First-time rural property buyers are often unaware of the complexities that determine a property’s value. Unlike city properties, there is an abundance of variables to be considered, and “comps” are difficult to find. To value a property for market value the Broker Price Opinion is the most common tool. To value for a bank or an estate, the Appraisal is the correct vehicle. Let me explain:
Determining rural property value by BPO
As an experienced Boulder County rural property expert, I regularly prepare comprehensive Broker Price Opinions (BPOs) to determine a property’s market value. They are complicated and take into account a large set of variables. They usually require research and interaction with Boulder County to decipher what is allowed for improvements, additions, and uses of the property and existing structures. (One may think that if a house and outbuildings exist, that they are legal and could be altered or replaced. Not necessarily so in Boulder County!)
Some of the variables considered in BPOs:
• Location – Proximity to town, open space trails, neighbors, airports. Is it a quiet country road? Is there road or air noise?
• Land – Obviously the acreage, but also the quality of the soil and the likelihood of the presence of chemicals and toxins.
• Views – Mountain, back range, prairie.
• Water – The appeal of living near water is universal.
• Trees – Deciduous, old growth.
• Existing structures – Condition and value.
• Water rights – Volume, seniority, season, storage rights.
• Mineral rights.
• Encumbrances – Conservation easements and/or other encumbrances.
• Development potential – Number of development units possible (i.e. residences), ability to increase or alter house size, outbuildings, and add accessory dwelling units.
• Adjacent properties – What is going on now and what can happen in the future? Organic farmers are especially concerned about airborne and ditch water contaminants.
• Zoning – What uses and restrictions is the property subject to?
In the event a client disagrees with my valuation, we will have a discussion to arrive at an agreed price for the listing.
Rural property appraisals
Professional appraisers valuing rural properties for lending institutions typically use two approaches: A Comparable Sales Approach and a Cost Approach. They have strict guidelines as to what comparable sales they can use: normally they have to be within a certain radius of the subject property and sold within a certain time frame. They then adjust for acreage, square footage, number of bedrooms, number of bathrooms, size of the garage, location and water rights, amongst other things. There are sometimes shortcomings with these criteria. The best comparables may be missed just because of the time or distance criteria.
If a property appraisal comes in low, the valuation is all but set in stone and it can kill the deal. The buyer may need to come up with more cash, or renegotiate the price with the seller.
In summary, it is challenging to properly evaluate rural properties. This is all the more reason it’s important for buyers to work with an experienced rural property broker.
By Karen Libin. Karen is the owner and managing broker of KL Realty, and has more than 30 years of experience in the Boulder County market. To contact Karen, call 303.444.3177, e-mail [email protected] or visit klrealty.net.