CSR’s in Appraisal

8. CSR’s in Appraisal Corn suitability ratings are specific to the state of Iowa and are helpful in developing all three approaches to value in an appraisal of farm real estate.

9. THREE APPROACHES TO VALUE IN THE APPRAISAL PROCESS: - Cost Allocation Approach - Sales Comparison Approach - Income Capitalization Approach

10. COST APPROACH • The value of land in the Cost Approach is determined by analyzing unimproved comparable sales and allocating total value out to various land classes.

11. Land classes may include several grades of cropland and other land types, such as pasture, timber, CRP, waste, etc. • Generally, CSR’s are most useful in determining cropland value. CSR’s may be used for other land types, such as pasture, but these may have other factors affecting value more than soil quality.

12. Cropland is generally broken down into several classifications. Examples are: 1. Good cropland, Poor cropland 2. Land Capability Classes from county soil survey books

13. 3. Classifications developed from CSR ranges, i.e., Class I = 78+ CSR Class II = 68-77 CSR Class III = 54-67 CSR Class IV = 40-53 CSR Class V = < 40 CSR

14. Assessor’s CSR’s are based on tax parcels, usually 40 acres each. Digital mapping software or hand-calculated CSR’s may be needed to determine CSR’s and soil inventories on cropland acres. • Appraisal spreadsheets can be set up to divide soil inventories into classes based on CSR, eliminating hand entry, especially if one can export soil inventories from digital mapping software.

15. This is the soils data entry portion of my appraisal spreadsheet. Soil inventory is exported from digital mapping software (cut and paste). Classes and CSR’s are automatically calculated.

16. The above-inventory is automatically linked to another page on the spreadsheet that allocates value per land class. Entries at this point are: total acres, non-crop acres, sale price, value percentages, and building value (if any).

17. After allocating values to each land class on your comparable sales, you will assign values to the land classes on the subject property. Example:

18. Dollars per CSR for each land class came out as follows: In Northwest Iowa, we can find $/CSR ranging from $30 to well over $50 per CSR point. Example: sales in part of Sioux County, which is strong in livestock, can show 10-20% higher values than other areas with similar soils. Sioux County, being farthest west and one county from the top of Iowa, has lower CSR ratings than other counties with similar soils. Galva silty clay loam with B-slope in Sioux County is a 67 CSR but is 75 CSR in Sac County.

19. Two farms with Galva soils could easily sell as follows in today’s market: Sioux County $3,350/67 CSR = $50 per CSR Sac County $3,000/75 CSR = $40 per CSR

20. SALES COMPARISON APPROACH The Sales Comparison Approach requires comparisons and adjustments to account for differences between the subject property and each comparable sale.

21. A major factor in the selling price of one farm to another is soil quality. This can be measured by difference in CSR’s or differences in values and percentages of each land class. Example:

22. Other factors may influence value as much or more than soil quality. These include: • Condition of Sale - i.e., an auction with two bidders under 1031 deadline. • Financing - example, favorable contract terms. • Time - rising or falling land values since the time of the comparable sale. • Size - large versus small parcel (maybe). • Location and Access • Terrain/topography - drainage issues, HEL vs. NHEL, terraces, etc. • Improvements • Field configuration - ditches, irregular boundaries affect efficiency • Others

23. The amount of adjustment for each of these factors is determined by head to head comparisons between sales. Usually expressed in $ per acre. Keep these factors in mind if you’re talking $/CSR.

24. INCOME CAPITALIZATION APPROACH The anticipated net income is capitalized by a rate determined from comparable sales to arrive at a value. Value = Income / Rate (IRV) Example: $125 net income / 4.0% rate = $3,125 / acre

25. The appraisal problem is to determine an accurate income stream from a piece of property. CSR’s are useful in determining crop yields or rental rates. If you are using a crop production income stream, you will need to determine expected average yields for the comparable sales and subject property. For example, if a property has 75 CSR and you know that a factor of 2 is appropriate for the area, the expected average yield would be 150 bushels per acre. Lower CSR farms tend to produce better, percentage-wise, than higher CSR farms, so know what factor would apply to a given situation.

26. Soybeans can be factored times the CSR or as a percentage of the corn yield. In Northwest Iowa on Galva-Primghar-Sac soils, corn may yield 2.9 times the bean yield while on Clarion-Nicollet-Webster, corn may yield 3.25 times the soybean yield. Knowing the proper ratios for the area is key. Yield monitor data laid over soil maps is golden information in determining these ratios; however, one year’s data can be misleading. In 2002 in Northwest Iowa, late summer rains gave poorer soils an advantage over good soils regarding Yield per CSR. Multi-year data should even this out and provide more reliable information.

28. CSR’s can be used in a similar fashion to determine cash rental rates. A factor of 2 would mean that a 75 CSR farm might rent for $150 per acre while a 60 CSR farm might rent for $120 per acre. Again, lower CSR farms tend to produce better or draw better cash rent, percentage-wise, than higher CSR farms, so know what factor would apply to a give situation. Example - we have handled cash rent bid situations where lower-CSR farms had several bids at 3 times the CSR, while higher-CSR farms in another area barely achieved 2 times the CSR.

29. SUMMARY CSR’s are a great tool - a benefit to farm management in Iowa, and a valuable aid in land valuation. However, they only begin to tell a farm’s story. • Compare apples to apples when comparing $ per CSR • Don’t forget all the other factors that go into the total value of a farm.