ASFMRA AFM common mistakes
ASFMRA AFM · Understand the traps and how to avoid them.
Valuing a farm by applying a single per-acre sale price from comparable tracts without adjusting for soil productivity, irrigation status, or parcel size, then reporting that figure as the market value conclusion.
Candidates default to the simplest comparable-sales shortcut because it feels defensible and quick, and they underestimate how much productivity differences drive per-acre prices in agricultural markets.
What to do instead
Before using comparable sales, stratify them by soil class, water rights, and tract size, and apply explicit dollar adjustments for each difference; where sales are too heterogeneous, cross-check the conclusion against a capitalized income approach using realistic yields and rents.
Building an income-approach value on the owner's actual historical yields and expenses without normalizing for weather, price cycles, or management skill.
Owner financial statements are readily available and candidates treat them as objective data, forgetting that a single drought year or an exceptional operator skews the picture.
What to do instead
Use multi-year averages (typically 5-10 years), county or regional yield benchmarks, and typical rather than actual management returns; state in the report which normalization choices were made and why.
Confusing the contributory value of improvements (homes, barns, irrigation systems) with their depreciated cost and simply adding that figure to bare-land value.
Cost new less depreciation is easy to compute and candidates mistake it for market contribution, which overstates value when improvements exceed what buyers in the market will pay for.
What to do instead
Test improvement value against paired sales of improved vs. unimproved properties; where paired sales are unavailable, apply depreciation reflecting functional and economic obsolescence in that specific agricultural market, and reconcile rather than sum.
Treating water rights as an automatic attribute of the land rather than a separately valued, transferable, and legally constrained asset.
Candidates without water-law exposure assume the right travels with the deed and never analyze priority date, decreed quantity, or transfer restrictions, which can swing value dramatically.
What to do instead
Identify the water right's legal basis, priority, consumptive-use limits, and transferability in the report; value water separately where the market does so, and disclose any reduction in value from transfer restrictions or curtailment risk.
Applying a market-derived overall capitalization rate to a property with materially different risk characteristics (different lease structure, crop mix, or location) without adjustment.
Cap rates look like a single portable number, and candidates pull one from a published survey or a nearby sale without checking whether the underlying risk and income durability match the subject.
What to do instead
Derive the cap rate from sales most similar to the subject in lease type, tenant quality, and crop risk; document the band of rates supported by the data and explain in the reconciliation why the selected rate fits the subject's risk profile.
Ignoring lease encumbrances and tenant rights when valuing an owner-occupied-looking property, valuing as if vacant possession were available.
The assignment may describe the property as a farm, and candidates value the physical asset without reading the leases or considering below-market rents and remaining terms.
What to do instead
Obtain and analyze all leases; value the leased fee interest if that is the stated interest, adjust for lease terms above or below market, and state clearly in the report which interest is being valued and the assumptions about possession.
Projecting a development or highest-and-best-use scenario for agricultural land without testing whether it is legally permissible, physically possible, financially feasible, and maximally productive.
Candidates see nearby subdivision activity or a zoning change and leap to a speculative highest-and-best-use conclusion, skipping the four-part test and the absorption evidence.
What to do instead
Run each of the four tests explicitly and support financial feasibility with absorption rates and development costs; if any test fails, value the property under its existing agricultural use and disclose the alternative use as a consideration only.
Failing to reconcile divergent indications of value and instead averaging approaches or picking one without justification.
When the sales, income, and cost approaches produce different numbers, averaging feels neutral and safe, and candidates avoid the judgment call the reconciliation requires.
What to do instead
Weight the approaches by relevance to the property type and the quality of available data, explain why the selected approach best reflects how buyers in that market behave, and present a single supported conclusion rather than a mechanical average.
Accepting an engagement and completing an assignment without documenting competence in the specific property type or disclosing a conflict of interest, such as a prior relationship with the seller or a contingent fee.
Candidates focus on the technical analysis and treat ethics requirements as boilerplate, so they skip the competence and conflict checks that the standards require before accepting work.
What to do instead
Before accepting, document the scope, your competence for that property type, and any conflicts; disclose conflicts in writing and obtain consent or decline the assignment, and never accept compensation contingent on a predetermined value or outcome.
Producing a report that omits the assumptions, limiting conditions, and extraordinary assumptions the value conclusion depends on, or that states a conclusion without the supporting data and reasoning.
Candidates write to the conclusion and trim the report for length, not realizing that unsupported assumptions and missing data are reportable deficiencies, not stylistic choices.
What to do instead
Include a clearly labeled assumptions and limiting conditions section tied to specific items in the analysis, cite the data and reasoning behind each key adjustment, and review the report against the applicable reporting standard before submission.