The future of your farm is an important part of your estate planning. Determining that future starts with an accurate valuation. Many factors contribute to the value of a farm operation, and you need to understand those factors and how to account for them.
These four factors form the foundation of your farm’s valuation.
1. Land
The quality and amount of land factors into the valuation of your farm. Not only should you consider the acreage and the condition of that land, but also the way that you use it. Fertile land used to grow crops or pastures used to raise livestock hold higher value than standard property.
The soil type, drainage and expected use of the property also play a factor. Any limitations on zoning or potential expansion options contribute to the valuation in terms of future growth opportunity.
2. Infrastructure
Every farm has infrastructure that contributes to the operation. Buildings, barns, storage facilities and irrigation systems contribute to your farm’s value. Keeping the structures maintained and modernized increases the value of your property.
3. Income
When you establish a value for your farm, the earning potential of the operation is a significant factor. Not only should you consider current performance, but you also need to think about future possibilities. Operations with diversified revenue sources, passive income streams and consistent production hold higher values.
4. Environment
With sustainability in the spotlight for many agricultural businesses, farm valuation also considers the sustainability of the operation. Organic farming, sustainable water management and wildlife conservation efforts are a few of the environmental elements that can increase the value of your farm.
According to the USDA, the average U.S. farm held more than $2 million in wealth as of 2021. Protect that wealth and establish a comprehensive succession plan that considers these valuation elements.
