Farms are bought and sold, sometimes as businesses, sometimes because they are enjoyable places to live, sometimes as investments, and sometimes as insurance against a declining currency value.

The farmland market does not have the characteristics of a purely competitive market, which are:

• The product of each seller is identical, meaning it is homogeneous.
• There are many buyers and sellers in the market, and each transaction is relatively small compared to the aggregate volume of transactions.
• There is free entry and exit from the market for both buyers and sellers.
• The product is perfectly mobile, so that no buyer is prevented from buying something simply because of the cost or effort to obtain it.
• Buyers and sellers possess perfect knowledge regarding the product and the market.

The market reality is that no two farms are ever alike in terms of (1) the basic resources (land, labour, or capital) that are available, (2) the way these resources or factors of production are combined, or (3) in terms of the amounts of various crops and livestock produced. Thus, the product is never identical or homogeneous.

There are not always many buyers and sellers in the market. There may be many buyers, but only a few landowners are willing to sell, or many landowners may want to sell, but only a few buyers are available. This is the situation in the case of restitution or expropriation. There may be many possible affected farms, but there is only one buyer, namely the government, in restitution cases.

Generally, only a limited number of farms in a specific area are available for sale. Landowners tend to have a long-term view of owning farmland; they do not easily sell their farms.

The availability of credit affects the free entry and exit of firms from the market. The amount involved in a farmland transaction is generally substantial. Not many buyers possess the cash reserves or have access to sufficient credit to purchase a farm.

The fixed location of farmland tends to localise the market; thus, a possible buyer of farmland will not buy easily if the property is geographically too far from them.

The agricultural property market does not meet the requirements for a purely competitive market.

In most countries, one of the significant advantages of owning land has been its price appreciation over time. Unlike most other resources, land does not depreciate or deteriorate if appropriately managed. This increase in net worth can be used as collateral for borrowing funds and as a cushion or reserve against short-term financial losses that may require financing. Thus, land ownership has critical capital appreciation and risk reduction dimensions for the farm owner.

Agricultural economists have made numerous attempts to relate the price of agricultural land to economic factors, including underlying interest rates, agricultural productivity, and the level of farm income and farm rents. The influence of legislation is also a factor. One of the strongest correlations that exists is that between the price of agricultural land and the ordinary share index.

The factors that influence the supply and demand function of farmland can be allocated into three categories, namely:

• Farm resource factors such as topography, soil potential, percentage of the farm that is arable, extent of irrigation, and average rainfall.
• Non-farm factors such as debt per hectare and population density.
• Interest rates.

There is a high correlation between debt per hectare and value per hectare. The more willing financial institutions are to provide debt to farms in a specific area, the higher the farm values will be in that area; therefore, the availability of credit to the farmer is capitalised in higher farm values.

The correlation between debt per hectare, population density, gross farm income, and farm values is significant.