A new three-part educational series from Ag Decision Maker assists landowners, producers, lenders and investors in better understanding what drives farmland values across Iowa and the Midwest. 

The series, authored by Rabail Chandio, extension economist at Iowa State University, and Emily Oberbroeckling, certified general real property appraiser at People's Company, offers practical insight into the three primary appraisal approaches: income, cost and sales comparison. 

“Understanding how these approaches work helps landowners, producers, lenders and investors interpret farmland markets more clearly,” the authors explained. “While individual sales provide snapshots of market activity, appraisal methods help explain the broader economic forces that shape land values.”

The income approach: earnings and land value

The first article in the series focuses on the income approach, which links farmland value to its ability to generate revenue over time. 

According to the authors, the approach helps explain why land sells for a given price by evaluating expected earnings from cash rent, crop production or appreciation, and comparing those returns to alternative investments. Factors such as interest rates, grain prices, crop insurance guarantees and investor demand all influence these expectations.

“The income approach remains one of the most useful tools for interpreting farmland values because it directly connects price to earning power, risk and long-term economic expectations,” the authors noted. “However, it also has limitations. The approach is sensitive to small adjustments in discount rates or rental assumptions, and its accuracy depends on reliable, localized data.”

The cost approach: investment and land value

The second article examines the cost approach, which addresses what it would cost to recreate a property today, separating the value of the land from the value of improvements, and measuring how construction costs and depreciation affect the overall market value.

“The Cost Approach is based on the premise that a typical buyer will not pay more for a property than the cost to acquire comparable land and construct improvements that provide the same utility,” the authors said. “This approach is applicable to highly improved agricultural, rural and commercial properties because many buildings, such as barns, grain storage, livestock facilities and machine sheds, are specialized for a specific use and are not often sold.”

The sales comparison approach: market evidence matters

The final article highlights the sales comparison approach, which is the most widely recognized and market-driven valuation method. It estimates value by analyzing recent sales of similar properties.

“Appraisers apply this method by analyzing recent comparable sales and applying market-derived adjustments for relevant factors, which can sometimes be derived from these and other sales,” the authors noted. “Physical characteristics typically used for comparison include legal and physical access, annual precipitation or water rights, property or field shape, topography, utilities, zoning, soil characteristics or ratings (CSR2 in Iowa), crop yield history, ease of farm-to-market access and flood zones.”

According to the authors, this method is particularly effective in active farmland markets like Iowa, where sufficient sales data exist. 

While each approach offers a distinct perspective, together they provide a more complete understanding of farmland markets. Landowners, producers, lenders and investors are encouraged to review the articles for further information, including method applications, examples and strengths and limitations.

Additionally, the upcoming Soil Management and Land Valuation Conference on May 20 is another opportunity to discover more about Iowa’s land market. 

For more information, contact Chandio at rchandio@iastate.edu.