Quantitative Appraisal of Non-Irrigated Cropland in South Dakota Shelby Riggs University of Nebraska - Lincoln
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University of Nebraska - Lincoln DigitalCommons@University of Nebraska - Lincoln Honors Theses, University of Nebraska-Lincoln Honors Program 10-22-2018 Quantitative Appraisal of Non-irrigated Cropland in South Dakota Shelby Riggs University of Nebraska - Lincoln Follow this and additional works at: https://digitalcommons.unl.edu/honorstheses Part of the Agribusiness Commons, Agricultural Economics Commons, Agricultural Science Commons, Applied Mathematics Commons, Applied Statistics Commons, and the Soil Science Commons Riggs, Shelby, "Quantitative Appraisal of Non-irrigated Cropland in South Dakota" (2018). Honors Theses, University of Nebraska- Lincoln. 117. https://digitalcommons.unl.edu/honorstheses/117 This Thesis is brought to you for free and open access by the Honors Program at DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Honors Theses, University of Nebraska-Lincoln by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. Quantitative Appraisal of Non-irrigated Ag Land in South Dakota An Undergraduate Honors Thesis Submitted in Partial Fulfillment of the University Honors Program Requirements University of Nebraska – Lincoln By Shelby Riggs, BS Agricultural Economics College of Agricultural Sciences and Natural Resources October 22nd, 2018 Faculty Mentor: Jeffrey Stokes, PhD, Agricultural Economics Abstract This appraisal attempts to remove subjectivity from the appraisal process and replace it with quantitative analysis of known data to generate fair market value the subject property. Two methods of appraisal will be used, the income approach and the sales comparison approach. For the income approach, I use the average cash rent for the region, the current property taxes for the subject property, and a capitalization rate based on Stokes’ (2018) capitalization rate formula to arrive at my income-based valuation. This methodology is superior to that of estimating yield and price per acre which is highly variable from year to year based on weather conditions and does not index for growth in productivity or price inflation. For the market approach, I utilized Stokes’ (2018) research in optimization modeling to estimate a market value for the subject property. To do this, the nonlinear program assigns a weighted value to each comparable sale; based on the attributes of acres, percent tillable acres, and productivity. The solution determines the weight that each should be valued when valuing the subject property. Dollar values are assigned based on the weight of each variable, and a final appraised market value is generated. Qualitative research in terms of visually inspecting each property for similarities and differences was completed prior to beginning the quantitative analysis to verify the validity of each comparable sale utilized. The expertise of local landowners, an ag-land appraiser, and a realtor was also utilized for background on the South Dakota land market. The subject property is currently partially-owned by multiple owners. Smaller tracts of land are typically sold in the market for a higher dollar amount per acre. However, this land is farmed as one section, so this appraisal assumes ownership of the entire section by one owner. In doing so, I will find the true market value of the land based on its current use using the income approach. Key Words: Agriculture, Economics, Appraisal, Land Valuation Notes of Appreciation Many thanks to Dr. Jeffrey Stokes for his guidance and expertise throughout the research process. Referencing his earlier research and applying his models to this exercise shed new light on the appraisal process and set this appraisal apart from other appraisals I have seen. Thanks also to my family, Kevin and Becky Riggs, for supplying property tax and cash rent information and to Kevin, Becky, and Roger Riggs for the permission to appraise their land. Thanks to Bob Jarding of Mitchell Realty, for allowing me to shadow him for a day to learn about basic home and land appraisal. He had valuable insights about land improvement and drainage to offer. Thanks to Haley Reisch, Real Estate and Chattel Appraiser at Farm Credit Services of America in Mitchell, South Dakota, for the technical advice about selecting comparable properties that are truly representative of the property being appraised. Appraisal of Riggs Property 160 Acres, +/- Prosper Township, Davison County, South Dakota To Fulfill UNL Honors Program Thesis Requirement By Shelby Riggs Agricultural Economics College of Agricultural Sciences and Natural Resources University of Nebraska – Lincoln Submitted on October 22, 2018 October 22, 2018 Dear Current Landowners and Honors Thesis Committee: In accordance with your permission and/or requirements, I submit my appraisal of the subject property located in section 24, Township 102, Range 60 of Prosper Township, Davison County, South Dakota, containing 160 +/- acres. After inspection, examination, and quantitative analysis of the property, and based on the information and data available, it is my opinion the Fair Market Value of the property, on October 22nd, 2018, the date of this thesis submission, to be: $5300/Acre or $848,000 Total I hereby certify that I have no interest, present or contemplated in the property under appraisement, and the value of the appraisal is not contingent on that. The value was derived from quantitative methods for use of completing my UNL Honors Thesis requirements. Respectfully Submitted, Shelby M Riggs Agricultural Economics, B.S. College of Agricultural Sciences and Natural Resources University of Nebraska – Lincoln Purpose of the Appraisal: Intent of appraisal is for Shelby Riggs to gain experience in completing the appraisal process quantitatively under the guidance of Dr. Stokes at the University of Nebraska – Lincoln and to render a quantitative opinion of fair market value of the subject property located in Prosper Township, Davison County, South Dakota. This appraisal is intended to serve as Shelby Riggs’ Honors Thesis. Kevin and Becky Riggs and Roger Riggs are verified users, but neither of them contributed to the valuation process. Technical assistance from Farm Credit in Mitchell, South Dakota, and Mitchell Realty was also utilized. Fair Market Value as defined in this report is the highest price, which the property may be expected to bring if exposed for sale on the open market, with a reasonable time allowed to find a buyer who has knowledge of all uses and purposes to which it is capable of being used. Recorded Owners: According to the records at Davison County Courthouse, subject property is owned partially by Kevin and Becky Riggs, Roger Riggs, and Tanner Riggs (Davison County). However, that information is out of date - Kevin and Becky Riggs and Roger Riggs are the current owners. Legal Description, given in parts of ownership: According to the Davison County Assessor’s office, the legal descriptions of the parcel are as follows: SW 1/4 EX S825' THEREOF PROSPER TWP 24-102-60, S825' OF W1320' OF SW1/4 EX RIGGS TRACT 1 PROSPER TWP 24-102-60, TRACT 1 RIGGS TRACT 1-SW(24), and S825' OF E1320' OF SW1/4 PROSPER TWP 24-102-60 (Davison County). In other words, this parcel is the Southwest quarter of Prosper township in Davison County, South Dakota. Zoning: The Records of the Davison County Planning and Zoning Department indicate the zoning is agriculture for all but 3 acres of the subject property. The remaining three were zoned for residential development, for a farmstead that has not been built. All 160+/- acres are presently used for agricultural production. This appraisal assumes all 160+/- acres are zoned as agricultural land and that Fair Market Value is based on agricultural zoning. Highest Best and Most Profitable Use: The highest, best, and most profitable use is considered to be as it is now being used, that of non- irrigated crop land. Highest, best, and most profitable use is defined as the most profitable likely use to which a property can be put. It is that legal use of land which may reasonably be expected to produce the greatest net return over a given period of time or over the remaining life of the improvement thereon. The general area is considered to be stable and little change in the rural development is noted in this area. The development potential for residential or larger density buildings is feasible, but not likely. Most development resources are currently focused in areas of land with established public utilities within four miles of the city of Mitchell, South Dakota, and on paved roads. Real Estate Taxes 2017 payable 2018: $3342 or $20.89/acre (Property Taxes). Location and Area Data: The subject property under appraisement is located on the Southwest corner of Section 24, Prosper Township, Davison County, South Dakota (Davison County). This is at the corner of 411th Ave. and 260th St. More particularly, it is one mile east and five miles south of the city of Mitchell, South Dakota. Mitchell is a growing city of approximately 15,610 residents and is the eighth largest city in South Dakota. It has numerous tourist attractions which bring nonresidents to town and stimulate the local economy. The subject property is also four miles North of Ethan, South Dakota, a rural town of approximately 329 residents. The major North-South highway, Highway 37, is located one mile West of the subject property. The major East-West interstate, Interstate 90, is located six miles north of the subject property, and the closest interchange is six miles north and one mile east. Another main East-West highway, Highway 42, is located five miles directly south of the subject property. The local area is primarily used for agricultural purposes. Grain and livestock operations prevail. The area has a mix of rural small acreages and residential uses. Land Data: The subject property, according to the Davison County Department of Equalization and Assessor’s Office, is comprised of four (4) parcels with a combined total of 160 acres, more or less (Davison County).