Top 10 Factors Affecting a Estancia’s (large farm) Value
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
#1: Water Rights
Water is a key valuation component, especially in dryland regions and a pivotal cornerstone in acquiring an
Access is a fundamental issue to land ownership and access issues need to be scrutinized when evaluating an
#3: Recreational lands
Availability of recreational resources on an Estancia plays a substantial role in influencing Estancia values. Many buyers purchase
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.
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
#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
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.