As a landowner of a woodlot or a forest, you must wonder how your woodlot is doing. And as most landowners, you may not know the answer. You might be considering a timberland appraisal if you find you can’t answer questions like… Is your forest still young that needs more years of growth? Or is it declining and getting old? Is your woodlot unhealthy or healthy? Does it have any value? What’s the current composition like? What are your objectives?
All of these questions can be perplexing but don’t worry. We’ve got your back. At Tall Pines Forest Management, we offer woodlot assessment services. We’ve also compiled this guide to explain the timberland appraisal and everything involved in it.
A timberland appraisal determines the accurate value of a property’s pre-sale and saleable timber. Landowners have to appraise their property to know the value of timberland they’re planning to sell or purchase. Other reasons for a timber appraisal include litigation, tax, insurance, and financing.
Timberland appraisals follow the basic principles of a real estate appraisal. However, some considerations and details differ. Here’s what you can expect in a timberland appraisal:
Identification of Ownership, Property, Interest, Objectives, and Effective Dates
A woodlot appraiser needs to know what they’re precisely looking at to determine accurate valuation. They’ll also ask about your objectives, such as your plans and the purpose of the appraisal. If you’re getting the appraisal for insurance, your insurance provider may insure only a portion of the land. In that case, the appraisal evaluates only one portion of the property.
The appraiser also needs to identify the boundary lines of your property, the date of the appraisal, and the types of species on your property. After identifying all of these aspects, along with age, quantity, and type of timber, they’ll proceed to property valuation.
Methods of Timberland Appraisal
To appraise a property, the appraiser follows three timberland appraisal methods.
Sales Comparison Approach
This method involves estimating market value by comparing the subject property’s characteristics with those recently sold, under contract, or listed for sale. The sales comparison method is based on the premise that property market value is associated with the prices of competitive and comparable properties. The more comparable sales are, the better the final appraisal.
This method is used for all real properties with reliable and sufficient recent transactions to determine trends or value patterns. In the case of a weak market, the number of transactions won’t be sufficient, and its reliability will be limited. However, this approach is significant despite its limitations because it can provide a possible value range for appraisal.
This method is known as the sum of the parts. It derives the value of the whole woodlot by summing individual timber value with land value. The appraiser compares the cost to produce a substitute or new subject property to estimate the value of the subject property.
Note: value and cost of a property aren’t necessarily the same. Cost can only be similar to value if the property is new or planned for purchase. The cost method is useful in the absence of market activity that limits the effectiveness of the sales comparison approach. For instance, the cost method comes in handy when significant differences exist in the physical properties of comparable lands. This method values improvements and land separately, making this appraisal method useful for insurance purposes.
Income Capitalization Approach
This method uses mathematical techniques such as discounted cash flow method to estimate the capacity to generate benefits for property and convert them into their present value. If you’ve purchased an income-generating real estate property, you’re expecting to get future dollars. The income capitalization method helps with that.
This method follows the basic premise of anticipation to determine the types of monetary benefits a property will render in the future. These future benefits estimate the present value of the property. However, future benefits are not guaranteed. It’s one of the limitations of this method.
Once the appraiser estimates your property using the aforementioned methods, they prepare the final valuation. They can use a combination of the appraisal method to determine the value. The purpose of timberland appraisal, property characteristics, and market conditions will influence the type of method an appraiser weighs heavily on.
For instance, the appraiser will use the income capitalization method if you’re looking to sell timberland. Alternatively, they’ll use the sales comparison method if your goal is to purchase woodland.
If you’re looking for a timberland appraisal, Tall Pines Forest Management can help. We make sure that our client understands their forest. Our forest management plan includes a detailed analysis of wildlife habitat, soil analysis, your goals, and more.
At Tall Pines Forest Management, we’re trained and prepared to assess timberland with sophisticated techniques and tools to allow for accurate assessment and planning. We follow best and sustainable practices. You can also hire us for related services, including tax program enrollment and renewal, boundary line maintenance, mapping services, and stewardship plans.
Reach out to us today!