Discussion of Net Income and Market Value in Agricultural Appraisal

Market value and the capitalization of incomes are two important methods in the valuation of agricultural land. The capitalization of incomes method is expressed as the reduction of the incomes to be obtained in the future to the moment of valuation, and takes the net income obtained from the land as a base. However, in order to apply this method, it is necessary to know the rates of capitalization, which are calculated according to region, quality of land and type of management based on market values. Capitalization rates can change over time in connection with a change in market conditions, but as it is not very likely for this change to happen over a short time, it can be used for many years. Particularly in areas where the market for land is static and there is little true buying and selling, it is always possible to make valuations by the net income method when capitalization rates are known. This is seen as the most suitable method when there is little buying and selling, with heterogeneous real estate such as land, and when there are no free market conditions. The market price method can be used in places where land prices are mobile and buying and selling is taking place in a real sense. However, where there is volatility in the markets and market conditions change quickly, and where the non-agricultural demand for land is increasing and there is inflation, significant differences may appear between market prices and land values found by the income method.