Pricing a homestead/farm for sale - appraisal?

One of the problems with selling a homestead/microfarm is the appraisal value.

Let's say you buy a beat-up house for $50K, fix it up and turn it into a working micro-farm, with a large garden, fruit orchard, chicken run and goat pen.

You now have young couples lined up to buy their dream farm, complete with all modern amenities (including high-speed internet access so they can work from home).

The problem is, even if people are willing to pay you $150K or more, a lender might only appraise the property for $90K, based on the local comps. The bank will basically look at number of beds/bath, square footage, zip code and some finishes. They might factor in some of your exterior improvements, but won't appraise the marketing appeal/demand of a micro-farm.

That means anyone willing to pay you $150K is going to have to come up with the extra $60K in cash.

Does anyone have any experience with trying to sell a homestead/micro-farm and what did you run into with the lender appraisal?

I just recently sold my place and moved to a new state, am waiting to move in to my new homestead in the next couple weeks. So I've been both on the buyer and seller end just recently.

Honestly - the bank just straight up isn't going to value what you value, and the price you can get is determined by the market. Almost never will you get your money back on infrastructure and amenities. From a buyer perspective - I didn't see a ton of price difference on places that had nice infrastructure vs none or little. Go take a look at recently sold houses in your area, look at acreage, house quality, and infrastructure. I'm betting you won't see a huge price difference between, say, a house on 10 acres vs a similar house on 10 acres but with a barn.

The thing is - while I can see people willing to go above appraisal in a market where there aren't many homes available on the market, that's quickly becoming not the case anymore. At this point, most people who have $150k to spend won't spend it on something appraised at $90k, because they could get more for their money and get something that appraises at $150k. Bank appraisals are generally relatively in line with the market because they are based on what similar homes & properties have sold for recently. So a lot of that is really just determined by the market.

In other words - even if your place is absolutely perfectly set up and push button ready to go, there's a very good chance that someone who has $150k would rather get more for their money if your house appraises at $90k, because unless there are very very few properties on the market, chances are they can find something that appraises at the $150k range which would then offer more (more acreage? More infrastructure? Bigger house? Who knows).

It's also a poor investment for someone to pay $150k for something that is only worth $90k on the open market. We saw a lot of that in the last two years because of the crazy seller's market that Covid and whatever else put us in, but that's not the case anymore.

Now - I ended up buying a house with no infrastructure. I will be developing it out, building barns and paddocks and whatnot and I DO intend to sell it again in about a decade once my kids are grown and graduated, but the infrastructure I put in for myself and my own use. I know that in 10 years, all the work I will have put in won't really be valued at what I put into it, but I'm doing it for me so it doesn't matter.

Sorry, you COMPLETELY misunderstood my post. Maybe it was too long - sorry about that.

A $90K house is basically worth $90K on the market as a HOUSE.

However, if you have a large garden, chicken coop, goat pen and fruit orchard, it's not a just a $90K house ... it's micro-farm. People can buy a $90K and build their own micro-farm, or they can buy a working micro-farm and start living that lifestyle immediately.

Many people who want a micro-farm aren't simply looking for a HOUSE to buy. They are willing to pay for a micro-farm. That means they will have to pay more money than the HOUSE is worth.

THAT'S what I'm asking about. When people are willing to pay $150K for a working micro-farm (and the lifestyle), but the HOUSE is only appraised at $90K, that's a problem.

I was asking if appraisers add any value that the farm elements bring (not just the farm infrastructure, such as a barn).

And yes, there are people who aren't looking for just another HOUSE. They want a micro-farm and are willing to pay extra for that.

Dave Edmunds wrote:Sorry, you COMPLETELY misunderstood my post. Maybe it was too long - sorry about that.

A $90K house is basically worth $90K on the market as a HOUSE.

However, if you have a large garden, chicken coop, goat pen and fruit orchard, it's not a just a $90K house ... it's micro-farm. People can buy a $90K and build their own micro-farm, or they can buy a working micro-farm and start living that lifestyle immediately.

Many people who want a micro-farm aren't simply looking for a HOUSE to buy. They are willing to pay for a micro-farm. That means they will have to pay more money than the HOUSE is worth.

THAT'S what I'm asking about. When people are willing to pay $150K for a working micro-farm (and the lifestyle), but the HOUSE is only appraised at $90K, that's a problem.

I was asking if appraisers add any value that the farm elements bring (not just the farm infrastructure, such as a barn).

And yes, there are people who aren't looking for just another HOUSE. They want a micro-farm and are willing to pay extra for that.

I don't think I misunderstood, but maybe didn't respond clearly. Maybe it would help if we know why you're asking the question - do you have a property like this you want to sell? Are you thinking about doing a modified home flip?

Appraisers don't add much value to farm elements, if any. They will assign value to structures such as a barn, shop, or detached garage, but I don't think (I'm not an appraiser, this is just based on observation) that they would add value for things like established gardens, orchards, chicken coops, etc. I have been watching my local market for a few years and noticed that there wasn't really anything given in terms of value for those things. Those are more the "curb appeal" things - things that might make someone want to choose your place out of all the homes they are looking at. This may be something you might want to check with an actual appraiser in your area about.

All in all, I agree that it's kinda dumb that they don't appraise for things like that, but ultimately again it's all just market driven and appraisers appraise for banks and the average Joe, and the average Joe doesn't care about most of the micro-farm stuff and is certainly not going to pay extra for it, so it isn't given a whole lot of value.

So in your case, if someone did want to pay $150k for a property that appraises at $90k (which isn't unreasonable given the scenario you've described, since it would save a massive amount of work for them to have everything all set up) they would still have to make up the difference on their own. The bank isn't going to go above the appraisal because on their end - if they lend a higher amount than the appraisal, and they have to foreclose and then sell the property, they would be out a ton of money.

Yes, this is the scenario I'm describing - thanks.

If you Google "homestead for sale" or "micro-farm for sale" there's literally nothing available. It's mostly land or abandoned farms that have homes that need to be gutted with no garden in place.

I was just wondering if anyone had seen any turn-key, move-in ready homesteads for sale, or had ever sold one, and what happened with the finance. I assume in the scenario I describe, some people would ask for the owner to finance the excess, or come up with other creative ideas.

Considering how many people are looking to move out of the cities and 'burbs and would like to live on a sustainable homesteadd/farm with modern amenities, they'd be happy to pay $150K to $250K considering most starter homes are now $300K and above.

Thanks for your responses.

Usually the way the appraisal happens is on of two ways.

Sometimes the seller will spend the money to get an appraisal because they want to know the value of the property or just because they want to, it doesn't matter their reason.

When someone puts money down and the seller accepts the offer then if the buyer wants a loan then an appraisal is required.  Who pays for the appraisal as per the contract. a buy can request that the seller pays for the appraisal.

Very often the appraisal matches the selling price.

I am not sure if I have ever seen a farm being sold as a business.  This may be due to mortgage restraints.  In other words, financing might not be available for the business price due to the appraisal factor.

Or it might be due to they fact that folks want to sell their property not their business.  Who knows.

In my area, a turn-key micro farm off a busy road (farm stand) with one small-average sized house on two acres sold for 700k within 3 months of listing during covid. From what I can tell the new owner is using it as a farm and was trained by the previous owner. No idea if they included their livestock in the deal, I think they all got butchered since I have not seen nearly as many chickens.

I also know that when my parent's property was refinanced last year I mentioned to the appraiser the fruit tree and berry bushes I just put in. He didn't even blink; gave zero ducks.  Maybe he just didn't have a checkbox for it on his clipboard, it seems that appraisers ONLY care about the big wooden boxes and fenced-in perimeter.


I'd imagine most places in the US don't care what you got growing on in your backyard. A Vinyard or a locally famous orchard might add value otherwise your growies are just weeds to the appraiser. A bank probably won't care about a fancy dog house, bee hive, or chicken coop enough to count that toward square footage either.


Sucks but you got to remember most bankers have never seen a chicken outside their QFC bucket.

Businesses need a different kind of financing than homes or raw land.

Years ago, we wanted to buy a convenience store that had a 99 years lease on the land.

I talked with the Small Business Administration:

https://www.sba.gov/

If I remember correctly, they did not seem receptive so we decided against the buy.

There is a Farm Credit:

https://farmcredit.com/

This might be the place to talk about loans and appraisals for a small farm or microform rather than where homes or raw land is financed.

Hi Dave,
I think Ann has the right idea about thinking of it as a business with property vs property with a micro-farm on it. I know you can get business loans, and generally those are based on how likely the business is to make money. Vineyards or Orchards don't add value to a real estate property for most appraisers... but it could add value to a business that owned that property. If you could sell it as a business, then I think you could get the full 150K financed. Maybe not easily, but easier than coming up with an extra 60K in cash.

Thanks Matt,

That makes more sense. It all depends if I can find a property that will be zoned commercial.

I am researching that for each property.

Due to a single, fairly minor code issue they were notifided of before the loan process even started, the potential lender for our current place backed out and offer only the land value. Their “appraisal” value was totally disregarding the value of a very well built (above code) house, solar, and water setup that had more than double the land value in materials alone. We saw the value in it, could make it work with the proceeds of our previous house (250% what we bought it for in 2013) and could have sold this new off grid place at 150%+ our price in the crazy cash market that exploded in the two+ yrs since.  However, we could only make that work with a pretty fair bridge loan by the owner and help from family while we sold our old place. This is yet another reason why the rich get richer and the equity gap is only growing.

Have you though of an auction? T Simpson above just referred to a 2-acre mini-farm that sold for $700k within 90 days!

As far as I can tell, there are zero working homesteads/mini-farms available for sale in the U.S. All the (false) listing for homesteads and micro-farms are either for land only ("Build your dream homestead!") or a house with an outbuilding, but not even a garden ("Hobby farm for sale!"). Go to FarmFlip.com and see what you find. It's a bad joke.

If your place has access to high-speed internet and is zoned for chickens/goats and possibly commercial (non-retail) farming, you might find plenty of cash or partial-cash buyers.

The big issue is marketing it so people who are interested in a micro-farm know about it.

BTW, can you tell me what the code issue was so I can look out for it?

Ben Zumeta wrote:Due to a single, fairly minor code issue they were notifided of before the loan process even started, the potential lender for our current place backed out and offer only the land value. Their “appraisal” value was totally disregarding the value of a very well built (above code) house, solar, and water setup that had more than double the land value in materials alone. We saw the value in it, could make it work with the proceeds of our previous house (250% what we bought it for in 2013) and could have sold this new off grid place at 150%+ our price in the crazy cash market that exploded in the two+ yrs since.  However, we could only make that work with a pretty fair bridge loan by the owner and help from family while we sold our old place. This is yet another reason why the rich get richer and the equity gap is only growing.

Dave Edmunds wrote:Have you thought of an auction? T Simpson above just referred to a 2-acre mini-farm that sold for $700k within 90 days!

Should note though that the real estate market in my area is massively inflated with the cost per acre at least 4x the national average. That's what happens when the market is controlled by like 30 people and everyone else lets Zillow and Air B&B take the rest. Turn key mini farms do exist on the market though.

"Turn key mini farms do exist on the market though."

I would love to see these - it would help me greatly before I purchase and spend to create one. Can you provide any links?

T Simpson wrote:

Dave Edmunds wrote:Have you thought of an auction? T Simpson above just referred to a 2-acre mini-farm that sold for $700k within 90 days!

Should note though that the real estate market in my area is massively inflated with the cost per acre at least 4x the national average. That's what happens when the market is controlled by like 30 people and everyone else lets Zillow and Air B&B take the rest. Turn key mini farms do exist on the market though.

Dave Edmunds wrote:"Turn key mini farms do exist on the market though."

I would love to see these - it would help me greatly before I purchase and spend to create one. Can you provide any links?

To buy/sell both a business & land as a business asset I'd look here:
businessesforsale.com

& for farmland that may not include the business but might include the infrastructure look here:
landwatch.com

I've made sure those links use filtered search results to show farm listings.

Dave Edmunds wrote:"Turn key mini farms do exist on the market though."

I would love to see these - it would help me greatly before I purchase and spend to create one. Can you provide any links?

If I were looking for a working farm to buy I would contact all the CPA's in the area I wanted to buy.

Farmers usually hire someone to do their taxes and keep track of their business records.

Their CPA would probably know which of their customers want to sell or will be retiring soon.

Thanks - I found two that come close to what I would call a micro-farm/homestead. Two others were for sale at $2.3MM ad $5.9 million.

It looks like a 2-acre micro-farm with a modest 3B/2B house, greenhouse, 1-acre garden, fruit orchard, goat pen and chicken coop might easily bring $250K or more on the low end, although I am now seeing some legit farms with 30+ acres going for that price. Lots of factors to consider.

T Simpson wrote:

Dave Edmunds wrote:

To buy/sell both a business & land as a business asset I'd look here:
businessesforsale.com

& for farmland that may not include the business but might include the infrastructure look here:
landwatch.com

I've made sure those links use filtered search results to show farm listings.

I find it hard to believe someone would pay 60k extra on a house valued at 90k because it had 5k worth of farm stuff already done. I’m being overly generous to call it 5k for a coop and a pen and some fruit trees. That’s the price if you hired it done and didn’t lift a finger at max.

The modest home you found as a reference is probably what a 250k house looks like in that area regardless of improvements someone might not even want.

The median sales price of a home in the U.S. was is $428,700 in Q1 of 2022. A young couple wanting to live in a metro suburb probably has to pay $250K for a starter home on a 1/4-acre lot in a subdivision. Starter homes in my dumpy neighborhood in metro Atlanta are now starting $400K.

If a couple could get a newly renovated house, which allowed them to work from home (high-speed internet, wi-fi and all other modern amenities), and it came with a fruit orchard, greenhouse, large garden, chicken coop and goat pen, and they could get it for $150K, many would probably be interested - especially since it might also give them some extra income. So yes, people looking solely at a real estate investment would not opt for what you describe - but a two high-earner young people who want a sustainable lifestyle and have to choose between a $300K suburban house and a $150K micro-farm -- I think the choice would be clear. And it would not be about a real estate investment.

What you describe is undoubtedly true for 99% of homebuyers, but this is a specialty buyer who doesn't have many choices when looking for a move-in ready, working micro-farm or homestead. It's like a young guy buying a sports car that's going to depreciate quickly - he doesn't care about the resale value. I don't know how many young couples working IT or HR or graphic design jobs from home want to buy a cheap house, do the renovation work and do the work to build out a farm over the course of months to save $60K (on a potential income-producing farm).

We'll see.

Joe Hallmark wrote:I find it hard to believe someone would pay 60k extra on a house valued at 90k because it had 5k worth of farm stuff already done. I’m being overly generous to call it 5k for a coop and a pen and some fruit trees. That’s the price if you hired it done and didn’t lift a finger at max.

The modest home you found as a reference is probably what a 250k house looks like in that area regardless of improvements someone might not even want.

Real estate is a commodity that gets bought and sold every day at market value, the industry has appraisals down pretty well. If you add a bunch of things you think are valuable to a property it doesn't mean it is worth more or will sell for more.

What you are talking about is non-commercial garden and livestock things. They do not add a significant value to a property. Sure people might say nice fruit trees and chicken coop a pay a couple grand more but not 50k more. At 50k more you will price yourself out of the market, people at that price point will be looking at bigger homes and acreage.

I have seen properties sit for years and years for people asking too much. I guess they don't need to sell and like the constant nuisance of strange inquires from Nigeria or similar places.

Steve Fammerton wrote:What you are talking about is non-commercial garden and livestock things. They do not add a significant value to a property. Sure people might say nice fruit trees and chicken coop a pay a couple grand more but not 50k more. At 50k more you will price yourself out of the market, people at that price point will be looking at bigger homes and acreage.

This!

And this goes back to the original question:

Dave said, "Does anyone have any experience with trying to sell a homestead/micro-farm and what did you run into with the lender appraisal?

The lender is only going to lend money using land values and home values.

When we sold our homestead I did not get any more than the house was worth.  Plus maybe the land.  Nothing for the outbuildings and fences.

And another consideration is who is the person asking for the loan?  A conventional loan like a lender FHA or a farm loan lender?  Most people rely on the real estate agent or the title company to pick a lender for them.

Dave Edmunds wrote:One of the problems with selling a homestead/microfarm is the appraisal value.
The problem is, even if people are willing to pay you $150K or more, a lender might only appraise the property for $90K, based on the local comps. ... That means anyone willing to pay you $150K is going to have to come up with the extra $60K in cash.

If you want to sell a property for $150k that the banks only value at $90k, then either A) the buyers will need to put more than $60k down, or B) you'll need to do owner financing.

Dave Edmunds said, "Thanks for sharing your experience, Anne - that's helpful and I appreciate it. Can I ask when you sold your farm and how you marketed it?

I sold my homestead a long time ago through a local real estate agent.

I don't feel things are any different today than they were then.

We bought the property where we live now in 2013 through a local real estate agent.

My appraisal was for the land only because that is the kind of lender I chose.

The seller was disappointed that the lender did not include the value of the house in the appraisal.

This sale was only land and an unfinished house.

I would never buy a property that was not being represented by a local real estate agent.

Here are the SBA guidelines regarding loan-to-value ratios.

APPRAISAL REQUIREMENTS:
Required when used equipment is part of the assets being financed or being purchased from someone other than an equipment dealer, or being refinanced. The equipment appraisal needs to be a written document from a person that is qualified to provide a valuation, is independent of the transaction and has performed an on-site inspection of the equipment. The appraisal must be no more than 12 months prior to application.


APPRAISAL SHORTFALL
If appraisal is less than 95% of the estimated value, then the SBA loan amount must be reduced, additional collateral secured or additional equity provided. If additional collateral or cash is not available, but cash flow coverage is strong and consistent, then SBA can be requested to approve the appraisal.

https://blp504.org/sba-504-appraisal-guidelines/

Around here, farms are often sold as "businesses", not as homes or property.

What you are buying is the land, the buildings, the business name, it's reputation, it's customer loyalty, and mailing list. The business part of a farm is often appraised as being worth much more than the property part.

Dave Edmunds wrote:Yes, this is the scenario I'm describing - thanks.

If you Google "homestead for sale" or "micro-farm for sale" there's literally nothing available. It's mostly land or abandoned farms that have homes that need to be gutted with no garden in place.

I was just wondering if anyone had seen any turn-key, move-in ready homesteads for sale, or had ever sold one, and what happened with the finance. I assume in the scenario I describe, some people would ask for the owner to finance the excess, or come up with other creative ideas.

Considering how many people are looking to move out of the cities and 'burbs and would like to live on a sustainable homesteadd/farm with modern amenities, they'd be happy to pay $150K to $250K considering most starter homes are now $300K and above.

Thanks for your responses.

This is the kind of information you're going to find difficult to pin down, online. When we bought our place, 4yrs ago, I started by hunting online, and came up with next to nothing. When I gave up and started looking for something that had a couple of the main features we were looking for, I posted an inquiry about one parcel, and was contacted via email, by a real estate agent local to the area, who offered to show it to us. Since we lived about an 8hr drive away, he also asked if we like to look at any other properties. It took us a few days of back & forth emails, before I finally felt willing to share with him EXACTLY what we wanted to do with our land, and the full parameters of our budget. For example, the total budget, which would have to include an existing house or cost to build one, a place to live during construction, garden or possibility to put one in, barn(s), land size, our plans, etc.

The banks don't give a rat's patoot about any of that, so it rarely gets listed online, but the owners will generally tell their real estate agents, who *can* use it to match up people and homes. When said real-estate agents are really good at what they do, this is important to them. When a seller really wants to sell, their pricing will reflect that, and they'll understand that the banks don't care about those extras - little or big. Some sellers are willing to work it out, but most have to accept that an appraisal has a very heavy bearing on what they can get - unless they're willing and able to do an owner finance, or a rent-to-own situation.

Thanks Carla,

I'm obviously pursuing a very small slice of the real estate pie - those who are willing to pay more for the lifestyle (beyond what the real estate is worth) and who would rather have the work done for them, rather than spend months researching how to build a farm, hiring contractors, doing some of the work themselves. Some people are flush with cash.

Owner financing and business loans are two options in this scenario, along with finding those who have extra cash they would rather spend to live a sustainable lifestyle on a homestead or farm for 20 or 30 or 40 years.

Carla Burke wrote:

Dave Edmunds wrote:Yes, this is the scenario I'm describing - thanks.

If you Google "homestead for sale" or "micro-farm for sale" there's literally nothing available. It's mostly land or abandoned farms that have homes that need to be gutted with no garden in place.

I was just wondering if anyone had seen any turn-key, move-in ready homesteads for sale, or had ever sold one, and what happened with the finance. I assume in the scenario I describe, some people would ask for the owner to finance the excess, or come up with other creative ideas.

Considering how many people are looking to move out of the cities and 'burbs and would like to live on a sustainable homesteadd/farm with modern amenities, they'd be happy to pay $150K to $250K considering most starter homes are now $300K and above.

Thanks for your responses.

This is the kind of information you're going to find difficult to pin down, online. When we bought our place, 4yrs ago, I started by hunting online, and came up with next to nothing. When I gave up and started looking for something that had a couple of the main features we were looking for, I posted an inquiry about one parcel, and was contacted via email, by a real estate agent local to the area, who offered to show it to us. Since we lived about an 8hr drive away, he also asked if we like to look at any other properties. It took us a few days of back & forth emails, before I finally felt willing to share with him EXACTLY what we wanted to do with our land, and the full parameters of our budget. For example, the total budget, which would have to include an existing house or cost to build one, a place to live during construction, garden or possibility to put one in, barn(s), land size, our plans, etc.

The banks don't give a rat's patoot about any of that, so it rarely gets listed online, but the owners will generally tell their real estate agents, who *can* use it to match up people and homes. When said real-estate agents are really good at what they do, this is important to them. When a seller really wants to sell, their pricing will reflect that, and they'll understand that the banks don't care about those extras - little or big. Some sellers are willing to work it out, but most have to accept that an appraisal has a very heavy bearing on what they can get - unless they're willing and able to do an owner finance, or a rent-to-own situation.