Spending Money to Save Time: Does Farm Size Affect Price per Acre?
By Mason Spurgeon, Certified General Real Estate Appraiser
Does the number of acres affect the value of my farm?
I know what you are thinking: “Duh, Mason! The more acres I have, the more money I will get.” That is true in most instances, but I am talking about the price-per-acre as it pertains to the total number of acres. For example, will a 2,000-acre farm bring more or less per acre than a 200-acre farm? This is a simple question with a complicated answer: it depends.
Properties of different size bring different buyers
Let’s say that both farms are highly tillable, productive tracts. The 200-acre tract would bring in a lot of potential buyers, both investors and local farms. This is mainly because the 200-acre farm would be more affordable overall to more buyers, which could drive up the sale price. There are many individuals in the current market with money looking to invest in land with a decent and safe Return on Investment (ROI).
On the other hand, the larger tract would bring in a very different set of buyers, albeit a smaller number. The buyers for the 2,000-acre tract would likely be huge investment funds, i.e. retirement or pension funds, or individual investors with large sums of money to invest, potentially with a 1031 Exchange. These types of buyers are looking for a place to invest millions very quickly while also securing a dependable ROI.
Farm Size
Different Sizes, Different Buyers
Two highly tillable, productive tracts. Each has its own set of buyers.
200 Acres
Many buyers
- Local farmers
- Individual investors
More affordable overall to more buyers, which could drive up the sale price.
2,000 Acres
Fewer, bigger buyers
- Investment funds
- Retirement and pension funds
- Large individual investors, potentially with a 1031 exchange
Looking to invest millions very quickly while securing a dependable ROI.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
Large investors save time by spending money
With the example above, can you see how the larger tract may bring more per acre than the smaller tract, even though the smaller tract would attract more potential buyers? They each have their own unique set of buyers. A local farmer or an individual investor would love to add a small tillable farm to their portfolio, but a large investor or retirement fund does not have the time to piece together several smaller farms to invest a large sum of money. That would mean several different auctions, agents, appraisals, closings, and other paperwork. Also, it is rare that several highly tillable farms in one area come on the market at the same time. It would probably take years to buy 2,000 acres of land in one area…and time is money. For that reason, high-dollar investors would be willing to pay more on a price-per-acre basis for a larger farm as opposed to a smaller tract, since it would be faster and easier.
Farm Size
Large Investors Save Time
Why high‑dollar investors may pay more per acre for one large farm.
Piecing together small farms
Several auctions, agents, appraisals, closings, and paperwork. It could take years.
One large farm
One transaction. Faster and easier, so they may pay more on a price‑per‑acre basis.
Also
It is rare that several highly tillable farms in one area come on the market at the same time. And time is money.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
Every rule has exceptions5
Now I probably should end this with a disclaimer. The example above best reflects the situation for farms with a high percentage of tillable ground. Farms with marginal or a smaller percentage of tillable ground would probably not see this premium from outside investment firms due to the limited ROI. However, some recreational farms could see the same premium if all the stars align (right market with the right buyer), but chances are the price-per-acre for the larger tract would be less than the smaller tract because of the limited number of buyers with disposable income to buy a large tract with limited ROI.
Farm Size
Every Rule Has Exceptions
When a large tract is likely to bring a premium per acre.
Highly tillable
Premium Likely
Outside investment firms may pay more per acre.
Marginal tillable
Premium Unlikely
Limited ROI for outside investment firms.
Recreational
Usually Less per Acre
Unless the right market meets the right buyer.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
As you can tell from this article, appraisal work requires extensive knowledge of real estate and attention to various factors. At Spurgeon Appraisals, we have all the experience necessary to appraise homes, farms, and commercial properties. Contact us today for a free quote.
