Md. Code Regs. 15.15.02.05 - Explanation of Formula for Determining Agricultural Value
A. Formula's Underlying Premise. The
agricultural value of the land on which the landowner has applied to sell an
easement shall be determined by the formula provided under Regulation .06. This
formula, which measures the farm productivity of the applicant's land, provides
a method for ascertaining the capitalized value of the sum necessary to rent
the applicant's farm. (The formula's premise is that the capitalized value of
cash rents paid for land is a reliable indicator of the land's agricultural
value.) The formula numerically explains how certain factors such as a farm's
location and its soil types affect rent.
B. Factors Affecting Rent.
(1) Soil Types. A survey of Maryland farmers
who rented land revealed a strong relationship between rent and soil types,
that is, the greater a land's natural productivity, the greater the rent paid
for that land (and per the formula's premise, the greater the agricultural
value of the land). As explained in Regulation .07, a land's natural
productivity is measured in terms of a soil productivity index. This index is
based on the natural characteristics of each soil class and how these
characteristics relate to crop production.
(2) Location. A survey of Maryland farmers
also revealed a relationship between rent and a farm's location, that is, the
greater a farm's average distance from Baltimore and Washington, up to 100
miles, the greater the rent paid for that land (and per the formula's premise,
the greater the agricultural value of the land). Beyond 100 miles, the
relationship between rent and a farm's location was not significant.
(3) Quantifying How Soil Types and Location
Affect Rent. From the results of this survey, a mathematical equation was
developed which effectively estimates how a farm's soil types and location
would affect its rent. Being able to effectively estimate how these factors
would affect a farm's rent (and consequently, per the formula's premise, how
they would affect a farm's agricultural value), this equation forms a major
step in the Department's formula for determining agricultural value. The
mathematical equation is as follows: Rent = -53 + (160 X productivity index) +
(0.11 X average distance from Baltimore and Washington, up to 100 miles). The
equation, however, is only effective for estimating rental values greater than
$25 per acre. For this reason, under the Department's formula for determining
agricultural value, $25 per acre constitutes the minimum per acre rental value
for a parcel of land.
(4)
Explanation of Mathematical Equation.
(a)
Relationship Between Rent and Soil Types. The chart indicated in Regulation .08
is useful to understand the relationship between rent and soil types. A visual
inspection reveals that rents tend to be greater for higher soil productivity
indexes. Mathematical methods are used to generalize this relationship into a
statistically "best fit" formula shown by the formula line on the graph. The
-53 in the equation represents the point where the formula line crosses the
rent axis on the graph. It has no practical meaning except to fit the formula
line to the data. The 160 in the equation represents the formula line's slope.
It means that for each increase of 0.10 in the soil productivity index of a
parcel of land, rental values increase $16.
(b) Relationship Between Rent and Location.
The relationship between rent and location of this equation can be similarly
explained. The 0.11 in the equation means that for every mile increase in
average distance that the applicant's land is from Baltimore and Washington, up
to 100 miles, rental rates increase by 11 cents.
(c) Range of Equation's Effectiveness. The
$25 minimum rent value line indicates that the equation is only effective for
estimating rents within the range of the data. In those few cases when, under
the equation, a land's rental value is estimated to be less than $25 per acre,
use $25 per acre to complete the formula for determining the land's
agricultural value.
Notes
Regulations .05 adopted effective October 28, 1991 (18:21 Md. R. 2310)
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