G1428 Valuing Farmland Conservation Easements

This NebGuide discusses farmland conservation easements and the process of estimating their value. The United States continues to lose thousands of acres of productive and scenic farmland every year to urban and other nonagricultural uses. In response to this trend, conservation easements have evolved as one of several land protection tools. Conservation easements allow the continued use of land for agricultural purposes, while allowing the landowner to still receive some of the benefits of his/her development rights. Several of the benefits from conservation easements come in the form of reduced taxes. In order to receive the desired tax benefits, the IRS requires that a qualified appraisal by a qualified appraiser be submitted. Appraisers use two methods to estimate the value of a conservation easement. The first method is the comparable sales method where sales of similar easements are analyzed and adjusted to estimate the value of the subject easement. The comparable sales method has several drawbacks including the lack of comparable sales and the differences in rights transferred. The second method commonly used is the before-and-after method. The before appraisal estimates the value of the land in its highest and best use with no restrictions. The after appraisal estimates the value of the land at its highest and best use considering the restrictions that have been placed on it by the easement. The difference of these two is the value of the easement. If only a part of a parcel of land had an easement, the appraiser must estimate the easement\u27s effects on the remaining land in the parcel that the landowner or a relative owns. If there is a change in the remaining land\u27s value, it also must be factored into the appraisal estimate