Assessment Procedure for the Sales Investigation of Farm Properties
To provide information on the Municipal Property Assessment Corporation's (MPAC) sales investigation process for farm properties.
MPAC uses the sales comparison approach, also known as the direct comparison approach, as its method of valuing most properties in Ontario. This approach to value is based on the theory that the current value of a property is directly related to the sale prices of similar properties. This approach to value is used by the appraisal community and by most assessment jurisdictions, both nationally and internationally.
Section 1 of the Assessment Act defines current value as, "in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm's length by a willing seller to a willing buyer." What this means is that the assessment of a property should be the price the property might reasonably be expected to sell for, in its current condition, on the open market.
To establish the current value of farm properties, Section 19(5) of the Assessment Act states that, "For the purpose of establishing value of farm lands used only for farm purposes and the buildings thereon used solely for farm purposes, including the residence on the farm lands, consideration shall be given to the current value of the lands and buildings for farming purposes only, and in determining the current value, consideration shall not be given to sales of lands and buildings to persons whose principle occupation is other than farming."
What this means is that, in determining the current value of a farm property, only open market, arm's length transactions to bona fide farmers are used in the analysis.
MPAC receives all land title documents registered at the 54 Land Registry Offices across Ontario.
These documents contain information such as the owner’s name, mailing address, legal description, sale amount, and sale date, which is entered in MPAC’s database.
Although many farms sell, not all sales are considered to be arm’s length transactions or representative of the market and not all sales are to bona fide farmers. Only those sales that are considered to represent valid market sales of farm properties are included in MPAC’s analysis. The key elements of a valid farm sale are:
- the buyer is a farmer operating a bona fide farm operation or the buyer has commenced to operate a bona fide farm operation for the first time;
- it is an arm’s length transaction in the open market;
- the property had a reasonable period of time for exposure to the market; and
- the sale amount is expressed in terms of money.
Examples of invalid sales are:
- transactions between family members or between a parent company and its subsidiary;
- quit claims (i.e., a deed is registered to correct a discrepancy on title);
- forced sales (e.g., bankruptcy of vendor);
- speculative sales (e.g. sold by a farmer to someone anticipating a future use of the property, other than farming);
- sales by the government or some other organization that is exempt from paying property taxes;
- sales based on non-typical financing;
- sales that represent only a partial interest in the property; or
- agreements of purchase and sale, where the sale price is negotiated and agreed to, much earlier than the close of the sale.
To determine whether a sale is valid, MPAC will conduct a sales investigation and complete one or more of the following activities:
- a property inspection;
- mailing or delivering a farm sales questionnaire to the new owner;
- telephoning the vendor, the purchaser, and/or real estate agent; and
- a review of other real estate information sources.
When MPAC inspects a property to investigate a sale, MPAC staff will show proper identification and explain the reason for the visit. They will also ask the new owner some or all of the following questions:
- Was the property listed through real estate?
- Did the new owner know the vendor (relative, friend)?
- Were there any unusual circumstances that may have influenced the sale price?
- How long was the farm property exposed to the market?
- What was the asking price?
- Were there any chattels included in the purchase price such as crops, livestock, quotas, machinery, timber rights, etc.?
- Will this property be used for farming purposes?
- What is the type of farm operation?
- Is the purchaser a first time farmer?
- If there is a residence on the property, who occupies it?
- If the land is rented to a farmer, what is the name and phone number of the tenant farmer, and what is included in the rental agreement?
When MPAC inspects a property as part of a sales investigation, MPAC staff will inspect the land and all buildings. The purpose of the inspection is to verify that all of the land and building characteristics recorded on MPAC’s database are an accurate reflection of the property at-time-of-sale. They will also identify whether any changes have been made, either before or after the sale, that need to be reflected in the assessed value of the property.After MPAC has completed its investigations of the sales of farm properties, it establishes valuation rates per acre based on the ability of the land to produce crops and/or maintain livestock. Productivity rates are established by considering such factors as soil texture, topography, drainage and depth to bedrock. MPAC is then able to use the valuation rates per acre and other information derived from valid farm sales to determine assessments for all other farm properties.
Note: This procedure has been developed to provide the public with a general understanding of the sales investigation process for farm properties. The applicable law prevails to the extent there is any conflict between the procedure and the relevant law.