Determining Land Costs Per Acre
August 1, 2016
Reid Grate, a third generation rancher from Isabel, SD operates on land first purchased by his grandfather.
The Grate Ranch straddles the border of South and North Dakota and was recently appraised at around $600 per acre. But like many other ranchers, Grate values his ranch differently.
Family farms and ranches are often viewed as an heirloom rather than an asset. Many farms and ranches that remain intact, do so only because the next generation is not expected to buy the land at full market value. The land is valuable as a way to make a living, raise a family, then pass to the next generation never actually selling the land on the open market.
"I know there are guys starting with nothing and getting into a ranch, but most people I know either inherited a portion of a ranch, from family or friend, or they had their folks' help getting going." Others take on a "nine-to-five" job and spend their weekends and evenings catching up on ranch work, said Grate.
"The ranch I'm on has been in my family since 1950. My grandpa had a partner to help finance the ranch, while he managed it. Grandpa died relatively young and unexpectedly, and in the process of clearing up the estate, about half the ranch was lost because there was no paperwork in place to hold the ranch intact. Dad was worried about how to keep the ranch in the family for as long as I can remember, but it he seemed to take on a new urgency when I showed interest in running the ranch," he explained.
"It's a shame but it seems like the first estate tipped the family ranch on its head, and I'll never know how close we were to losing the whole thing, but it appears the second estate will pull it back together, and if I can live as long as my dad and grandfather, who both died too young, I should be able to pay the ranch off and look at how to pass it to the next family member. But, no matter how we shake it, the generation transfer is a bugger," said Grate.
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While it seems like there are a lot of stumbling blocks now, the federal government, in its infancy, strongly encouraged land ownership.
The Land Ordinance of 1785 implemented a standardized system where territory was divided into a 6-mile square divided into 36 sections, each measuring 1 square mile or 640 acres each. An individual was required to purchase a full section of land at the cost of $1 per acre for 640 acres. Nowadays the cost of land per acre across the United States varies widely based on use of the land, the improved nature of the land, and the location of the land in relation to similar land.
The type of land in a given area has a significant impact on its worth. Agricultural and other largely undeveloped areas are generally worth significantly less than city and suburban land. Certain aspects are to be considered when determining land's value. Property tax, recording deeds, mapping, regulatory permits depending on the potential use, restrictive covenants, and cost of acquiring rights to nearby resources like water supplies are all taken into account. Mineral resources can also fluctuate value as minerals like oil, natural gas and coal are drawn out based on economic demand.
Brandon Stoddard knows about these aspects. Property taxes are high in his state, but owning land is worth the expense. A western Nebraska native, Stoddard grew up on a family ranch near Scottsbluff.
Stoddard works for the BNSF Railroad and recently purchased a smaller acreage in Minatare, Nebraska.
"I bought the piece I did because it's located halfway between the family ranch and work. I need an outside income as most people do nowadays to grow an ag operation. In Nebraska in particular, taxes are outrageous for property. Some operations farther east actually pay more to the county in taxes than what the operations bring home in net value. Just this morning I got a notice my property value went up another $2,000, which I now have to pay additional taxes on. In Scottsbluff County rural acreages belong to specific water districts you have to pay water rights on. I would love to use my water rights, but the leeway to my property from the irrigation canal is no longer in service. I could sell my water rights but I'm not wanting to do that either," Stoddard explains.
His land is more of an investment than a sentimental keepsake. "When I retire from the railroad I will probably sell the place I'm at now and try buying adjoining acreage to the ranch."
It's impossible to predict just what dollar value his land will be when the time comes to find a new owner for it.
According to the Lincoln Institute and the Federal Housing Authority figures, an acre of land in 2010 sold for an average of $1,000. In 2015, the United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,020 per acre, up 2.4 percent from 2014 values. The highest farm real estate values were in the Corn Belt region at $6,350 per acre. The Mountain region had the lowest farm real estate value at $1,100 per acre. U.S. cropland value increased by $30 per acre, less than one percent, to $4,130 per acre and pasture value increased to $1,330 per acre, or 2.3 percent above 2014.
A study authored by William Larson, senior economist at the Federal Housing Finance Agency estimated the combined value of all land in the contiguous United States at nearly $23 trillion. The most valuable state, California, accounted for 17 percent of the total value of the 48 bordering states. 12 out of the 24 states with the least valuable land, showed at least half of the land was dedicated to farming with Wyoming being the lowest worth of any other continental state. South Dakota was the fifth lowest value while Montana came close as the sixth lowest value followed by North Dakota then Nebraska.
"But what is it really worth?" asked Grate. "As far as the value of the ranch, how do you put a value on 66 years of blood, sweat and tears? What value do you put on the first property owned by a family that was on horseback and cow-crazy for generations; my first home, my dad's first home, my grandfather's first home? The bank could give me a number, usually red. The tax lady would offer a number, Uncle Sam has a number, depending on just what it is they want from me. They are all just numbers, ink on a page. Money is just a tool, and like any tool it will help you or hurt you, depending on how well you learn to use it. We tend to value the ranch that way, it is just a number on a page, we jockey it around until it lands on some magically impossible sweet spot where the kids who want the land can afford to buy it from the ones who found a different dream."
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