Valuation Adjustment When Comparables Are Thin
You are asked to appraise a 480-acre irrigated parcel with a center pivot, a 40-acre homesite, and a modest shop. The county has only three closed sales in the past 18 months: Sale A, 320 acres, pivot, no homesite, sold at $4,100/acre; Sale B, 600 acres, dryland, sold at $2,600/acre; Sale C, 200 acres, pivot plus a newer home, sold at $6,300/acre. Sale A was a family transfer with a below-market contract; Sale C closed 14 months ago before local land values rose roughly 8%. The client's lender wants a value that will withstand scrutiny. The owner insists the property is worth "at least $5,500/acre because of the pivot."
1. Which sale should anchor the value, and what adjustments are required?
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Sale A is the best physical comparable (irrigated, pivot, no residence) but its family-transfer terms make it unreliable as a market indicator - either discard it or adjust heavily and give it little weight. Sale B is dryland and requires a large irrigation adjustment; it informs the land base but is a weak primary indicator. Sale C is the closest to the subject's mixed character (irrigated plus a residence) but is 14 months old and needs a time adjustment of roughly +8%, and the home must be valued separately from the land. The defensible approach: build the land value from the irrigated comparable (Sale A, cautiously) and cross-check with Sale B plus an irrigation premium, then add the contributory value of the homesite and shop as separate components rather than blending them into a per-acre figure. The pivot is already capitalized into the irrigated comparables; it is not an add-on above them.
2. How should you respond to the owner's $5,500/acre assertion?
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Show the arithmetic. If the irrigated land component supports roughly $4,000–$4,300/acre on 440 acres and the homesite/shop contributes, say, $180,000 as a separate component, the blended indicated value is well below $5,500/acre across all 480 acres. The owner is conflating the value of irrigated ground with the value of the whole tract including lower-value homesite acreage. Present the component build-up: land value, improvements value, and the reconciliation, and note that Sale C's $6,300 reflects a newer home on only 200 acres - a small-tract premium that does not scale to 480 acres. Offer to revisit if the owner can produce a recent arm's-length irrigated sale that supports the figure; absent that, the lender-grade conclusion must rest on the adjusted comparables.