February 15, 2023 |Agribusiness, Timber and Forestry
Timber, the most important source of renewable energy is constantly present and impactful in each of our daily lives. It’s in your backyard and in the walls of your home. It’s in the paper you drew pictures on as a child at your mother’s kitchen table, and if you’re Dutch, it’s in your shoes. Whether you’re planning to purchase or sell, you’ll want the bank to value the timberland. We do this through the appraisal process.
A forester will also perform what is called a timber cruise, to provide an estimate of its volume for their appraisal. In short, cruise and timber is measuring forest stands to determine the stand characteristics such as average tree size, volume, and quality. They do this by first collecting information like tree measurements on different plots. The forester will use a tape measure and wrap it around the trees and apply it to measure and record the circumference of those trees. Then the forester will use a special tool to estimate the height of the tree.
Once we have these measurements, the forester can then class each tree to the product that it will be merchandised, such as pulpwood or saw timber. Smaller trees are used for pulpwood and make products that include paper, diapers, cardboard, and so on. Larger trees are known as saw timber and become lumber, cross ties, or timber. Saw timber, of course, has a higher value than pulpwood. This is an example of how the forester sets up plots in the forest.
Once the trees in the plot get measured, the forester merges all that data. Using a statistical analysis, they provide a report that shows the estimated volume of timber in each class as well as a value for each class and a total value for the whole track. This is an example of that table. The timber cruise is needed for the appraiser, and it’s also valuable to you to establish the tax basis of the timber track. It tells us how much monetary value you have in the trees.
Once we have gathered all the data from the timber cruise, we then provide that information to the real estate appraiser for them to include in the appraisal report. The appraiser values the land excluding the timber and then combines that with the timber value that was determined by the cruise. The appraiser will discount that value of the timber to account for cleanup or other expenses associated with the harvest. We know this as contributory value of the timber, and it’s usually between 75 to 85% of the total timber value.
For example, let’s say you have a property with a timber value of $100,000 and a dirt value of $100,000, the total appraised value will not be $200,000. If the timber contributory value is 85%, the appraiser would value the whole track at $185,000. At Texas Farm Credit, we not only provide finance options for all aspects of the forest industry, but we offer it from a team that has real insight and expertise in the industry. Call us today, we’re happy to help.