Many times during my inspection of a subject property, I spend time visiting with the client about sales activity in the market area. I often ask if they know of any similar farms nearby that have sold or if they have recently purchased any farms. This question sometimes leads to a sale transaction that is appropriate to consider when developing the appraisal report and needs to be further verified and other times leads to transactions that are multiple years old or that cannot be verified. Either way, any insight provided by the client is considered valuable and can give a snapshot of what is happening in the immediate area.

The search for, verification, and analysis of comparable sales is a critical component of any appraisal report. Without the use of quality data, it is difficult to provide a supported value opinion for any property being appraised. Part of our job as certified appraisers is to not only confirm the details of a transaction but also to figure out additional details, such as why the transaction occurred or what factors led to the purchase price. When answering these questions and vetting a comparable sale, we can determine if the transaction is suitable to use as a comparable sale in the appraisal report.

During my comparable sales search for a recent appraisal assignment, I came across a recent auction transaction that had physical characteristics similar to my subject property. This property was part of a multiple tract auction in which tracts were sold in numerical order. Upon confirming the sale with the auction company, it was noted that the tract was purchased by an adjoining landowner, which surrounded the property on three sides. Additionally, the backup bidder was needing to execute a 1031 Exchange and was outbid on the prior tract in the auction. This led to aggressive bidding by both parties, resulting in a final sales price above similar properties in the immediate area. In this case, it was determined that both parties had atypical motivation, and the transaction was not utilized in developing the appraisal report.

One might think this is a rare phenomenon, but it often occurs in the sale of agricultural land, especially if two adjoining landowners are after one tract that is selling via the auction method of marketing. When this occurs, is the sale price considered to be market value or did both parties bid emotionally with atypical motivation driving the sales price above market value? Without properly verifying and finding out the “why” of a transaction, using the transaction as a comparable sale may alter the final value opinion in an appraisal report. This is why it is imperative to properly vet and analyze any transaction that could potentially be utilized as a comparable sale in every appraisal report.

Tyler Weaver is a Certified General Appraiser with Peoples Company and holds appraisal licenses in Iowa, Illinois, and Missouri. To find out more about his appraisal services, contact Tyler at Tyler.Weaver@PeoplesCompany.com. For general appraisal inquiries, our office can also be reached by email at Appraisal@PeoplesCompany.com or by phone at 855.800.5263.