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Land Value Differentials Resulting from Variability between the Sales Comparison and Income Approaches in Timberland Valuation


Austin B. Harris, AFM Appraiser, and Christopher N. Singleton, Assistant Director, Investment Services, had an article recently published in The Appraisal Journal.

Timberland appraisal can be complex as it involves intricate knowledge of timber as a commercial product and the value of the underlying land as the “ factory” that produces a timber crop. In a timberland transaction, the timber crop adds contributory value, and a disaggregation technique is used to determine timber and land values. Once the timber value is established, an allocated land value is often calculated by subtracting the timber value from the overall tract value of comparable sales. When this comparable sales land value is compared to land value determined by an income approach, the two often disagree by an amount called a land value differential. A common way that foresters value land is the bare land value calculation. Bare land value is a specialized income approach model in forestry adapted to perpetual timber production and is primarily dependent upon the parameters of discount rate, site index (a determinant of forest yield), and stumpage price appreciation. This study uses actual data to evaluate each of the parameters and determine the adjustment factors and the magnitude of adjustments that result in the lowest land value differential. The results show that bare land value is most responsive to site index and discount rate adjustments, and less responsive to stumpage price appreciation. Timberland appraisers can use these findings to evaluate the results of their income approach model when comparing the two valuation approaches, and also when identifying adjustment factors for inherent differences among timberland properties in their adjustment process. To read the article, click here.