Key Elements That Affect Ranchland Prices

By
April 07, 2020

Things to look for when valuing a ranch


Key Elements That Affect Ranchland Prices

Unlike other types of real estate investment and valuation, Ranchland has a very unique set of characteristics that contribute to both its value and usability.  The majority of data from individual ranch sales are generally not found on MLS systems, so it can be difficult to find comparable sales of ranchland in the immediate area of a subject property, within a reasonable period of time.  To further complicate the valuation process, ranches that are located in the same geographical area can be vastly different in condition or absent of vital elements which will significantly alter the pricing model from one ranch to another. 

 

It is not uncommon for two ranch properties to be adjacent to one another and still be very different properties with very few comparable traits. Due to the low turn-over rate with larger livestock ranching operations, finding comparable sales as a basis for valuation can be a rare occurrence.  It is not uncommon to have to search for comparable ranch sales outside the immediate area or even outside the region.  Furthermore, the typical two year look-back period that most people like to use as transaction history for sales comparisons may need to be expanded into longer periods of time.  Above all, to properly evaluate a working livestock ranch the following factors are important to determining the value:    

 

#1. Water

Clearly one of the most important elements of a ranches value is its ability to produce and/or provide access to water.  Water is the one element that an owner cannot operate a livestock ranch without.  Some may argue that forage is just as important, however feed or supplemental feed can be delivered to an operation, feedlots do it every day, but water is a necessity and hauling water is not a long term solution.  A ranches ability to provide a water source is a primary element that prudent ranchers and investors will want to ensure the ranch can provide. Normally the water rights under the surface (if owned) can be drilled and produced for livestock, which again is going to be a question during the discovery phase of an acquisition.  Surface water on the other hand is a strong value add for an operating ranch.  There are different types of surface water which include lakes, ponds and flowing water, which is commonly referred to as “live water”.  Flowing water such as creeks, streams and rivers are valuable not only for providing fresh water for livestock but they also can provide a strong recreational value.  Lastly, water can also be a source for watering crops.  If a portion of the ranch has crop or hay production ground that is either sub-irrigated or has the ability to supply water in support of an irrigation system, this adds value to the ranch.   

 

#2. Cropland Production

As we just discussed in the previous paragraph, cropland production contributes to a ranches overall value for a few reasons. First it can create additional income from small grain production such as (corn, soybeans, wheat, etc.). Secondly you can use production land for hay production to supplement forage requirements for livestock during specific times of year like winter or an occasional drought. The quality of the soil will obviously have an impact on the agricultural acres ability to produce at a higher rate, and certain types of soils with higher/lower levels of (PH, acidity, nitrogen, phosphorus, potassium, etc.) will determine what types of hay or crops are best suited to raise.

 

#3. Improvements

Improvements can refer to different types of added investments (homes, outbuildings, fencing, working facilities). A large percentage of working livestock ranches in America have onsite homes and in some cases multiple residences, like foreman’s quarters or guest houses. In addition, there are a variety of building improvements such as (hay barns, equipment sheds, livestock working corrals, etc..) that can add value to the property. Depending on the condition and usability of the fences, buildings, homes and other improvements, most can be appraised and a value applied to the overall acquisition. It is not uncommon when elaborate or unique homes and facilities are built on working ranches for the owner to not be able to recapture the full value of the original build cost.   

 

#4. Pasture Grazing/Forage

Livestock ranches are generally judged on the quality of their grass pasture. Well managed and maintained grass pasture is a key element to the quality and quantity of a ranches livestock production. Most balanced livestock pastures are comprised of a mix of legumes and grasses. The two types of grazing pastures are commonly referred to as Natural Pasture, where the grass is native to the area and grows naturally, and Artificial Pasture, where the grasses and legumes are deliberately planted & managed by the farmer for the sole purpose of feeding livestock. This strategy installs grasses that may not be native to the area but the soil and area rainfall will support them. The condition of the grass pasture on a ranch will readily indicate how well the ranch has been managed by controlling stocking rates, fertilizing and liming, aerating, and rotating livestock on and off the pastures. Lastly, spraying pastures for noxious weeds and uninvited plants will keep the pastures clean and obviously improve the value of the ranch.

 

#5. Hunting & Recreation

Over the years many ranch owners have learned to diversify their ranching operations to include additional revenue streams such as hunting and recreational activities. Depending on the geographical location of the ranch and the type of amenities the land has to offer, the recreational activities can add significant value to the property. Mountain ranches can provide big game hunting opportunities for elk, moose, mule deer and bear, while lower elevation ranches may provide whitetail deer, turkey and upland bird hunting activities. In addition, ranches that have access to rivers and lakes can provide great fishing opportunities. Additional activities that can add value to a ranches operations are hiking, ATV trails, horseback riding and more.  When looking for added value make sure you thoroughly understand the state hunting and fishing licensing requirements as well and state/federal regulations that would affect the intended purpose.


#6. Clean Appearance

The overall appearance and condition of a ranch is possibly its largest value asset. It takes a lot of work to maintain a ranch and the larger the acreage, the larger the challenge. Land clearing and the removal of unsightly brush and trees, opening up grazing pastures, updating improvements and fencing, and strategically placing wildlife infrastructure and food plots is a great way to maintain the value of the ranch.

While evaluating a working ranch and determining its value, use the above six elements to help determine a ranches value and suitability.   For more information about ranch land and ranches for sale, check out UCRanchProperties.com.


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