, every quarter of farmland to some degree is different, you know, and sometimes it's in a microclimate, sometimes it's slope, and there's a lot of variables beyond even soil classification. Right, you know, whether it's in a sort of a no-inhale area or whatever. So I think the first one is the unit. And then appraisals are based upon comparison. So what something sold for in the past? And from that point of view it's inherently hard to appraise because it's not a movable object.
Roy Carter:So if you take, you know, a combine at Dauphin, Manitoba, or a combine at Clarisseau in Alberta. The only difference on the same combine same thresher hours, same engine hours, general, same shape will be transportation right, because arbitrage will bring those markets together. There's no arbitrage for farmland because it cannot be moved and you can't move a farm, you know so, in the urban sector. You can't move a house in an urban sector but you can move streets.
Roy Carter:So you know a bungalow of 1200 square feet, uh, in a city, you know generally they'll be close to the same value. There will be some external factors parks and that type of deal right, but generally they can be appraised pretty much like you appraise a movable chattel where there's arbitrage, because there's arbitrage in a city where people can move around. If that bungalow is too cheap in one side of town, you know people will buy, start buying there and bring that market together right, right, yeah. So I think the the biggest factor is that it's not a movable object and people forget that and appraisers tend to treat it as squares on a board, like on a checkerboard, as if they could be moved around.
Roy Carter:But because they can't be moved around there's so many external factors that affect value that are really then hard to put a value on, and often external factors can exceed the internal actual chattel itself or asset itself. You know you could take a quarter at Nippon. You know Saskatchewan come across on the same latitude to Fort Saskatchewan, Alberta, and you know Fort Saskatchewan might be three times the value for the same land. Fort Saskatchewan might be three times the value for the same land, same productivity.
Alle Carter:And that doesn't happen with automobiles or with combines or anything that can be movable. Yeah, to your point, and we always say farmland is the only commodity in the world that can't be moved and there, as you were saying, are so many external factors, even what you know. A farmer will pay to assemble that land to their farm base. If I've had a couple of really good years marketing my grain and I'm on the buy and land comes up touching my land, there's no appraisal that can figure out the how much more I'm willing to pay for that land and that's you know. We often say that you, you usually know your buyers. They're usually, for the most you know, 50% of the time farmers in the area usually, and it's what they're willing to pay to add to their assemblage. Is is just something that you can't put a number on and it really depends on what's happening in the economy, what's happening with commodity prices and all these factors that are too difficult. It's just not a mathematical equation.
Devon Davidson:Yeah it's not straightforward, for sure.
Roy Carter:And not that we would be, you know, any better at coming up with a value in advance. People, though, mix up appraised value and market value. You know we don't sell stuff at appraised value, we sell it at the true market. An appraisal is merely a guess. What land would sell for if there was true price discovery with world-class marketing, so that we think that's us? And sometimes that guess gets pretty wild Because, again, like what Alle talked about, it's all rear-view mirror appraisal.
Roy Carter:It's what happened in the past. But you start adding in two crop failures, two years of drought, and maybe the year before was too much water seeding into mud. You know canola peas maybe got drowned out. You know farmers would generally take one year, maybe two, but get three in a row in an area. And again, because it's not movable, you'll see all of a sudden you know land will be affected as far as who's on the purchase and you know if appraisal just goes back about what stuff sold for it doesn't factor that in Right. You know you'll see even an oil patch you know dead in a certain area or stop, it'll affect values in a certain area.
Roy Carter:So, and where Alle's going with assemblage, within five miles of one quarter. There's 300 other quarters. But if you start adding quarters together people will come a lot further to farm. And nowadays it's relatively easy to go down the road. You know you'll see farmers, you know they're. The land will be spread out 60 kilometers almost unheard of years ago. Yeah, but they want they won't come for one quarter. You know they want an assemblage. But you know 300 quarters within five miles. Basically it's a square of the radius, double the radius and square it so you've got 1,200 quarters within 10 miles. So all of a sudden you quadruple your buyer potential.
Roy Carter:So you know that's impossible to value that. What people will pay for that assemblage? And you know we've had sales. We had one sale where a quarter was valued at $843,000 and we sold it for $1.88 million and so more than a million over the appraised value. And it was farms on and no investor. But that was purely an assemblage. That's what they were willing to pay the two farmers for that quarter across. If you would have listed that quarter for a million dollars, chances are no offers. You know, nobody thought. You know, looking at it, probably 843 is kind of what the market was Right. But that day, you know, with escalating tender with CLH bid. They basically stayed on and they know somebody else is on the other side. Yeah, and they get affirmation of values there. Totally.
Devon Davidson:Do you guys ever find that appraisals sort of set unrealistic expectations for sellers, like based on these appraisals, it should sell for this much. And then there's also sort of that emotional attachment or the factor or the legacy factor that comes into play, you know, do people overestimate how much the land is actually worth?
Alle Carter:I would say absolutely. Our, you know, sometimes toughest job is managing those expectations at the forefront. And we always say we never over promise and under deliver. And they'll come to us and say, well, I have an appraisal and my land's worth this, and we start digging it apart and it's like these are all the considerations that weren't taken into account and we're also not sitting here telling you what your land is worth. I always say if anyone is telling you how much your land's worth, stop listening to them. And so we're not here to say, as Roy said, that we can do any better of a job, but we let the market decide and have that starting bid and appraisals. They take into account all the comparables in the area and sometimes don't even factor in.
Alle Carter:Yes, that might have been a family relations sale, but maybe they don't speak, so maybe that is actually a little bit more accurate. Or maybe they are talking and so it's, you know, arm's length pretty close. They probably got a bit of a deal. Or we've seen appraisals where there'll be a small little area of about, you know, 40 acres or something, and that's appraised just about the same as the whole quarter, because they think that, oh, this is a beautiful building spot. Someone's going to want this to build a house. Well, it's not like a commercial lot. You know that's kind of a pain for someone to haul the drill combine over for this small little sliver. It's actually not of more value than that quarter, but it's. We understand farmland and there's so many other factors that just aren't accounted for.
Roy Carter:Yeah, I think that's a good comment. You know your data out is only as good as the data in. It's a real problem for appraisals because a lot of it's over the kitchen table. Most farmland is not traded through MLS Right, so they have a really big problem with data.
Devon Davidson:That was my next question, roy. Oh, okay, sorry to get ahead. No, no, that's perfect though.
Roy Carter:So basically, a lot of these deals, what else was involved? That type of deal, non-arm's length transactions, that type of deal, so you really transactions that type of deal, so you really get skewed. So, like ellie mentioned, you know we look at appraisals, um, you know, um, often we don't. The client often doesn't have them. They realize that they want to have a, a sale. They know they believe in our marketing and price discovery. So, um, you know you'd be surprised the number of farmers, when you ask them what their land's worth, you know I'd say at least 80% say I don't know which is the right answer. Yeah, and so you know most farmers don't have false expectations.
Roy Carter:Going back to your question there, can it cause a problem and give false expectations? Definitely, you know we, especially with estates. But, and it's especially relevant if the husband and wife say the farmers have passed away and the kids are removed. But we got one example, um, where a lady, totally sharp, and I mean they're you can't take the farm out of. Uh, you know these 85 year old widows, right, you know they've taken grain to town for their husband, uh, the elevator when he had to test at the elevator before you had to test her on the, the farm.
Roy Carter:And they get it and they also know what crops have been growing on all these fields, right, yeah and uh. So she was in her 80s widow and approached us to sell two quarters and uh, she'd had it appraised. And uh, the one quarter was appraised at 915 000. It was a full quarter, full 160 acres, and that's another problem. Sometimes they'll just look at it at titled acres, right, and then they'll average for the county or rm. So. And her other quarter was less, it was 150 because the subdivision was out of it. So it was appraised at 870 and she said want to sell both.
Roy Carter:I know for sure that the appraisal is wrong. It's got the big quarter as more money and it's not a chance. And you know she was totally dialed in. She said like it's Solonetsic heavy. She said like we just can't, couldn't really ever get a crop on it, right, and the other quarter that's 150, 150. She said that's going to sell way better. My neighbors want it, that type of deal. So she got it. So we, on her advice, and we, we also looked at it and totally we had our start set properly.
Roy Carter:Right opposite the appraisal, the quarter appraised at $870 sold for over $1.2 million, $1.25 million, and the quarter appraised at $915 sold for what it was worth at $565. So at the end of the day she was like yeah, we totally got it right. And you know she said to me, if I would have made my decision, a sale decision on this appraisal, I would have accepted an offer on the good quarter for 870, left 400 on the table, almost 400. And my bad quarter wouldn't have sold for the appraisal because it was wrong. It would have sold for what you got it for is 565. She got it. I mean you're not selling it for over market value. So you know that's dangerous, right, if you put 100% faith in that and you know easy to lose four or 500 grand on that by just bad data and making bad decisions, right.
Devon Davidson:Yeah, that's the Viking sale, correct, right, yeah, and that was a really interesting lesson for me, because that was one of the first properties that I had droned and I couldn't believe the difference in final sale price, yeah, yeah.
Alle Carter:Really interesting.
Devon Davidson:So I don't know, given the inefficiencies of traditional appraisals, are there any other options for sellers really? Or is it just you know, know what, trust the appraisal or don't, and and move on like I? It just seems like there's so many considerations and it doesn't seem to work yeah, I would say, you know, just take them with a grain of salt.
Roy Carter:they're, they're again a guess at the market and uh, you know, I guess we've seen enough, like Alle talks about. We'll go through them, because sometimes've got to talk people down, right, right, you know, and sometimes you'll just find glaring errors. They'll include a quarter that maybe had an equestrian center. We had that happen, you know, there was a quarter east of Calgary, quite a ways, and they were using an example of an equestrian quarter by the Villeneuve Airport and it was like, man, you're not in the same area, right, and you'll also find, so they adjust. What they do is they look at comparables and then they do this adjustment and it is like you want to talk about no science, it's no science. They'll talk about, oh, oh, that quarter 10 miles away, we'll adjust, uh, for that, uh, 25 percent, uh, that quarter is 25 percent less. And then we'll look at another quarter and we'll go, uh, we'll adjust 12, so they do all these adjustments. Uh, so say, if a quarter you know up north was 400, they'll say, well, we'll do a 25% adjustment, so this is 500. It has to be worth because it's better.
Roy Carter:But again, where they come up with that percentage from. You know it's a total roll of dice in my mind. As an example for adjustments here, if you look at the uh chicago mercantile exchange, soybeans number two, soybeans yellow is what that market price is and if you've got one you adjust six cents up and if you got three it's six cents down. So you know adjustments should be there if you have a proper unit of trade like soybeans number two, yellow. And that's science, because there is professional graders of soybeans that can tell you that's a three or one Sure. But there's no way you can do it in appraisal and get close.
Alle Carter:Kind of even on the grading scale a bit. I was at the Lethbridge Farm Show last week and a fellow came up to me he's going through a divorce and we just had a really interesting conversation where he's an agronomist and he was so frustrated because through this divorce process he had to get his farm appraised, you know, to pay out his separated spouse and it set this highly unrealistic expectation because, you know, the appraisal tells her that the land is worth this. And he, his argument was you're comparing, you know, sea soil, which is relatively really good, to my H soil that's gray wooded and just it's not at all the same producing land. It is not worth the same. And he said I even went to court fighting about this and they just couldn't understand why this appraisal is wrong. And he said I'm so frustrated that they don't engage agronomists like myself or anyone.
Alle Carter:And so right, even when we come up with the starts on our sales, which are often quite a bit lower than where you think the land will go, but it provides a safety net for our client, we will engage agrologists and be like go out, look at this land and and tell us what you think, because we want to get this right and something else is oftentimes they might be looking at a comparable, you know, north of the peace river, comparing land right up against the Peace, and it's like, well, when you're right against the river, you actually have cut out half of your potential bidders potentially to the north, because that river separates and no one's going to want to haul their equipment across the Dunvegan. So factors like that just aren't taken into account. Or if the land is a budding crown land, yeah, that's nice, but that's also a limiting factor for this farmer to potentially grow because there's crown land next to him, and so things like that buyers take into account, but these appraisals just don't Right.
Devon Davidson:Yeah, okay.
Roy Carter:Yeah, there's nothing smarter than the market totally the market will figure out what it's worth and there's so many variables to take into account you you wouldn't know where to begin to list them all. Like that, getting boxed in, that's where you'll see pockets. But the pockets are there generally for a reason type deal. You know we definitely investors like buying on our site. You know they sort of see it as the Chicago Mercantile Exchange where there's fluidity and true market price discovery. So they even help to bring that market, to make that market true. When you get investors from the outside maybe that'll be on that one that's boxed in, that just want to invest in land and don't have to cross a bridge, they look at it a little bit different.
Devon Davidson:All right. The next thing I want to talk about here was assessing the impact of surface lease revenue on farmland value. It can add significant value, roy, but uh, it's not always easy to quantify, so can you maybe walk us through a little bit of why that is Sure?
Roy Carter:You know, if the payment is right, it probably shouldn't add much value because the idea behind the payment is to make the landowner whole for the inconvenience, right. So if, if the payment reflects the inconvenience, the land should probably be neutral. And you know, you can look at um, you know these windmills and it's, you know, in our opinion it's too bad. Years ago in some of the provinces you know, target areas for well sites were in the middle of quarter sections. There's no more oil under the middle of that quarter than the corner right and so target areas were moved. Oil companies would just as soon be away from fence lines and out in the middle, nobody close to them. But some governments forced them to the corners.
Roy Carter:It's funny, somebody hasn't taken that on for the windmills, somebody hasn't taken that on for the windmills. But some of these people don't realize that actually the income, the surface lease revenue from that windmill might be a huge negative. Some people might totally stay away from that quarter because you know, they think actually the you know, government may change, there may be irrigation districts change and I might be able to irrigate that and that dream. Sometimes of course the story is better than reality, right, but they'll build that in when they're bidding but they won't when the windmill's out in the middle where it could be just as easily be in the corner.
Roy Carter:And we all get that on some sales. You'll see nowadays again with these wind projects and solar and solar projects. You know they come around and they sign up the farmer and it's a big final number per annum if they exercise the option. But the option is just peanuts so they tie this land up and the buyer doesn't know what he's got. He doesn't know if they could exercise and get a solar farm or if he can farm it right but, some of these farmers just want to farm, yeah, and we've had sales where you know we're on.
Roy Carter:But you tell your guy to go make a deal with a solar company to get that off and either pay him a fee or whatever. Or if I'm high, I want to have an option to be able to write them a check to get rid of them that option off my land. So I'm that's kind of the other side of the equation. You know, too often I think appraisers look at it as oh yeah, that's, there's income there, right, yeah, but often it's not seen as a plus for farmers. On the plus plus side, you know, we there's one that really stands out in Manitoba. We sold it was an estate and you know again, you get the kids removed and they got this appraisal. Often the appraisal is done for probate purposes, which can be problematic because sometimes you know the terminal returns filed based upon this high number and it doesn't materialize right. So that's a problem in itself. But in any event, this land in Manitoba, a couple of girls came to us, awesome to deal with, and the appraisal had the surface lease revenue equal to the value of the land and it's like wow and uh. So how did? How did that come about? Right, uh, because, again, it was there was multiple wells and which have a pretty major effect on farming, so, um, but they split it, so they valued the land based upon area sales, with no discount for the adverse effect of the wells.
Roy Carter:And then they come up with this crazy formula that people would invest. In this case they said they would invest $221,000 to get $18,000 a year, which was the SLR for 20 years. So you know, it'd be somebody be willing to invest $220,000 to get back $360,000 over 20 years? And it's kind of I doubt it. So you know, I talked to the appraiser in this case and I was like, what kind of math have you got there? And he says, well, yeah, you know, just the return on investment, like putting it in the bank, 221, and you get back 360.
Roy Carter:And I said, yeah, what you've missed is you don't have the 221. You've bought that revenue stream. This is not putting 220 in no bank, you've only got this stream. That's equals 360 after 20 years on wells that could easily be shut in. They were old wells, right, and uh, it was like, oh, okay, I just using that present value, that income stream, and I forgot. They don't get to keep that 221 and which is a pretty major problem. If you had a quarter million to invest, you would generally think in 20 years. Most people think you can double it every seven or eight. I'm never that good at investing but that's a general rule, you know.
Roy Carter:So maybe they'd invest a quarter million to get 800 back, but in this case they don't get their capital back because they bought an income stream, and so that's how wonky. So here we had, you know, these two girls thinking they're quarter million of income. But was the value of this income stream? And it's like no, and it's probably almost neutral on your quarter because those wells are tough to farm around, right, right, and, as it turned out, in the end it sold and the land sort of sold for more than double than they expected. So the sum of the appraisal was pretty close, but it was. We definitely got there a different route. So, yeah, that slr is a totally different deal to value and, uh, I would say it's often overvalued.
Devon Davidson:Okay um, yeah, that was my. That was my next. Do you find buyers over or undervalue it and you're saying they overvalue it?
Roy Carter:Appraisers overvalue it. I think buyers totally get it right Again. The market's not wrong. You know these guys are, you know 120-foot sprayers, gps, you know all that stuff, this stuff. There's a payment. Those annual payments are for a reason and you know they'll pay a premium for those wide open quarters. So it kind of the negative kind of gets built in right. Yeah, yeah.
Devon Davidson:Okay, Alle, anything to add to SLR?
Alle Carter:Roy covered that pretty well. Yeah, he did a good job Okay.
Devon Davidson:The next thing here is the value of aggregation. So how much does farmland value increase with larger assemblages? We've talked about this last Roy. You've said many times that people will pay a premium for assemblage, right, and you know, maybe go through that a little bit like why. I think most people understand it. But just you've talked about it, let's. Let's hear about it again yeah, it goes back.
Roy Carter:I think we did an earlier podcast. You know, again, we're really a function of building something because of what didn't work. That assemblage was always missed on sale by choice at auction, and you know they were familiar with one auction and again where they would sell by choice and the first party took four or five out of like 32. Everybody else went for their vehicles and the steal started right because they were only willing to come you know 30, 40 miles if they got it all or none. Yeah, so you, that's again our 'En Bloc', to try and take that into account. That's a, it's a game changer.
Roy Carter:What people will pay for the assemblage? Just economies of scale, moving down the road, setting up, that's a value, you know, we don't know, we have no idea what that would be. So we don't profess to be smarter than appraisals. All we were smart enough to know that super dangerous to rely on them because it is so far from a science, it's so far from valuing any other asset out there. Farmland is just got. All those sort of issues are surrounded that make it really, really difficult.
Devon Davidson:So there's not really an exact science. There's no way to measure the additional value of an assemblage right, it's just. There's so many other factors that need to be considered.
Alle Carter:Yeah, and I think parceling really is important with this, because and we'll maybe talk about it a bit later but when you get an assemblage that's almost like so massive and that's trying to be sold as one parcel, well you're not getting a lift for that assemblage, You're getting less buyers because it's almost too big for anyone.
Alle Carter:And so that's where we keep, we engage everyone and we make sure to get that premium for the assemblage, because the way that we package it matters. Maybe there's actually two on blocks, because there there's actually two assemblages that make more sense and you could buy both, but you could also just buy one, and so it kind of goes hand in hand with that packaging. That really matters, where you know everyone has a chance in round one, but then the other guys who want to, you know, pay a premium for that whole assemblage. They're kept honest by the young guys that were on in the first round and then they'll pay whatever that number is. And again, that's something we don't profess to know, but we just let them bid and let the market decide what that premium is worth.
Roy Carter:Yeah, I mean, sometimes we'll get farmers going together so we'll have a farm and the neighbor will find out. Of course we got solicitor client privilege. Nobody finds out before the deal signed and it's on our site. There's no leaks, we're not real estate, but you know. Then we'll get a call, sometimes from the neighbor and it's like well, you guys are selling browns, can you sell ours? And we have a duty to our client.
Roy Carter:So we contact our client and say you know, the neighbor's called, they want to go to the party the same day. You know, but you're going to have to approve it, right, because we got a potential conflict here. Okay, so we have a duty to go to them and get approval. And often they'll say to us you know, what do you think? And it's like our answer is you know we're not going to do anything that will hurt you, but have we seen lifts of 20, 30% by pooling quarters together? Of course yeah. All of a sudden, at some point too, you get people from out of province. Okay, you know they'll. If you start getting in that north at 20 number. Uh, all of a sudden we open up western canada. You know that's big enough to set up and big enough to set up a grain handling system and that right so is there.
Devon Davidson:Is there a point where there's diminishing returns for large assemblages, like I guess, because we can't open it up to larger areas, like we have multiple on blocks, maybe to appeal to to smaller buyers? I'm just, as it gets so large, you kind of limit your pool of bidders, correct?
Roy Carter:yeah, good question, devon. You know we've had one um like this. You know it's about 50 000 acres um that we uh, we're dealing with the owner on over a year or so. You know, is that that again comes to packaging. You know, if you ever put that out as 50,000 acres and force the market, yeah, like, look out, then that's a problem. You know, that'd be like having I got 80 houses for sale in Saskatoon. I'm selling them to one buyer, right, but we never do that and uh, we didn't end up selling that. It got sold.
Roy Carter:But you know, we in dealings with the owner it was like, well, let's package this as really, you know, two potential colonies maybe, uh, two potential big 'En Bloc', but then we still had we're bidding out individually. So don't ever get smarter than the market. Let the market figure it out, but let um, you need to allow the market then to bid on quarters, halves, multiple and sort of packages they want. Yeah, um, you know, if you ever try and crystallize that in advance, you're going to get it wrong to the detriment of your client. You just need to engage, like Alle talked about.
Roy Carter:You know the small guy and they got a right to bid too right and uh, most landowners like to treat you know that guy down guy and they got a right to bid too. Right, and uh, most landowners like to treat you know that guy down the road that's, um, they probably play crib with or whatever you know, they, they, they would um like to see it go to some of these local smaller guys. Right, and we make sure we engage them. And if there's somebody coming out of province he's probably going to get rung out and probably going to have to pay a premium if he wants it all. Yeah.
Alle Carter:So to kind of sum up your question there, I think it does affect the value if you try to force a sale, as Roy mentioned, all in one package, and oftentimes clients will come to us and they say I want to sell my whole farm together, because often they don't want to be left with the home quarter, which is very fair or something like that, and so that's where our packaging we really take time to go. Okay, how does this make sense? How is this being farmed? How many different players can we engage here? But then also do the on block to get that premium for the assemblage, but not forcing it just to one buyer, because you know we've seen land listed for years for 20 million for all these quarters and it's like for every guy that has money, you know for 20 that many quarters, there's 20 that have money for one, and so why not engage them as well? Yeah, um, so, yeah, okay we'll see.
Roy Carter:This is a bit off topic maybe, but we had one example where we went to sell some land in southern Alberta and it was for a government agency. So they are obligated to get two appraisals. The one appraisal was double the other one. To him and it was like uh, so we just average, hey.
Roy Carter:They just said oh, we just average to get the value right and I was like, no, like throw them both away, right? Uh, you know there's, uh, you know there's no better chance that it's the average of those two than it's either one of those two. Um, that's just tells you how difficult it is in that area to get any idea what that land's worth. So basically chuck them away and uh, and we'll find out what it's worth. So basically chuck them away and uh, and we'll find out what it's worth, right.
Alle Carter:And that's where buyers and their financial institutions like our site because it is fair market value on that day. And so they don't even. You know, fcc won't even make the their client go get an appraisal, cause it's like a. We know that the land is worth what it's sold for someone who bidding $10,000 right behind them. So it also does alleviate some of that on the buyer and their financial institution as well.
Roy Carter:Okay, sorry about that. Yeah, fcc is a really good and nothing against the other lenders, I'm just a little more familiar with FCC. They've got a really good internal, basically sort of a quick and dirty value deal too. So yeah, I'm sure they cross-check it with our numbers, but there's no requirement for a formal appraisal out there.
Devon Davidson:Okay, Allie, you maybe alluded to it when you mentioned the home quarter, but what's the impact of fixtures on land value when you've got things like fencing and grain handling systems? I know we've talked about in the past, but what's the impact? Does it have any value for bidders?
Alle Carter:Yeah, I would say it's. In my opinion, sometimes it's overvalued, just because often when farmers are adding land to their assemblage, they already have a house. They have a bin system set up the way they want and it's really of no value to them If anything. They don a bin system set up the way they want and it's it's really of no value to them. If anything, they don't want to look after this extra couple houses, one house um this yard.
Alle Carter:You know, people want things set up the way that they are used to running it, and so sometimes people might say you know, this is a great home quarter, beautiful big house, and and oftentimes if it's just a home quarter and the improvements are worth more than the land, we'll be very honest and say you know, don't push it on sale day on our site, uh, we, we won't maximize value because the the you know pool of potential bidders is just so much smaller.
Alle Carter:You'll get, you know, um wives who come in and don't like the cabinets the way they are and they just want things specific. And so, and going to packaging, two are different options. That's where you know, if there's a home quarter, that the improvements are not worth more than the value of the land and we will take it. We want to maybe package that with another quarter so that our client isn't left with the home quarter. You know, because'll do all the legwork ahead of time as the law firm and we will post the conditions for registration on our site. So maybe you have to upgrade the septic, things like that, and then buyers see that as potentially a lift. Oh okay, I actually don't have to look after this home. I can buy it, farm the land and then sell that 20 acres off.
Devon Davidson:Separately.
Roy Carter:Exactly Just through a farm realtor or something totally yeah, yeah, yeah, let the market decide. Uh, for sure, there you know, if they're, if it's home quarter, with a big grain handling system and that boy. You know, we, we really try and hook that with a bunch of their land. Okay, you don't want to leave them without an either, right?
Roy Carter:you want that you want that to go with that land. Uh, because you know people, they've started grain handling systems. They, they don't want two of them, so you know. Whereas, if it's more of a, just, uh, you know a real nice farmstead with too much of a house, a real nice house, right, you know, often we look at that and say you got two buyers here. You know the buyer and depends upon how close yard it was city right, but the buyer for your acreage is, is not the buyer for the farmland right? And in that case, like Alle talked about, we'll say we'll take the farmland and maybe give them an option at closing, the high bidder an option to take the yard right. But if they don't take it, you keep it, go ahead and list with a realtor, whatever that house. Yeah, uh, you know we, we definitely aren't. Uh, don't profess, don't want to be walmart.
Roy Carter:When we got into this space, people asked us you know, if you're building something for farm and ranch, keep it farm and ranch, don't start encroaching in. You know equestrian centers and acreages and all that. You know. So and uh, yeah, we're not afraid to tell people when they call. You know we, it's a problem across western canada getting rid of farmsteads. Yeah, and you know these equestrian centers and that we'll get calls and I hear you guys market around the world, world class, do you want to take it? And it's like, yeah, no, it's. Uh, we're built for a pent up demand and to flush it out, maximize value. But you get that specialized. Then you got to wait for the one party to show up. Yeah, they're not in a lineup, right?
Devon Davidson:so one other question I had was just around sellers and and investing in improvements like would you advise against that, just knowing that it's probably not of value to bidders? Like you know, in in a residential real estate, you know, sometimes you paint the walls, you do shingles, like those are some of the things you look at improving. When it comes to, say, a yard, you would just sort of leave it as is, don't worry about making any adjustments, totally.
Alle Carter:Yeah, yeah, we've had, you know, sellers out there repainting fences, re-tinning roofs, and it's like you're probably not going to get that back, Uh they likely might tear the house down, sell it off Um I. Oftentimes they don't want it.
Roy Carter:Yeah, and usually there we'll often run into that with multiple kids owning a. Mom and dad have passed away and the place is a mess, right? Uh, you know iron all over, used vehicles not, and there's usually one or one of them that's been looking after it and the other ones are pretty removed and you know they literally give up six months of their life trying to clean it up. Right, and does it get any more value? No, you know the buyers will get a hole. You don't really want to tell them that, but yeah, um, shoot shovel and shut up right, you know the it'll get cleaned up. Nowadays, you know, during covid, with iron prices they were calling people were paying big bucks to put it on their b trains. Let them figure that out. Um, so definitely, whatever you do there and whatever money you spend, I would say you have a good chance of getting it wrong.
Devon Davidson:I think that's all we've got for this episode. Is there anything else you guys want to cover in terms of praising farmland?
Roy Carter:No, just the final comment is yeah, just be careful, don't treat it as the gospel. Far from it. It's not. It's a guess at what the value is, and we're not saying don't get it, but just be careful to not hurt yourself by relying on it.
Alle Carter:And sometimes you might be pleasantly surprised too If you let the market decide. Oftentimes there's way more interest than what has been maybe considered in that appraisal, so it could have a real positive too for you. Yeah.
Roy Carter:Yeah, from that point of view and maybe we sort of touched on it there's a real built-in incentive to under-appraise good land. Farmers know good land and they also know that's where the money is made. You know the land that'll get you 20% less of a crop. Chances are you won't ever make money on it because your margin's not better than 20. You know 10 might be the number. So there's a real incentive to over-appraise bad land and not take all the negatives into account and then under-appraise the real good stuff. We see that pretty consistently that they tend to average and because they average, they put too much value on the bad stuff, not enough on the good stuff okay.
Devon Davidson:Well, Alle roy, thank you both for being here. That was, that was great, very informative. Well, we'll see you next time, okay thanks steven.
Devon Davidson:Uh, thank you very much for tuning in. We appreciate the support. That's another edition of the Farmland Exchange podcast. If you have any questions or topics that you'd like us to discuss on the show, please send us an email. Info at CLHbid. com or give us a phone call, 866-263-7480. You can also visit the page on our website, CLHbid. com. Slash farmlandexchange dot com. Slash farmland exchange. Make sure you follow us on social media. Give us a subscribe on your podcast platform of choice. Thank you very much for tuning in. I hope this has been a positive exchange for you. Take care.
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