Advice needed for determining value of the property

[mdp9]

I have a unique situation and I’m looking for some advice.

I have leased a barn for the past 4 years for my lesson/boarding program. A year ago I moved into a house on the property. My landlord is also on site and we get along great- she has her clients at a smaller barn and we amicably share the indoor arena.

We have been discussing the possibility of me and my husband buying the farm from her, as she is getting tired of managing and running the place. It is actually three adjacent properties, we would buy 2 and she would remain on the third. The sale would be contingent upon her being able to continue to share the arena and amenities with me (which is fine).

We need to figure out how to correctly price the two properties. The Zestimate on Zillow (which I’m aware is not totally accurate!) gave my husband and I an idea of what to expect. The landlord recently told us the suggested price her realtor friend gave her, which was significantly higher than we were expecting. I also learned that the realtor had never stepped foot on the property and so I’m not sure how accurate one could be without seeing it.

Anyway, landlord suggested having an appraiser come out and take a look. We were already thinking of suggesting this so we have an appointment in a couple weeks for that. At first glance, the properties are really expansive- an 18 stall barn, a 4 stall barn, a new indoor arena, a big outdoor arena, and 2 houses. However, one of the houses is quite run down, all the fencing needs to be replaced, the barn is adequate but not fancy, the pasture quality is absolute crap, plus a million little things that are in minor disrepair. The landlord has already said that she would be selling “as is”. Oh and the whole place feels a bit piecemeal and not laid out methodically.

So any suggestions as to what kind of professional I can get out to accurately assess the value of the properties?? I want more than just an algorithm for square footage and acreage. I want someone to recognize that a comparable property with lush grass and new fencing and a more modern barn is more valuable.

[mmeqcenter]

Find an appraiser with horse farm experience.

[trubandloki]

Yes, I agree with the advice above. Make sure the person you pick to give you a number knows horse property.

[js]

Agree with getting an appraiser that specializes in equine properties. I’ll probably be the lone dissenter but while things are amicable between you as a lessor and her as the owner, I would be hesitant to share a barn and indoor arena without a well written contract and at a cost that would adequately cover costs of insurance, utilities, maintenance etc.

[fourfillies]

Be certain the appraisal is for the real estate only not with the business. We started down this road last summer. Really liked a property that housed an Ag based business. We eventually discovered we were so far apart on price because the owner had a very hefty loan based on the value of the real estate with the active business that was based on a recent appraisal. It was an Ag business with an Ag loan. There was a 40% difference from its residential value and we eventually walked away as it became we had no ZOPA. We would have been using the property as a residence with a standard residential mortgage.

[clanter]

@mmeqcenter

Find an appraiser with horse farm experience.

tossup really as most appraisers will give little credence to most equine related improvements, but …our barn if appraised as barn is worth half of what it is worth as a garage

Fencing and all that stuff that is needed adds little to nothing to the appraisal

I would be hesitant to share a barn and indoor arena without a well written contract

If this is done Make Sure this right is not transferable and terminates upon her selling or death

[mdp9]

The appraiser I set an appointment with I got as a referral from horse friends. I am also going to set up a second or possibly third appraiser to get an average number.

I think this is where my landlord is going wrong (Or maybe I’m going wrong?). She is thinking she bought the property 10 years ago for X amount, and has added an indoor arena for X amount, and run in sheds for X amount. Add the X’s together plus appreciation for the land and she has a very high number. But I don’t think that indoors and run in sheds translate dollar for dollar to a sale price, any thoughts on this?

[Scribbler]

@mdp9

The appraiser I set an appointment with I got as a referral from horse friends. I am also going to set up a second or possibly third appraiser to get an average number.

I think this is where my landlord is going wrong (Or maybe I’m going wrong?). She is thinking she bought the property 10 years ago for X amount, and has added an indoor arena for X amount, and run in sheds for X amount. Add the X’s together plus appreciation for the land and she has a very high number. But I don’t think that indoors and run in sheds translate dollar for dollar to a sale price, any thoughts on this?

My thoughts are as above. Get a good appraiser and also you can look at the assessed value for tax purposes from your town or county.

Not all improvements actually increase the value of a property. Where I live, a pool costs a lot to install but can actually lower the value of the property. The word on COTH has usually been that equestrian improvements do not increase the value of the property because most people don’t want them.

[Redlei44]

Getting multiple assessments is your best bet. No use getting stuck in a back-and-forth with the owner re: value of each amenity.

Generally speaking, my understanding is same as those above - horse farm amenities only might add value when the property is smack in the middle of horse country and you have a competitive pool of potential horse farm buyers. Otherwise, not so much.

[beowulf]

In addition to an appraiser, have you talked to the town’s Assessor? I am assuming these are three different lots? Ask for a property record card / field card for the three, from your town assessor. They will have a breakdown of how they value house, as well as barn and any additional free standing structure, and the land in that lot.

I agree, multiple assessments is the best bet, but keep in mind not all real estate appraisers even factor in cost the same way, so sometimes you can get wildly different numbers… I see it all the time (I work in an Assessment capacity for a municipality) – in my experience, the ones closest to the Assessor’s published value is often the most correct (fair market value).

Whether or not the equestrian structures increase value totally depends on location, and what the structure is. Most Assessors get their information on the valuation of a structure (such as indoor, new barn, etc) from the building permit, which is required to supply an accurate price of project (cost) – they also get a fairly reliable idea of value from whatever municipal program they use to estimate assessment (varies from town to town - also called a Cost Manual when in print), which does have a staggering amount of data and options available to chose from when assessing the true value of a structure.

P.S one thing that is factored into assessed value of a property, is the ‘grade’, or condition of the structure. A run down structure in poor condition will have a lower grade or depreciation (sometimes called obsolescence) which will factor into the valuation of the structure. All structures degrade over time, and all structures should be accurately graded to reflect their obsolescence in the property record cards.

Livestock fences are not always factored into the lot’s value. Depends on the region and location. Heavily agricultural regions often have it factored in, where suburban areas will not see an increase in value from a (livestock) fence. Privacy fence? Totally increases lot value.

[beowulf]

@mdp9

The appraiser I set an appointment with I got as a referral from horse friends. I am also going to set up a second or possibly third appraiser to get an average number.

I think this is where my landlord is going wrong (Or maybe I’m going wrong?). She is thinking she bought the property 10 years ago for X amount, and has added an indoor arena for X amount, and run in sheds for X amount. Add the X’s together plus appreciation for the land and she has a very high number. But I don’t think that indoors and run in sheds translate dollar for dollar to a sale price, any thoughts on this?

They don’t. Cost vs valuation, are also astonishingly different. It is almost always more expensive (cost) to add a structure to the lot, than it is to sell it once the structure is affixed. The exception being houses, which tend to hold value much better than garages, sheds, indoors, and the like.

The amount she bought it for ten years ago also has very little impact on its fair market value and/or assessed value now, too. The market changes yearly - it is very unreliable to compare (comp) two properties unless you factor into them the market inflation. IE you cannot compare Barn 1 that sold for 1 million ten years ago, with Barn 2, identical in all ways except it sold yesterday for 1.5 million - not without adjusting for market inflation. Especially if it was a good amount of time ago. Inflation in the housing market is variable, but not for extra features IME. Extra features tend to have a very fixed value from year to year, with the percentage of valuation depreciating as time goes on.

[Simkie]

@beowulf

In addition to an appraiser, have you talked to the town’s Assessor? I am assuming these are three different lots? Ask for a property record card / field card for the three, from your town assessor. They will have a breakdown of how they value house, as well as barn and any additional free standing structure, and the land in that lot.

Depending on where you are, you don’t have to talk to anyone for this info. Google -town name- GIS and see what you can find. Property cards are often available online to anyone.

And, as I don’t think anyone has said this yet… @mdp9 the zestimate is 100% useless. Maybe it can be close when you’re talking about cookie cutter suburban housing, but it’s not a valid data point for a farm property.

[Palm_Beach]

@beowulf

They don’t. Cost vs valuation, are also astonishingly different. It is almost always more expensive (cost) to add a structure to the lot, than it is to sell it once the structure is affixed. The exception being houses, which tend to hold value much better than garages, sheds, indoors, and the like.

Good post. Structures can depreciate in value over time, especially not real permanent structures like fencing and sheds.

[clanter]

@mdp9

She is thinking she bought the property 10 years ago for X amount, and has added an indoor arena for X amount, and run in sheds for X amount. Add the X’s together plus appreciation for the land and she has a very high number. But I don’t think that indoors and run in sheds translate dollar for dollar to a sale price, any thoughts on this?

if this is their mindset then you might as well just forget this as Any Number your people come up with that is less than what she already has in her mind will be you trying to rob her.

just look at some of the properties listed here on CoTH… you could not build the place for what they ask and they still have trouble finding a buyer

[clanter]

@Redlei44

Generally speaking, my understanding is same as those above - horse farm amenities only might add value when the property is smack in the middle of horse country and you have a competitive pool of potential horse farm buyers. Otherwise, not so much.

if the structure was built with alternative use ability it will appraise higher

Few people want a Barn, Most every one wants a garage or a building that can be used as a workshop. Our barn is clear span with removal-able free standing stalls and was built with the intent that it could be controverted in a garage. It appraised at 100% more as a potential garage then as a finished out barn

[poltroon]

You’re on the right track with the appraiser.

I’d also suggest you get your own agent and go do some shopping. What could you buy that would be comparable and usable to you and what would it cost?

Get yourself in an arms-length position for this deal. At this price it’s worth it to you, all good. More than that, and no thanks, I’ll stay on the lease or go buy this other thing. Have patience with it. Maybe she’ll decide to list them for sale at a higher price. If your analysis is correct you have little to fear from that. Since you’re in it, the property has more value to you than it will to anyone else. Don’t get overattached to the property you’re in because that is the way to heartache and broken promises.

For sharing the arena, you need to set up a contract on that and make it a separate transaction that makes sense and has a clear severability. That is, for example, if you need to sell the property, you can no longer honor that promise. Consider other things that could happen - what if the arena is damaged in a natural disaster? What if she sells? What if she wants to lease out her remaining barn to someone else? What about costs that might come about like new footing ten years down the road? What about jumps?

Consider also things either of you might want to do in the arena besides the lessons you do now - clinics, shows, etc.

Good luck! I hope it all turns out well for both of you.

[trubandloki]

@beowulf

in my experience, the ones closest to the Assessor’s published value is often the most correct (fair market value).

This made me giggle because the town I live in did exactly what the OP is saying the owner is doing to figure the value. We tried to fight the assessment with several estimates (we paid to have done). But no. In their opinion we paid X for the land, Y for the house and Z for the barn so the property was minimally worth X + Y + Z.
That is not what the market research said the place was worth, but the assessor did not care.

[clanter]

@trubandloki

This made me giggle because the town I live in did exactly what the OP is saying the owner is doing to figure the value. We tried to fight the assessment with several estimates (we paid to have done). But no. In their opinion we paid X for the land, Y for the house and Z for the barn so the property was minimally worth X + Y + Z.
That is not what the market research said the place was worth, but the assessor did not care.

But here in Texas we have one additional step where we can go to district court, just need to use the yellow pad to see if there is benefit to the cost

the results determined at the appraisal review board hearing can be appealed to district court. most judicial appeals of property tax assessments are successful.

https://www.poconnor.com/texas-property-tax-appeals-steps/

[Guilherme]

@trubandloki

Yes, I agree with the advice above. Make sure the person you pick to give you a number knows horse property.

Equine properties are a subset of agricultural properties. You need the larger expertise to include the smaller, not the other way 'round. Indeed, if OP goes equine only they might be really hurting themselves as the equine market in most areas is in decline. Or if the equine appraiser is overly generous to equine facilities they might get a nasty shock when it comes time for THEM to sell. No. VA appears to have suffered less from this trend than some other areas, but it’s not immune.

The value of anything is what the willing, but uncompelled, seller will take from a willing, but uncompelled, buyer.* We bought our farm almost 30 years ago from some folks we knew who were retiring and had a certain value set on the property by reason of what they needed to complete their retirement program, not based on the FMV of the property. We paid their asking as, in my un-learned but not un-informed opinion, it was slightly below FMV. Both sides won; they got what they needed; we got what we wanted at a modest discount. And no realtor commission involved!!!

Continued, joint use of facilities is a field full of landmines. One way to protect the OP is to have a separate contract defining who does what. And the contract should be VERY clear that this joint usage is personal to the parties, and cannot be passed to another by contract, inheritance, operation of law, or any other way. A good relationship with the seller is a Good Thing and I hope it continues. But lawyers make a LOT of money off contracts like this when circumstances change. The OP should take some time to play “what if” with scenarios and decided who in this “joint” usage will be “senior.” If it were me I’d want to see full conveyance of the property to me without limitation and I would then draft the contract extending use rights to the former owners. This contract can be very generous to the current people the OP will deal with but can also reserve to them what rights, if any, they will extend to the heirs or assigns of the former owner.

Put another way, you’re the “whip hand,” not them!!!

I’ll presume that this transaction reflects Real Money. Take the time to do it right and don’t scrimp on good advice from your lawyer. If you don’t have one, get one. And one with good experience in real estate law and contract law whether or not that includes any form of equine experience.

Good luck in your transaction.

G.

*“Compulsion” here is legal compulsion, a requirement that you must have some goods or service by operation of law.

[TheJenners]

In my experience, a good real estate appraiser will be able to do a good job here. But get an agent, they will know who is good and who isn’t. Agents can actually be invaluable! I had one helping me thru a refi in which she was obviously not involved and didn’t
benefit. YMMV obviously.

But your seller sounds like my ex sooooo… good luck.