Rural Property Valuation and Collateral Guide

01 · Land, soil, and water

Start with the parcel and its productive capacity.

A property review may consider location, access, acreage, parcel configuration, comparable sales, legal use, easements, and local market conditions. For agricultural ground, soil type, drainage, slope, water-holding capacity, crop or forage suitability, and production history may help explain how the land is used and what income it can support. USDA’s NRCS Web Soil Survey provides mapped soil information and interpretations; it is a research tool, not a site inspection or a property appraisal.

Water can be a separate and material question. Identify the source, applicable rights or permits, quantity, reliability, quality, delivery system, operating cost, and any limits on use or transfer. USDA Economic Research Service describes agricultural water value as affected by complex systems, varied uses, and uncertainty about availability. Irrigation equipment or access to a water source alone does not establish that a legal, reliable supply will transfer with the property.

Sources: USDA Natural Resources Conservation Service, USDA Economic Research Service

02 · Productivity and improvements

Describe what the property produces and what is built on it.

Crop mix, yields, livestock capacity, leases, operating expenses, and recent production records may help explain the property’s income-producing capacity. Depending on the assignment and the applicable standards, an evaluator may consider sales comparison, income, or cost evidence. A method or a record does not guarantee a particular value; the evaluator explains which information is relevant to the assignment.

List homes, barns, livestock facilities, greenhouses, irrigation works, permanent plantings, storage, packing or processing buildings, and other improvements. Their condition, utility, access, services, legal status, and repair needs may matter. Identify equipment, inventory, business value, and other personal property separately; do not assume every operating asset is part of the real-estate collateral or will be counted by a lender.

Sources: Farm Credit Administration, Electronic Code of Federal Regulations

03 · Complex and mixed-use properties

Make each use and income stream visible.

A ranch with a residence, a vineyard with a tasting room, or a farm with lodging, retail, or processing space may contain uses that rely on different rights, markets, and records. Provide a parcel map and identify the acreage, structures, access, leases, and income associated with each use. Explain what is agricultural, residential, or commercial, and separate established income from projections. Zoning, permits, easements, water rights, and the ability to operate or sell a component separately may affect the analysis.

For institutions regulated by the Farm Credit Administration, the real-property evaluation rule calls for identifying nonagricultural influences, such as urban development, mineral deposits, and commercial-building value, and documenting the reasoning behind the evaluator’s highest-and-best-use conclusion. That is a Farm Credit rule, not a universal rule for every lender. For any complex property, ask the lender how the appraisal scope will treat each parcel, use, improvement, and income source.

Sources: Electronic Code of Federal Regulations

04 · Practices depend on the program

Federal agency and lender rules are not interchangeable.

USDA Farm Service Agency (FSA) says direct farm-loan applicants must pledge enough collateral to fully secure the loan. For an FSA-guaranteed loan, a conventional agricultural lender makes and services the loan and arranges the FSA guarantee. These are program-specific roles; ask FSA or the lender handling the application which collateral and appraisal requirements apply to that loan.

The Farm Credit Administration (FCA) requires a collateral evaluation under its rules and the institution’s policies when property is taken as loan security. FCA distinguishes an appraisal, a written opinion of market value, from a valuation, an estimate of value. Its real-property regulation addresses the sales-comparison, income-capitalization, and cost approaches as appropriate, as well as income capacity and nonagricultural influences. These requirements govern Farm Credit System institutions, not every rural lender.

USDA Rural Development’s Business and Industry (B&I) Guaranteed Loan program has its own collateral rule: documented value must protect the lender and Agency, and lender-discounted collateral value must at least equal the loan amount, with the discounts justified. B&I is a business program with stated use restrictions, including a general restriction on agricultural production subject to exceptions; it is not a general appraisal rule or a universal farm-production loan standard.

Sources: USDA Farm Service Agency, Farm Credit Administration, USDA Rural Development

05 · Prepare for a property review

Bring records that let the evaluator understand the whole property.

Useful starting materials may include a parcel map and legal description; deeds, surveys, easements, leases, and access documents; water-right, well, or irrigation records; soil information; production and income records; and a list of buildings, improvements, equipment, condition, and known repair needs. Mark dates, estimates, and gaps clearly. The lender or appraiser may ask for a different scope or additional records.

Before relying on a value or financing scenario, ask who selects the evaluator, which assets and uses are in scope, what information is needed, how nonfarm uses and income will be handled, and whether the lender applies program or institution-specific collateral rules. Only the responsible lender or agency can assess the actual property and application.

Sources: USDA Natural Resources Conservation Service, Farm Credit Administration