(Editor's note. Massachusetts has a rich history of farming as well as an active agricultural economy. Accurate valuation of farmland is thus an important concern for communities that have developed and want to sustain agricultural economies.)
An Economists View – Determining Agricultural Land Values
Land is just one of many factors of production in agriculture. Despite its critical importance and in the absence of efficient rental markets, the value of land, as with managerial labor, is often determined as a residual; subtract all other production costs from total revenue and what is left is the “rental value” for land. This annual value can then be projected into the future, discounted and summed to determine the value of agricultural land. This is essentially the capitalization of net income approach to determining agricultural land values. If rental markets are efficient in an economics sense, then an equivalent value for land can be determined by capitalizing “ground rent.” In Massachusetts, sufficient rental data do not exist to offer a reliable means of determining agricultural land values.
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