Appraising Equine Properties

We are located in an area known for beautiful horse properties in North Texas.  We are often engaged in appraising some of these equine properties.  I personally love horses and always love these assignments although they can be more complex and challenging. Here are some of the key factors that impact an appraisal of an equine property.

For an appraisal, the sales comparison approach will best determine the fair market value of a property.  For the sales approach, appraisers will search the market for sales of similar equine properties that sold hopefully within the past 12 months.  This can be challenging as equine properties will vary greatly in the amount of acreage, equine facilities, and site, style or age of the residence.

To give you an example, I ran the numbers for the past 2 years for sales within our local MLS that are indicated as having equestrian amenities for four counties located north of the DFW metroplex, the counties of Denton, Collin, Cooke and Grayson Counties.

As you can see from this chart, Denton County had more than twice as many sales as the other three counties.  Denton county has a much higher number of sales as there is a larger concentration of equine properties in Denton County. Large portions of Denton County have sandy soil which is good for horses and because of the higher number of equine properties in the area, there is much greater access to equine care facilities and equine supplies.

You can see that there is a large variance in these sales.  Sale prices range from $150,000 to $12,500,000. Lot Sizes range from 3 acres to 392 acres.  The size of the homes GLA range from 1,386 sq. ft to 11,946 sq.ft.   Along with these differences there will be differences in the age, condition, and quality of the home and differences in the equine amenities of the property.  

The appraiser will perform an observation of the property being appraised.  The appraiser will measure, take pictures and note the quality and condition of items on the property.  Items considered in the observation: 

* Home- size, condition, age, and quality of construction

* Home amenities- Pool, Guest House, Tennis Court, Spa, Cabana, etc

* Equine amenities- Stables (size, age, quality and condition), Workshop, Arenas
  (covered & uncovered);Wash Room,Tack Room, Fencing;Corrals, Living Quarters, etc. 

* Land-type of soil, size of acreage, flood plain or drainage issues, etc.

Those are the horse stables on this equine property. 

The observation may take a while depending on the size and amount of the items to observe.  Once the appraiser has all of the information necessary on the property being appraised, they will then search for most similar sales available.  As you can see from the data above this could prove challenging.    You will want to have an appraiser that is knowledgeable of the market for equine properties. 

There are two other types of approaches to value: the cost approach and the income approach. The cost approach can be difficult for this type of property as depreciation can be difficult to determine.  The income approach would not be useful unless the property is an income producing equine facility.  If the property is an income producing property then it would be beneficial but this type of property appraisal would most likely be a commercial appraisal.  The value would be based off the NOI (net operating income) of the property.  

 Key Factors in Equine Property Appraisals: 

Location-  equine properties located in areas where there are many other equine properties along with equine veterinary care centers and equine supplies are desirable markets. You can see this in the example shown as Denton County has a larger number of sales and the highest priced sales.

Lot Size- The value of the lot can be determined by finding similar sales of similar sized lots. If your lot is 40 acres and you are comparing that to another property that is only 5 acres, the price per acre for the smaller lot will be higher than the price per acre for the larger lot based on the law of diminishing returns. If a 5 acre lot sold for $50,000 ($10,000 per acre), it would be a mistake to think that your 40 acres is worth $400,000.  For a great understanding of how the law of diminishing returns work read Starbucks Cups and Price Per Sq Ft by appraiser, Ryan Lundquist. This analogy is for price per sq. ft. but the same principle applies for price per acre.  Soil type will also be a consideration as some soils are less suitable or desirable for horses, such as the sandy soil in Denton County.

Equine Amenities- Equine properties have various amenities.  There is a difference in a 4 stall barn, 20 stall barn, and a mare motel.  There is a difference between a covered arena and uncovered arena.   This being said, it is very rare to find two equine properties with the exact amenities.  An appraiser experienced in these types of properties and the market will be able to determine the value attribution of the various amenities.  I must also note that when it comes to amenities, cost does not equal value. Just as it is with home improvement, the cost of an improvement will not always have the same dollar for dollar amount of value attribution.    

Residences- We often find the greatest variances are in the single family residences located on equine properties.  It is important to find comparable sales of equine properties with similar residences.  Some of the different kinds of residences we have seen in our markets are: 

 *large, custom homes

 *older, smaller homes

 *manufactured homes

 *metal constructed homes with custom quality interior finish 

 *"barndomiums"  This term refers to homes that are built into the  barns  

Not all lenders will lend on a barndominium, manufactured home, or metal constructed home. There are some lenders who specialize in equine and farm appraisals.  They would be familiar with the complexities and complications that often occur in appraisals of equine properties. 

I hope this has given you some insight into what appraisers consider when appraising equine properties.  What did I leave out? Do you have additional questions? Please feel free to contact us at www.dwslaterco.com. 

Disclaimer: All information deemed reliable but not guaranteed. The information is meant entirely for educational purposes and casual reading only and is NOT intended for any other use.  This information is NOT intended to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or other potential real estate or non real estate purpose.  If you’d like to obtain additional information or order an appraisal for your specific needs, please contact us at www.dwslaterco.com.