Appraising Horse Property
How is a horse property different from any other residential property?
In most ways, horse properties are similar to any other residential property. All the same theories and techniques still apply in your valuation. They differ in how the importance of being allowed to have horses plays out in the appraisal process. Buyers and Sellers in this market care more about the number of horses that can legally reside on the premises than anything else about the property.
The selection of the comparables often cross the boundaries and guidelines set forth by financial institutions. It is important to have comparables that are or can be horse properties. To satisfy this guideline the appraiser might have to step outside the typical financial guidelines. Perhaps they need to use comparables that have different house styles, took place further back in time, are outside distance preferences, or even in a different school district.
How can we do this, step outside typical financial institution guidelines and still appraise a horse property for its fair market value?
We need to utilize sales that meet the financial institution’s guidelines and sales that give us a true picture of the value of the property we are appraising. Most of the time this will translate into using more comparables. Horse properties are harder to appraise, take more time and effort, and should compensate the appraiser better than typical residential appraisals. Good luck with that.
So, you’ve inspected the property, checked the zoning and building codes to see if all the improvements and number of horses is legal, and pulled comparables. Townships have different regulations as to the number of horses and the type of horse related improvements that would be allowed. You need to know what these are so you can find comparables that are similar to your subject property.
Although it would be tempting to value the contribution of the farm type improvements to the value of the whole, by depreciated cost, it could under estimate the actual contribution. Often existing farm buildings predate ordinances and add more value than just the depreciated cost new. The number of horses allowed on a property may be "grand-fathered" into the deed. If this property were to be without horses for a period of time that grandfather clause may disappear.
What are the considerations when making adjustments that may be outside the normal process?
Location adjustments are a function of how far you are from riding trails, are you off a main roadway, do you have to cross a busy street to get to the park, and are the neighbors horse people. If you have to cross a main highway- to get to the park, it is not a good comparable for your property.
Having horses in a horse dominant neighborhood is like living in a golf community to golfers. The social life surrounding a common interest alone draws perspective residents. These people don’t need good neighbors to watch the kids for them, they need a supportive community to help care for each others horses. If you needed to step outside the subject’s school district, you can but will probably want to adjust for a difference.
Small increments in lot size have a big effect on value if it makes a difference to how many horses are allowed. So an adjustment for lot size would consider the number of horses allowed, more than just the amount of square footage. How do you decide the size of the adjustment? You need to be very experienced in horse properties or do a lot of research and analysis to determine this.
Once I’m sure my comparables are similar to the subject, how can I make adjustments for the farm type improvements?
Then it would be acceptable to apply depreciated cost new or the same type of adjustments you would apply to a detached garage or permanent shed or structure of similar building materials.
Land improvements will also play a role in your adjustment process. It is desirable in the barn area to have a level topography, and good drainage. Riding arenas should be level, soft yet supportive, and drain well. Trees carefully placed and spaced can add desired shade but in abundance can detract from the desired use, and become a favored chew toy to the horses. Some foliage and trees are actually poisonous to horses. Fencing is important. Placing a value on the fencing is tricky. I would not give credit for fencing that isn’t in good condition. Proper sturdy fencing in good condition adds quite a lot of value to a horse property.
Keep in mind the most important feature in a horse property is the number of horses allowed. Find similar comparables and then make adjustments similar to the ones you would make in that particular market for a typical residential property. Don’t forget to explain why you utilized any comparables that are outside the desired guidelines of your financial institution.
Janine Campeau Ewald
NYS Certified General
Real Estate Appraiser
Click Here to read the original post.