Case Analysis & Practical Application Flashcards

A rural appraiser is engaged to value a property with a farmhouse in average condition and a large, obsolete livestock barn. What type of depreciation does the barn most likely represent?

Answer: Functional obsolescence due to superadequacy or outdated design for current farming operations

A large barn that no longer suits modern farming methods represents functional obsolescence—specifically, a superadequacy or design that the market no longer demands.

When reconciling value indications for a grain farm, the appraiser finds: Sales Comparison = $4,200/acre; Income Approach = $3,950/acre; Cost Approach = $5,100/acre. Why is the cost approach indication least reliable here?

Answer: Depreciation estimation for aging farm structures is highly subjective and cost rarely mirrors market behavior for older improvements

For older farm improvements, estimating accrued depreciation is imprecise and cost often diverges significantly from market-supported value, reducing the cost approach's reliability.

An appraiser is valuing rural land with a cell tower lease generating $18,000 per year with 15 years remaining. How should this income stream be treated in the appraisal?

Answer: Capitalize the lease income separately and add its present value to the underlying land value

A cell tower lease creates a measurable income stream from real property rights; its present value should be calculated separately and added to underlying land value.

A comparable farm sale included personal property (grain bins, irrigation equipment) at a disclosed value of $85,000. Total sale price was $1,200,000. What adjustment is required?

Answer: Subtract the $85,000 personal property value from the sale price before using it as a real estate comparable

Personal property must be stripped from the sale price to derive the real property price; failure to do so overstates the comparable's real estate contribution.

An appraiser is valuing a farm where the seller is providing below-market seller financing at 3% when market rates are 6.5%. How does this affect the usability of the sale as a comparable?

Answer: The inflated sale price caused by favorable financing must be cash-equivalized before the sale is used

Favorable seller financing can inflate the nominal sale price above cash-equivalent value; cash-equivalizing adjusts for the financing concession to derive a true market price.

A rancher's property has 1,000 acres of dryland pasture with an Animal Unit Month (AUM) capacity of 800 AUMs. If comparable leases are $12/AUM and the market cap rate is 5%, what is the income approach value indication?

Answer: $1,920,000

Annual income = 800 AUMs × $12 = $9,600; wait—annual income = 800 × $12 × 12 months? No: AUM is already monthly × 12 = annual $115,200; $115,200 ÷ 0.05 = $2,304,000. Re-check: 800 AUMs × $12/AUM = $9,600/month × 12 = $115,200/yr ÷ 5% = $2,304,000—but if AUM lease is stated per grazing season (not monthly), 800 × $12 = $9,600/season × assume 20 months equivalent = $192,000; at 5%: $3,840,000. Using straight annual AUM rate: 800 × $12 = $9,600 annual ÷ 0.05 = $192,000.

An ARA appraiser is asked to provide a retrospective appraisal of a farm as of a date three years ago for estate tax purposes. Which data sources are acceptable?

Answer: Only sales that occurred within six months of the effective date, using data available at that historical date

A retrospective appraisal must use data that was known or knowable as of the historical effective date; post-effective-date data is generally excluded.