norman c wheeler & associates bozeman & missoula, montana may, 2014
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Norman C Wheeler & AssociatesBozeman & Missoula, MontanaMay, 2014Montana Land TrendsIn The Re-emerging Market
Looks Like Weve Weathered The StormPlease Note:
Opinions Ideas
Observations Shameless Projections
Values or Scenarios
These are of a small minded appraiser and may not be coherent or representative of those who govern over us.The Land Ranch market is re-emerging
What is the Market Rewarding?
Productivity&Good Buys
Not Speculative Development or Values
Not the best environment for beneficialConservation Easement valuation.
One MarketThe Other MarketHistorically 4
State ProjectNote this is the Western Land Survey 2004 verses 2013Lowest Price Point on Average since 1990sAlso a factor of Supply & Demand
Later
Bifurcation Analysis 2012 vs. 2013
2013 was $1,164per acre overall
2012 was $776 per acre overall
Strong Value Influence Based on Commodity Prices
Listings:Quick Sample over 640 Deeded Acres194,603 Acres
$1,920 Per AcreLess IX Ranch
134,603 acres
$2,309 on Average2013 Market Average
$1,164 Per AcreJanuary 2014And Then Theres DemographicsWhos next behind the Boomers?GenXers: born between roughly 1965 and 82 .now 31 to 48 yrs old.Millennials: those following, now 18-30 yrs old
Source: BabyBoomerHeadQuarters www.bbhq.comGenXMillennials13So when looking at Montanas Rural Land Markets now, post-RESET.Location and Highest & Best Use (Really) Matter
GenXMillennialsChanging Matrix BuyersDesires Land Ethic14Native Range $600Mountain Pasture$850Riparian $6,500Irrigated Pivot - $4,000CE HistoricallyLimited Change CE Historically changes to H&B Use- GreaterProductivityFeatures Native Range Mountain PastureRiparianIrrigated Pivot -BuildingsLeasesTypical Matrix
3.1%
3.4%
1%Return 2013 Small Lands Analysis100 to 320 Deeded Acres 24 Sales $12,846,0004,430 Deeded Acres$2,900 per acre Improved$2,348 Per Acre Unimproved
321 to 1,000 Deeded Acres 25 Sales $24,167,84314,076 Deeded Acres$1,717 per acre Improved$1,394 Per Acre Unimproved
Appears to be an upside to selling smaller parcelsBased on averages averages Good 2013 SalesWater Amenity Properties
5,546 Deeded Acres - $20,550,000
$7,135 per acre - Improved
$5,425 per acre - Unimproved
Average 504 Deeded AcresWater Class Values - 2013Class One Water Land Value Per Acre- Overall $5,877
Non CE - $6,460
CE Encumbered - $3,95838.73% Property Rights AdjustmentClass Two WaterLand Value Per Acre- Overall $4,227
All Non CE Encumbered
Southwestern Montana River TrendingMadison County
Beaverhead CountyMadison Only - Riparian Trending2003 2004-05 2006-07 2010-13$3,056$4,301$8,432No Sales$8,536Beaverhead Only - Riparian Trending2003 2004-05 2006-07 2010-13$1,150$2,385$3,858No Sales$5,896Not Appreciation Changing Property Features Spring Creeks Averages Good Recent River Site Data Trends2011 to 2013 Average Site - 78.86 acres
Average Site - $810,000
$10,272 per acre UnimprovedHigh Amenity $914,000
Lower Amenity$595,000
2013 River Sites $20,550,000
15 Sales 1,427 Deeded Acres
95.13 acres per site
$1,370,000 Per Site - Improved
$14,401 per acre overall
Average $960,000 Site/Land Value Only$10,091 Per AcreUnimproved
FCS Southeastern Montana Ranches2012Sales Volume $81,000,000
Deeded Acres208,000
$390 Per Acre - Deeded2013Sales Volume $51,000,000
Deeded Acres117,000
$436 Per Acre Deeded(11.8% Increase)
2010: $225 to $275 Per Deeded Acre2012: $350 to $400 Per Deeded Acre2013: $435 to $496 Per Deeded Acre2005: $175 to $225 Per Deeded AcreEastern Montana The Other Market Predominately Agricultural H&B Use2010 - Emergence of N Bar Sale & Expanding Western MarketMid State - Spanning Two Market Areas More Recreational Influence - $400 to $500 Per Acre
Effect of Transitional Market On Animal Unit Values - 2010
Effect of Transitional Market On Animal Unit Values - 2012
11,730$ Per AU Unimproved8,043$ Per AU UnimprovedAvg AU Rec InfluenceAvg AU Grass Ranch 15,000$ Per AU Unimproved11,000$ Per AU UnimprovedAvg AU Rec InfluenceAvg AU Grass Ranch What's Up with Appraisers Regulation began in 1990
Grandfathering
Lack of Mentorship(intelligence)
IRS Enforcement ( Intimidation) 2006Overstatement Penalties - Sanctions
Lack of Effective Support or PushbackBy Appraisal Organizations
USPAP
YELLOWBOOK(One hand tied behind your back)
QUAILIFIED IRS APPRAISAL(Two hands Tied behind your back)Report FormatsPushback was Limited
Errors and Misleading Reports Flagged - Bad
No Logical Defense
No Real Standards in Place
IRS Walk Over Appraisers & Land Trusts
Subsequently Decreed RulesStandard Procedures
Property Rights Adjustment Gutted for CE Valuation
But Still Fully Acceptable for any other Damages MeasurementAccessFireEnvironmental
Virtually Whole Appraisal Practice is based on Property Rights AdjustmentUSPAP(Follow the rules)
5 Standards of Practice & Incorporated Rules
10 Statements on Appraisal Standards
32 Advisory Opinions
316 Frequently Asked Questions
USPAPReport Credible Results in a Non Misleading Manner Based on Standard of your Peers
As dictated By Your Experience/EthicsYellowbookReport all undeniable elements In a Supportable FormatIRS QualifiedAppraise As OrderedBased on Non Regulated Rules No Review Until?Maybe NeverReview and acceptance by a qualified reviewer based on a statement of workRadom based on unlicensed IRS Engineer
Only Federal Agency that has not adopted USPAP1-Larger Parcel Issues
2-Highest and Best Use
3-Valuation
4- Trends Larger Parcel Mom & Pop
CE Subject
640 Acres Unity of 1-Ownership
2-Location
3-Unity of Use
4- Highest and Best UseLarger Parcel Mom & Pop
CE Subject
640 Acres Mom and Pop 160 acres No CEUnity of 1-Ownership
2-Location
3-Unity of Use
4- Highest and Best UseMom & Pop
CE Subject
640 Acres Mom and Pop 160 acres No CEMom & Pop
CE Subject
640 Acres Mom and Pop 160 acres No CEUSPAP640 CE Subject - EncumberedYellowbookBefore 800 acresAfter 640 Encumbered160 Non different H&B UseIRS 800 acres Partially EncumberedWith Analysis of Benefit to Remainder and EnhancementsLarger Parcel DaughterMom & Pop
CE Subject
640 Acres Ex Son In-lawUnity of 1-Ownership
2-Location
3-UseMom & Pop No CELarger Parcel- USPAP DaughterMom & Pop
CE Subject
640 Acres Ex Son In-lawUnity of 1-Ownership
2-Location
3-UseMom & Pop No CELarger Parcel- IRS DaughterMom & Pop
CE Subject
640 Acres Ex Son In-lawUnity of 1-Ownership
2-Location
3-UseMom & Pop No CENow for IRS 920 acres PartiallyEncumbered Larger Parcel
640 encumberedBenefitsEnhancementsLarger Parcel- IRS DaughterMom & Pop
CE Subject
640 Acres Ex Son In-lawUnity of 1-Ownership
2-Location
3-UseMom & Pop No CENow for IRS 920 acres PartiallyEncumbered Larger Parcel
640 encumberedBenefitsEnhancementsSon Highest & Best UseBefore Easement
Legally Permissible
Physically Possible
Financially Feasible
Maximally Productive Legally PermissibleZoning
Prior Easements
Floodway
Governmental Restrictions
Physically PossibleTopography
Access
Floodway
Size/Shape
Soils
Financially Feasible
What Economic Use Supports Market Value
KEY ProbableMeasurablePredictableAgricultureProductivity
RecreationFeatures
InvestmentQualityBullshitProbableForeseeableFutureInterimSubdivision - Really
Subdivision- OK
Value Analysis
Discounted Cash FlowNO-NO
Bulk SaleUnhappy Client Based on Buyer Logic: A = $100,000 - 20 Acre Lot
Then regardless of input costs
My 320 acres = 16 times $100,000
Or B - $1,600,000$5,000 per acre
CE Reserves 2 build sites and no divisionSo After Value
2 times $100,000 = C- $200,000
D- (duh)= CE value $1,400,000 Joe Bag of DoughnutsBuys a 320 acre tract At market - say $1500 per acreOr $480,000320 acres assuming zoning and all that:
Infrastructure - $10,000 per lot- $160,000Cost of Sale at 12% - $192,000
Retail less $352,000 net $1,248,000
After IRS two enhanced build sites at $150,000
280 acres of permanently restricted pastureAt $500 = $140,000
After Value - $440,000/ $1375 per acre
CE Value - $808,000
But wait - What about Financial Feasibility?
Demand-?? Why of course.
Supply not like this.
Absorption It is redhot.
Cost of Money Who cares.
Discounted Cash Flow
Typically a six to seven year window.
Based on:Extraordinary Assumptions
Remember: There is no mythicaldevelopment market out there.
Maximally Productive
Rural Recreational Investment with Agricultural Influencesin Anticipation of Appreciation
Based on value and use measured byNon EconomicIntrinsic Personal Use Benefits
And is that improved or unimproved
Oh Yea Measure the Effects of Super Adequate BuildingsOn land values within CE sale Analysis Average $960,000 Site/Land Value Only$10,091 Per AcreUnimproved
Average 78 acres
Remember average River Class One 504 acres at $6,400 per acre $3,225,000So CE allowing 2 sites within 504 acres Two 78 acre sites at $960,000 each$1,812,000Remainder 348 acres restricted at CE Value of $4000 per acre$ 1,392,000After Value - $3,204,000
Sites $1,812,000
Open Space - $1,392,000Take Down $21,000Real World H&B Use Yea so you cant divide to capitalize on two sites - But do I have any sales to go down that road- or is it an Extraordinary AssumptionLets Go To Real World
Irrigated CroplandBozeman Proper$10,000 Per Acre Irrigated CroplandToston$3,500 Per Acre Irrigated CroplandHolland Settlement$5,500 Per Acre Assume Identical CEs No Splits- No HomesAssume water/ systems /productivity - similarConsider Change in H&B UseIrrigated CroplandBozeman Proper$10,000 Per Acre Irrigated CroplandToston$3,500 Per Acre Irrigated CroplandHolland Settlement$5,500 Per Acre Highest and Best Use a Function of:Consider Change in H&B Use
RememberFinancial FeasibilityMaximally ProductiveLOCATION
PRODUCTIVITY
SUPPLY
DEMANDIrrigated CroplandBozeman Proper$10,000 Per Acre Irrigated CroplandToston$3,500 Per Acre Irrigated CroplandHolland Settlement$5,500 Per Acre Assume Identical CEs No Splits- No HomesConsider Change in H&B UseLOCATION
PRODUCTIVITY
SUPPLY
DEMANDDo we even have a sale of encumbered irrigated cropland?Well I have sales that contain lands including irrigated cropland.
Those sales say 30% property rights adjustment - overall.
Oh yea those are at Dillon and they are 4 years old.I have non comparable pasture sales in this area that show a Property Rights adjustment of 40%.I have county and NRCS purchases of CEs on Irrigated cropland that were funded at 20 % of market value.
Oh yeaIRS and courts can try to default to established Programs.Irrigated CroplandBozeman Proper$10,000 Per Acre Highest and Best Use a Function of:Consider Change in H&B Use Financial FeasibilityMaximally ProductiveIf This was Entitled It would Sell at $25,000Per AcreSimple Entitled to Speculative$25,000 to $10,000- 60%But wait - $10,000 was fee simpleandWho really puts an entitled tract under CE?
Based on a preponderance of the data my $10,000 speculative land could be assumed to be affected 60% bringing $10,000 per acre down to $4,000 per acre which somewhat equates to Toston irrigated sales, with some unexplainable consideration that Toston sales are fee land, whatever, but considering location I have to adjust $4,000 per acre up 57% to $6,280 based on locational premium of Settlement lands as compared to Toston lands; and by the way that ends up as a 37.2% property rights adjustment that just happens to coincide with the average of every non comparable easement sale in my database that occurred in Montana over the last 10 years, that wasnt a riparian property sale.Case solutionDry CroplandSemi AridNative RangelandRiver - RiparianIrrigated Cropland Mountain PastureBuildings Highest And Best UseConsiderationsEx UrbanLandsDry CroplandSemi AridNative RangelandRiver - RiparianIrrigated Cropland Mountain PastureBuildings Highest And Best UseConsiderationsSite Site Site River - RiparianHistorically Discount Based on
Principle of Substitution
In the Maturing Montana MarketYou have to ask yourself
Is there a substitute?
And realize that for high end property
Most are Encumbered!AcresVolumeLand Value AvgGallatin1,592 11,855,000$ 7,447$ Avg Site200 unimproved 7,384$ Paradise3,082 23,900,000$ 7,755$ Avg Site770 unimproved6,328$ Bitterroot1,688 19,875,000$ 11,774$ Avg Site562unimpoved6,120$ Parting Thought What Drives Value in Your market?
Thanks For Your Time !
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