How much is your farm worth?

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Author: St John, Harry

The first vital issue is to verify exactly what you own. Many vendors may not have been involved in a sale transaction for years, if not generations, and verifying exact areas and boundaries is a vital first step. The discipline of form-filling under the IACS, and now SFP, system means that most people have a pretty accurate idea of what they farm, but the area can differ from what they own.

It all needs to be checked against the title. Getting it wrong is a potential breach of the Property Misdescriptions Act, which can make your agent a criminal.

Careful analysis then needs to be made of what the property comprises -- house, cottages, buildings, land, SFP entitlement and so on. All will need to be valued separately -- remember the entitlement does not attach to the land like IACS registration, so the vendor needs to decide if he is including it with the land price or retaining it.

Initially, large historic entitlements could enhance value and "naked" land could be less valuable. The market is barely developed as yet, but most vendors seem prepared to include the entitlement on larger blocks of land or whole farms/estates.

In addition to the obvious, remember sporting rights, fishing on rivers and lakes and then the less obvious invisible assets such as minerals/waste, aquifers or sources of water, potential for a wind farm in isolated places and overall the planning potential for alternative uses for parts of or the whole of the property. This requires appropriate prior research with the relevant planning authorities.

Checking whether any dwelling has an agricultural occupancy tie is vital - these can be lifted or varied, thus improving value. (For more details on adding value to your farm see p12-13)

Once all the individual factors have been taken into account, a value for the whole can be arrived at. This might exceed the sum of the parts, especially where a property has lots of amenity value, as a complete "estate" large or small.

On their own, 81ha (200 acres) of grassland might be worth only £2500/acre to a local farmer, but combine them with an attractive house and their value goes up. Add in the potential for a shoot and more value could be added. Similarly, a well heeled neighbour with a nice house will often pay a handsome premium for some additional land to add to his "estate" for added amenity, enjoyment, protection and so on. This premium is often called the marriage value. The more attributes a farm has, the more complicated the valuation process becomes.

As everybody knows this is the next key factor because it influences demand. Some areas are enormously popular and others less fashionable, or are blighted by other factors like an airport, sewage works, motorway or a prospective wind farm. Noise and pylons are two real turn-offs for purchasers, as are rights of way near the house.

The type of buyers active in any area will also have an impact and could determine if and how a property should be lotted. People looking for pony paddocks will be prepared to pay a lot more than local farmers, as will wealthy homeowners mentioned above.

Having said this, some properties sell best as a whole, but the lotting process forces the single buyer to compete against all corners.

All sales/disposals involve the impact of Capital Gains Tax, so it is vital to take advice from your accountant. The farmhouse with some land may well be your Principal Private Residence - usually free of CGT. Minimising or deferring the tax impact must be a sensible objective.

Valuers have substantial databases of evidence of previous and recent sales. This, combined with an individual's expert knowledge and experience, are what assist an agent in advising his client what the property may be worth.

Ultimately, only the market will prove what anything is worth. It is not unusual for an owner to guide a property for sale at a given price only to find it selling for considerably in excess of that figure because of the competition. Some agents and vendors can have an over-optimistic opinion of value and end up eventually having to accept a lower offer. Pitching the initial price at the right level is possibly the most important job an agent has.

There are a myriad of different aspects that need to be checked and considered in the valuation process -- an experienced agent will spot these and highlight those that are beneficial to assist in achieving the best result.

* Look at separate components of farm

* Assess demand and buyer type

* Rate value of total package

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By Harry St John

Edited by Andrew Shirley, 020 8652 4920

Harry St John is a farm agency partner at Clutton's Oxford office -- 01865 812 739