1. Income Approach(cont) Be sure you have identified all of the property that is to be included; are there buildings, is there pasture, etc. Cash leases; – Find out the terms; how much, how long, what all is covered, – The current tenant has been on the farm for an average of 9.5 years. Implications for finding out about the lease characteristics other than amount

2. Crop Shares Find out division of income and expenses Any other type of leases (cash for buildings or house, or other) Lease characteristics; average crop share has been in place 18.1 years

4. Owner/Operator Remember to base these estimates on the potential and not the current operator Costs per bushel varied by over $1.50 and $4 in 2008 for farms in the Iowa Farm Business Association

5. Additional Considerations Remember the rent on buildings or the farmstead. Are they worth anything or are they a detraction? Income estimate will vary depending on the method used. In general the cash rent should provide the lowest net operating income, followed by the crop share, followed by owner/operator. Why?

6. Capitalization Rate Income approach says: – Value = Net operating income/Capitalization Rate The capitalization rate is – Capitalization rate = Net operating income/Sales price – NOI = Sales* Capitalization Rate Comparable sales provide estimates of the current capitalization rate

14. Questions Why would capitalization rates vary? Would you expect them to be the same?

15. Summary Income approach is one approach to estimating value in appraising land. With this approach we assume that income from different properties in the neighborhood will be similar. Estimating income as cash rent, crop share, or owner/operator Comparisons must generate income in the same way

16. Summary Capitalization rate estimate is a key to this approach