ASFMRA ARA cheat sheet

The three approaches-sales comparison, cost, and income-apply to agricultural property; sales comparison is most reliable where comparable farm sales exist.

Land capitalization rate equals net operating income divided by land value; it is derived from market sales, not from lender rates.

Productive acres, not gross acres, drive value; subtract non-productive acres (roads, waste, homesteads) before applying per-acre values.

Allocation (land-to-building ratio) separates land and improvement value when comparable land sales are scarce.

Soil productivity (e.g., NCCPI or CSR2) supports per-acre adjustments; higher index soils command higher per-acre values.

Irrigation adds value only when water rights are appurtenant, transferable, and reliably available; verify decreed or permitted amounts.

Unit of comparison for farmland is typically value per acre by land class; for livestock facilities, value per animal unit capacity or per square foot.

Highest and best use requires four tests: legally permissible, physically possible, financially feasible, and maximally productive.

Crop rotation and stocking rate decisions are made on marginal return per unit of limiting resource (land, water, or labor).

Stocking rate is expressed in animal units (AU); one AU equals a 1,000-lb cow with or without calf; AUM equals one AU for one month.

Carrying capacity = total forage produced × harvest efficiency ÷ forage consumed per AU per grazing period.

Enterprise budgets separate variable (direct) costs from fixed (overhead) costs; only variable costs are avoidable in the short run.

Break-even yield = total cost ÷ price per unit; break-even price = total cost ÷ expected yield.

Lease terms should specify payment basis (cash, crop share, flexible), term, termination notice, and responsibility for improvements.

Depreciation, opportunity cost of land, and unpaid family labor are economic costs included in whole-farm analysis but not in cash accounting.

Net present value equals sum of discounted cash flows minus initial investment; accept projects with NPV greater than zero.

Capitalization rate = discount rate minus expected growth (or depreciation) in income.

Loan amortization: annual payment = principal × [i(1+i)^n] ÷ [(1+i)^n − 1].

Current ratio = current assets ÷ current liabilities; a value near 2.0 or higher generally signals strong liquidity in agriculture.

Debt-to-asset ratio = total liabilities ÷ total assets; higher ratios increase financial risk and lender scrutiny.

Term debt coverage ratio = (net farm income + nonfarm income + interest + depreciation) ÷ (scheduled principal + interest).

Land values respond to capitalization of expected returns; rising interest rates, all else equal, lower capitalized values.

Operating loans finance variable inputs within a production cycle; intermediate and long-term loans finance machinery and land.

USPAP applies to appraisal assignments; the Competency Rule requires the appraiser to have the knowledge and experience to complete the assignment competently.

USPAP requires identifying the problem, scope of work, and reporting in a manner that is not misleading.

The appraisal must state the purpose, intended use, and intended users; reliance by unintended parties is not assumed.

Advocacy is not permitted in an appraisal assignment; appraisers must be independent, impartial, and objective.

Fees must not be contingent on a predetermined value, a value direction, or a lending outcome.

Appraisal reports must disclose extraordinary assumptions and hypothetical conditions and their effect on value.

The ARA designation requires meeting education, experience, and examination requirements and adherence to the ASFMRA Code of Ethics.

Ethical conduct includes confidentiality of client information and disclosure of any conflict of interest before acceptance.