Stumpage for forest
06 Jun 2016
Valuation of forest properties is possible using either comparison or income approaches. Both these methods can also be combined as a hybrid, which uses price information of the market and cash flow based on growth and yield models of forests. This enables you to solve the discounting rates by equaling net present values to the market prices. Such market oriented discounting rates, as investors’ subjective or hyperbolic time preferences, can be used as a basis in the valuation of all forest growing areas. When using the income approach the main results show that the discounting rate depends on the expectation time. The longer the expectation time, the lower the discounting rate, is applied in the income approach.
Income Approach, this approach is based on the concept of the relationship between the value of the income from the property income producing property. Property value is calculated based on the projected amount of revenue expected to be generated reasonable by the property is in a one rotation (existing) that remains. The rationale of the approach is that the market value for the existing use of the income of a property depends on the potential of the property to generate income. The methodology used in the income approach, discounted cash flow (DCF).
Market Data Approach, in a real estate appraisal is based primarily on the principle of substitution. This approach assumes a prudent individual will pay no more for a property than it would cost to purchase a comparable substitute property. The approach recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost. In developing the sales comparison approach, the state licensed real estate appraiser attempts to interpret and measure the actions of parties involved in the marketplace, including buyers, sellers, and investors
Market value for the existing use is the value of an asset based on the continuation of its existing use, assuming the asset could be sold as part of a continuing business operation regardless of whether that use represents the highest & best use. In this context Market Value may be defined as the estimated amount for which the assets might exchange on the date of valuation between a willing buyer and a willing seller in an arms’ length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
To estimate the value of the trees in your woodlot, woodlands owners need to be able to assign a value to each tree while it is growing in their woodlot. This value is referred to as “stumpage value” and by definition it is the value of the products (firewood, pulpwood, and/or lumber) that can be obtained from each tree at a processing plant or sawmill minus the cost of harvesting, transportation to the mill and conversion to an end product such as lumber.
In addition, each contractor can be expected to include a reasonable profit in operating their business. At first glance this seems as though it would be a difficult undertaking, as most woodland owners may only harvest once in their lifetime and are not in the business of tracking mill prices and harvest costs. An easier approach is to obtain stumpage prices for other timber sales that have been reported for you area. Before we discuss how to obtain these estimates for stumpage prices, a short discussion of the factors that affect these prices would be in order current market trends; woodlot location; woodlot size; tree species and tree size and grade.