Code of Maryland Regulations › Title 15 - MARYLAND DEPARTMENT OF AGRICULTURE › Subtitle 15 - MARYLAND AGRICULTURAL LAND PRESERVATION FOUNDATION › Chapter 15.15.02 - Formula for Determining the Agricultural Value of Land › Section 15.15.02.05 - Explanation of Formula for Determining Agricultural Value

Current through Register Vol. 51, No. 14, July 12, 2024
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.