Valuation of Agriculture Land
Land used for agricultural purpose shall be valued using solely the income approach
to value without any allowance for urban or market influences.
The income of the property shall be determined using the capitalized average annual
net cash rental of the property.
Is the average of the annual net cash rental, excluding real estate and sales taxes,
determined through an analysis of typical arm's length rental agreements collected
for a five year period before the year for which the valuation is being determined
for comparable agricultural land used for agricultural purposes and located in the
vicinity, if practicable, of the property being valued.
Shall be capitalized at a rate 1.5 percentage points higher than the average long-term
annual effective interest rate for all new farm credit services loans for the five
year period before the year for which the valuation is being determined.
Agricultural Land: Land which is one or more of the following:
Cropland of at least 20 gross acres.
Ten or more gross acres of permanent crop.
Grazing land with a minimum carrying capacity of 40 animal units, and containing
an economically feasible number of units.
Land devoted to high density use in the production of commodities.
Land devoted to use in the processing of cotton necessary for marketing.
Land devoted to use in the processing of grapes for marketing.
Agricultural Home Site: an allowance for residence and associated residential
structures on an agricultural property (usually one acre, unless actual occupancy
dictates a larger acreage used strictly for residential purposes).
Agricultural Property: Property used for agronomy, horticulture or animal
husbandry, producing an agricultural crop or commodity.
Animal Unit: A unit of measure to classify grazing land according to its
carrying capacity, i.e. ability of a parcel of land to graze a certain number of
animal units over a period to time (usually a year-but sometimes expressed on a
monthly basis) without injurious effect upon the natural vegetative cover of the
land. In the State of Arizona, the following equivalent measures have been classed
as one animal unit:
- One mature beef animal of 1,000 pounds
- One and one-quarter horses
- Five head of sheep
- Five head of goats
- Five head of Ratites
Crop Value: The value of the vine, tree, or plant over and above the land
value. The add on value as permanent crops reach maturity or the value of the harvest
from the field crop.
Fallow Land: Land capable of being farmed but due to the lack or cost of
water or participation in a crop rotation program is left idle. It is value the
same as irrigated lands.
Farm property Qualification: The type of crop being raised on a farmstead
relates directly to the qualification for farm property. Field crops (grain, alfalfa,
sugar beets, lettuce, safflower, etc.) require twenty (20) acres or more. For permanent
crops (citrus, nut, grape and fruit) ten (10) acres or more are normally required.
Headquarters Land: Land used for storage and farm/ranch improvements (barns,
sheds, corrals, seasonal employees housing) and valued the same as crop or grazing
Irrigated Land: Land cleared, leveled and ditched for the application of
water and growing of plants (includes the roads, ditches, well sites, ponds, turn
and skip rows as well as the cropped acres).
Non-Qualifying Rural Property: Land used for residential pleasure, development,
speculative or recreational purposes, classed and valued according to its primary
Qualifying Agricultural Property: Land must be in active production for seven
out of the last ten years prior to application as agricultural land for qualification
as agricultural property. Failure to farm the property due to severe drought conditions
may extend the idle period on a year-to-year basis as initiated by the cognizant
assessor, and as approved by the Department of Revenue.
Qualifying Ranch Property: Natural grazing land must have a minimum annual
carrying capacity of forty (40) animal units per year to qualify as ranch property.
Undeveloped Land: Raw acreage that is not used as part of farming acreage
and does not meet the criteria for classification as wasteland. Value is based upon
comparable properties in the locale of similar size, quality and use potential.
Unit (Annual) Carrying Capacity: That which the land will naturally support.
A measurement of the animal units allowed by the State of Arizona Land Department
for negotiation of grazing leases of state land.
Waste Land: Land that can not be converted to an economically beneficial
use and includes such land areas as river bottoms, sand hills, rock outcroppings,
sand washes and soil salinity areas. Value is based on its contribution to the farming
operation. In valuing ranch or grazing property, wasteland is not segregated and
The Income Approach
The income approach is used to value commercial or industrial properties, or properties
which are bought and sold by investors primarily because of their income producing
potential. This approach to value depends on reliable and detailed information on
the income and the costs of doing business for a particular business or enterprise.
This is referred to as the "income stream" of the property. The income approach
defines value as "the present worth of future benefits of owning a property." These
are composed of the annual income for an estimated number of years (called the economic
life of the property) plus a capital amount representing land value or land value
plus some remaining worth of the improvements. This approach emphasizes investment
components rather than physical components of a property.
The steps in the income approach are:
- Estimate potential gross income (PGI)
- Deduct vacancy and collection losses
- Add miscellaneous income to derive effective gross income (EGI)
- Deduct operating expenses to derive net operating income (NOI)
- Select appropriate capitalization rate and method
- Develop an estimated value