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/ All categories of countries are / Top 10 Factors Affecting a Estancia’s (large farm) Value

Top 10 Factors Affecting a Estancia’s (large farm) Value

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The valuation of an Estancia and finding the price per hectare is substantially different than other types of real estate. While residential and commercial real estate prices typically rely on data based upon numerous transactions within a defined market area that can be defined as “comparable sales,” most Estancia sales are not published on any database, there are relatively few transactions that close within a two year time frame, and there is no defined market area. Due to the uniqueness of ranches, two properties can be adjacent to one another and be vastly different properties with few comparable traits. In addition, there are real absorption trends for Estancia and demand is not driven by growth, thus proximate comparable sales data can be scarce. When looking for data, we often have to look at sales beyond two years or expand our search regionally or nationally to find a comparable sale. Due to the lack of applicable market data, we must look further for proper valuation. When we evaluate a ranch or sporting property, here are the top factors that affect value:

#1: Water Rights

Water is a key valuation component, especially in dryland regions and a pivotal cornerstone in acquiring an Estancia. Unless the water rights are sold off, they will stay with the property. Recreation, agricultural income, wildlife habitat, and overall ecological health of a ranch all depend on water. Understanding the specific water rights attached to a ranch is crucial; age, volume and source are important issues. Just because you have a visible stream or river running through your deeded acreage does not necessarily mean you can use it. Sometimes there are separate markets for the water itself, but often it is the contributory value of the water right in the form of irrigated and sub-irrigated acreage, ponds, lakes and riparian areas that need to be considered.

#2: Access

Access is a fundamental issue to land ownership and access issues need to be scrutinized when evaluating an Estancia. Do not assume that access to an Estancia is deeded or insurable and title commitments need to be reviewed.  Are you purchasing non-contiguous properties and is there access to these parcels? Lack of certainty to insurable, deeded and year-round access off a public road will impact values. Note that this access issue also relates to the rights of others to cross your deeded ground to reach adjoining land or to access water ditches (easements). Also, is the Estancia accessible to amenities; how close is the ranch from regional airports, resort towns or supermarkets? Is the road to your Estancia maintained by the county or the Province? These are all considerations that certainly impact land values.

#3: Recreational lands

Availability of recreational resources on an Estancia plays a substantial role in influencing Estancia values. Many buyers purchase Estancias for recreation, be it for fishing, hunting, hiking, ATVs, or other uses. Perhaps one of the greatest impacts to value is the presence of wildlife or fishery habitat and the availability of hunting rights for the specific area. Rivers and streams that have a functioning fishery obviously increase the value of a ranch and vary based upon the quality of the stream and the fish that reside within them. 

As a potential buyer of an Estancia, you should have an understanding of the ecology of the property and the condition of the habitat, both on the Estancia itself and any adjoining properties. 

#4: Adjacency to National Parks

Estancia values are typically enhanced due to adjacency to national parks as these lands may act as open space. Leases on adjacent lands may increase the grazing capacity by a substantial amount and also allow properties with significant hay production to rotate cattle off prime irrigated lands during hay season on to adjacent lands, affording greater operational efficiencies and profitability.  In addition to this operational aspect, neighbouring lands can increase the sporting and recreational opportunities of a ranch, which also enhances value.

#5: Improvements

The value that improvements add to an Estancia depends on the size, use, and scope of the property. Operating/working Estancias can benefit from good functioning working improvements. Well maintained sheds, draughting yards, gates and fences all enhance value, while visible signs of deferred maintenance can significantly reduce value. A balance of well maintained facilities is typically the objective as often times sellers have issues in recapturing values on over improved properties.

#6: Agricultural Production

Estancia and large farms by definition produce livestock or crops and often there is an opportunity to generate income from such operations. While financial records my help, not all Estancia or farms are operated alike and the management, and scale of such operations differ wildly. Beyond just studying current operations, one should understand carrying capacity and alternative management techniques like holistic land management as these methods can greatly enhance value. 

#7: End-of-the-Road Privacy

End of the road privacy with unobstructed view-sheds of mountain peaks and sweeping meadows are some of the most important features that add value. Estancia buyers tend to look for the secluded private settings that ranches offer and the peace that this solitude provides. Estancia at higher elevations can see a higher price per hectare simply due to climate, location, and proximity to national forests or parks. The location of your Estancia is perhaps the most significant factor in the overall valuation of a property.

#8: Legal Title Deed Type

Many large properties around the world are leasehold to a third party. (Churches, Universities, Corporate Investors, the State). The largest examples are in Australia and Russia. Depending on the lease conditions this is an inferior form of ownership making the property difficult to finance and make expensive improvements. We would recommend staying away from this property type. The other issue to look out for is forged titles. Although relatively uncommon it a hazard in parts of Paraguay.

#9: Competing Land Interests

In some areas (parts of the Argentine and Chilean Patagonia regions are claimed by the Mapuche tribes) there are unresolved conflicts for the land from indigenous groups that are often violent. Be particularly vigilant around lakes and rivers. Some parts of  Peru,  Paraguay and Brazil have similar conflicts. Although these areas are relatively small they often are prime real estate but should be avoided by investors.

#10: National Land Restrictions

In the past few years a number of countries have introduced restrictive farmland laws applying to foreign investors. Be sure to check before you start doing any due diligence on a particular property.

Although there is no perfect market approach to determine estancia values, these points help us formulate a valuation for a property and suggest a suitable marketing plan.

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