Ep. 116 What's It Worth? Inside Agricultural Appraisals
In this episode of AgCredit Said It, host Libby Wixtead interviews Lisa Shumaker, chief appraiser at AgCredit, to provide a comprehensive education on the agricultural appraisal process. The discussion covers the fundamentals of what an appraisal is—an opinion of value based on market data completed by licensed professionals—and details the three levels of licensure in Ohio: licensed residential, certified residential, and certified general appraisers, with the latter being able to appraise any type of real estate.
- Transcription
Speaker 1 (00:08):Welcome to AgCredit Said It, your go-to podcast for insights on farm finance and maximizing your return on investment. Join us as we talk to industry leaders, financial experts, and area farmers, bringing you skillful advice and strategies to grow your farm's financial future. AgCredit Said It, where farm finance goes beyond the balance sheet.
Libby Wixtead (00:40):Welcome back to another episode of AgCredit Said It where we take you beyond the balance sheet. I'm your host, Libby Wixted, and today we're talking with Lisa Shumaker, chief appraiser here at AgCredit. Welcome, Lisa.
Lisa Shumaker (00:51):Hi, Libby.
Libby Wixtead (00:52):To start off, can you tell us a little bit about your role as AgCredit's chief appraiser?
Lisa Shumaker (00:57):Glad to be here. I've been with AgCredit for 19 years. In the chief appraiser role, I make sure our appraisal team completes quality appraisals that follow appraisal and farm credit standards.
Libby Wixtead (01:08):Yes, appraisals are very important to what we do here at AgCredit, especially for me being on the loan officer side. I work very closely here with Lisa. So for someone who has never been through the process, how would you explain what an appraisal is and also who can complete an appraisal?This is a question we get all the time.
Lisa Shumaker (01:28):Sure. An appraisal is an opinion of value based on market data. For lending transactions, appraisals must be completed by licensed appraisers. There are three levels of licensure with the state of Ohio. Licensed residential and certified residential appraisers can only appraise one to four unit residential properties. Certified general appraisers can appraise any type of real estate that they are competent to appraise. Our team consists of four certified appraisers who have training specific to agricultural properties.
Libby Wixtead (02:02):So when you are talking about appraisals, it can't just be anybody who just walks off the street that wants to... Sometimes you have auctioneers and things like that who can give appraisals, but really when you're talking about a certified appraisal, you have to go through certain educational pieces. Is that correct?
Lisa Shumaker (02:21):Correct. So to become a certified general appraiser, you have to have a bachelor's degree and then you have to take appraisal specific education courses through different education providers such as the American Society of Farm Managers and Rural Appraisers or the Appraisal Institute. So we'll travel and take those classes for say a week at a time. And we needed, I think, 300 hours of classroom education and also 3000 hours of supervised appraisal experience. So we were working with somebody already certified to get our experience and learn how to do appraisals before we could get our own license.
Libby Wixtead (02:58):Well, that's a lot to have to go into becoming an appraiser. So I think this next question is very important knowing that background is why is an appraisal such an important part of real estate or agricultural loan decisions?
Lisa Shumaker (03:13):Well, an appraisal provides an unbiased value of the collateral which protects the lender and the borrower from overextending credit.
Libby Wixtead (03:22):So what that means for me on the loan officer side, when we are doing a real estate loan, we have to be able to go to our appraisers, which my appraiser is actually Lisa, and say, "Hey, I have this property that we're wanting to purchase. What is the true value of what we think what this property is?" So we know that when we come up with our loan amount or our down payment, that is what she is providing is that value for us. What makes valuing farmland or an agricultural property different from valuing a typical residential property?
Lisa Shumaker (04:02):Well, the main difference is there's just less data available. So we have to research a much larger area than say a residential neighborhood.
Libby Wixtead (04:10):We're kind of in hog country over here and there's a lot of hog barns that go up. And I know you always get excited when there's a contract barn that goes up for sale. Do you want to just talk a little bit about how the specialized facilities are a little bit more difficult to find sales on?
Lisa Shumaker (04:26):Sure. Yeah. They just don't sell very often. So we have to look in a really wide area and network with appraisers from all over Ohio and the Midwest to make sure that we keep track of properties when they do sell so we have data to work with when we need to appraise, say, a hog barn or other livestock facilities.
Libby Wixtead (04:45):And I would even say, think of grain bin facilities. Sometimes we do have to have those appraised, but how many times as a farmer are you selling a grain bin facility? It's really not that often that one's getting passed down from generation to generation or the headquarters of the farm, you could say. Could you walk us through now the appraisal process from the initial request that you get from the loan officer to that final report?
Lisa Shumaker (05:12):Sure. So the first thing we do is just identifying the property to be appraised. So we'll use county auditor parcel information and legal descriptions to make sure we have the right property. Then we'll look at aerial soil and flood maps and then go out and view the property. The next thing we do is research comparable sales, which is kind of the meat of our work is knowing the market and knowing the sales data. So for farmland transactions, we'll find recent sales located near the subject with similar land quality. We'll look at things like soil types, drainage quality, frontage, and if the farm's divided by woods, ditches or waterways, the sales considered the most similar to the subject are then selected as our comp sales for the appraisal report.
(05:59):In the appraisal process, there are three approaches to value, which they all use comparable sales, but use different types of analysis. The first one is the income approach, which capitalizes the income capability of the property to determine a value. This we'll use a lot of times on those livestock facilities. The cost approach is used for improved properties, which we determine the cost to construct the buildings and then depreciate those based on physical age and wear and tear and functionality. We'll use those for a lot of different building types, houses, barns, livestock facilities, grain facilities. And then the sales comparison is the most common approach for farmland or residential properties, which we just compare comp sales to the subject kind of apples to apples and adjustments can be made for different things such as a farm that has significant woods or pasture or different land quality or location adjustments.
Libby Wixtead (07:01):Wow, that's a lot of information. And when you do get copies of your appraisal, all of that work that they're doing is in that appraisal. And so there is a lot of good information in that appraisal that explains how they came up with that value where I know a lot of people are just like, "Okay, what's that value look like?" But then like Lisa explained, there's a lot that goes into it. So do you guys just do appraisals basically from the computer or do you guys have to go out and inspect some of the properties? Do you reach out to the farmer to get some of this information?
Lisa Shumaker (07:40):So yeah, we will go out and look at the farms most of the time and we'll talk to the owner, the borrower to determine the drainage qualities, oil types, fertility levels, if there's any work that needs done on the farm.
Libby Wixtead (07:55):Okay. So you're having those conversations that really help understand what that true value looks like, especially for buildings and that. What other factors can influence the value of farmland and agricultural real estate?
Lisa Shumaker (08:10):So there's a lot of things which mainly everyone would think of crop and input prices, which are huge and interest rates. Other influences we've seen in the last several years, solar and wind development or depending on the location, commercial or residential development. When we're talking buildings, a lot of it can come down to the functionality of the property of the building. You could have a really high end, nice machine shed, but if it's on 100 acres and the doors are tiny, it can't store a combine, then it may not be as functional for that farm property. So there may be a loss in value due to the function of the building.
Libby Wixtead (08:55):Yeah. I mean, there's a lot that goes into what those values are and I know it's hard when we're discussing with borrowers what that looks like, but there is what Lisa just described there. I would think as a farmer looking at a building like that, you guys would want to be able to put your combine in there and have that storage and what that value looks like. So we've kind of talked about what the factors are that go into and how an appraisal is completed. What are some common misconceptions that people have about appraisals or appraised value?
Lisa Shumaker (09:30):I think some people think that the appraiser creates the value where really the market creates the value through buyer and seller actions. The appraiser only analyzes the market data to determine our opinion of the value.
Libby Wixtead (09:46):So a lot of this, you guys aren't just sitting back there and just like, "Oh yeah, we're going to put this value on here." It really comes from the sales that are happening through that area. And you guys can really get very detailed all the way down to the township on some of those sales and those values, correct?
Lisa Shumaker (10:02):Sure. Yeah. If we can, we'll use sales as local as possible. Sometimes we have to use a multi-township area or maybe sometimes even the whole county if there's not much sale activity at that time, but yeah, location is very important.
Libby Wixtead (10:20):Okay. And then this one also goes in, I think would be some of the misconceptions is why might an appraised value differ from an asking price, an auction result or a landowner's expectation? I think this is also some conversations that come up when I have a borrower across the desk from me.
Lisa Shumaker (10:37):Sure. So an appraised value is the appraiser's opinion on a specific date, which we call the effective date. So property conditions and market conditions can differ before or after that date. So if there's new sales that happened the next day, if I appraise that three days later, the value could be quite different from the effective date. And sometimes there could be a really high price sale where the buyers were strongly motivated, but then there's just no other sales in the area that support that value. So we determine the market value based on typically motivated buyers and sellers. Likewise, there could be a low price sale where the buyer and sellers have a relationship or a deal was made to a longtime tenant. Those are not always considered to be representative of the market.
Libby Wixtead (11:27):And some of those can be like a family deal or something like that when you see a transaction happening. What types of agricultural properties and assignments does Ag Credit's appraisal team typically work with?
Lisa Shumaker (11:41):So our team regularly appraises farmland. That's kind of our biggest chunk of work. We also do farm tracks that have houses and farm storage buildings, grain facilities, livestock facilities such as swine, dairy, and poultry.
Libby Wixtead (11:56):So it sounds like you guys can serve our territory pretty well with your team.
Lisa Shumaker (12:01):Yes, we have a really good team.
Libby Wixtead (12:04):If someone needs an appraisal but is unsure where to begin, what questions should they ask when choosing a qualified appraiser?
Lisa Shumaker (12:13):When looking for an agricultural appraiser, I recommend going to asfmra.org. This stands for the American Society of Farm Managers and Rural Appraisers. That's the organization I mentioned earlier that provides our classroom training for appraisers that we take to get licensed and provides continuing education. Members of ASFMRA would have the training to complete ag appraisals. If someone needs a commercial or residential property appraised, there's another organization called the Appraisal Institute that has education for those appraisers and they have a member list on their website.
Libby Wixtead (12:49):And we'll have all of the websites and organizations that Lisa's talking about. We'll have those in the show notes so you can refer back to those. So with that being said, does Ag Credit's appraisal team only complete appraisals for AgCredit loans?
Lisa Shumaker (13:07):No. So we are able to complete appraisals for people outside of AgCredit. We do appraisals for landowners, buyers and sellers trying to set purchase prices or for estates and farms doing business planning or estate settlement.
Libby Wixtead (13:22):If you are looking for any appraisal to be complete by an AgCredit team member, you can reach out to your loan officer or the local office and they will be able to get you in contact with the appraiser that would be doing that appraisal for you and just have that relationship with your loan officer and they can point you in the right direction. Lisa, is there anything else that we have not covered today that you would like to talk about on appraisals?
Lisa Shumaker (13:55):I don't think so. Another way to reach us though would be by email to our team, which is appraisal@agcredit.net.
Libby Wixtead (14:03):Lisa, we thank you for your insight and educating our listeners today about appraisals and what goes into creating that final value that we all are waiting to hear. There's a lot of background information that is going on and a lot of work, and so we appreciate you and your team here at AgCredit. And listeners, thank you for joining us and tune in next time to AgCredit Sedit where farm financials go beyond the balance sheet.
Kayla Laubacher (14:29):This is Kayla Laubacher with AgCredit, and I wanted to take a minute to remind you about AgCredit's digital banking platform. Through AgCredit Digital Banking, it's easy to manage your accounts whenever and wherever you need to. You can monitor your loans by checking balances, interest paid, and next payment details. Payments can be made online or through the digital banking mobile app. If you use fast cash, you can transfer your funds as needed between your line of credit and bank account with no fees. Through digital banking, you can also access up to 16 months of account activity and download your annual loan activity statement. Your tax documents are also available in digital banking sooner than receiving them in the mail. To sign up for AgCredit Digital Banking, visit agcredit.net and click the green digital banking button in the upper right hand corner of the website. Anyone who signs up for digital banking during the month of November will be entered into a drawing for an RTIC cooler prize pack.
(15:23):Sign up for digital banking today to make managing your loans easier.
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