Appraising Rural Properties

appraising rural propertiesThere are challenges that come with appraising rural properties. Often they are located in remote areas, where few comps exist. How do you figure in factors such as arable or nonarable land, a working farm, timberland, wetlands, or a forest preserve?

Appraising rural or remote properties can be a difficult—and time-consuming. Often the appraiser will have to draw comps from a considerable distance and consider various intangibles. The bottom line is always that the value of a property to the buyer is whatever the buyer is willing to pay for it. Its worth to the lender might be a different matter, and in most cases, that’s what the appraiser is trying to determine.

Variables to consider when appraising rural properties

Keep in mind that the appraiser isn’t always working for a lender. In many cases, an owner of a rural property has a poor idea of how much a property is worth. The owner might want it appraised before putting it on the market or selling it to a family member—or might wish to know its value for estate planning purposes. There might be issues of eminent domain or condemnation tied to the appraisal. It might be required because of a divorce or the dissolution of a business partnership. Buyers will often want a property appraised so they can make an informed offer or determine depreciation for the property.

In many cases, buyers do not purchase remote or rural properties for the same reasons as a home or a commercial building. Wetlands, for example, might be acquired for environmental mitigation, for the protection of wildlife, or for hunting. Raw land might be purchased for a long-term hold because the buyer expects that a developer will want it one day. The income approach to appraisal will likely come into play if the property includes a working farm or ranch. In some cases, the lender may carry the mortgage on these unusual properties as a nonconforming loan.

Appraising rural properties as a specialty

With all of these variables to consider, it might be a good idea for appraisers to develop a specialization in rural properties. Appraisers with genuine expertise in this field are relatively few, and observers agree that the talent pool isn’t growing fast. Moreover, rural properties are often minefields: full of hidden mistakes that an appraiser could easily trigger.

“The comps have to be right,” says Heidi Lee, MAI, MRICS, AI-GRS (New Orleans). “There are different kinds of wetlands—open marsh, swamps, and so on—and you’ll need to find comps that are the same type of wetland. It’s the similarity of composition that you’re looking for; geographical similarity is not as important.

“If you’re appraising wooded areas, remember that commercial timber tracks are thousands of acres: real plantations, with trees of different ages. Those are big-acre deals as opposed to small wooded properties. In the latter, the timber won’t be as big of a factor since buyers are not purchasing the land for the trees. The value of the property won’t be directly related to the harvest of the timber. If you’re appraising agricultural property, you might be working with a federal land bank.”

Federal land banks finance the purchase of rural properties for commercial use, but they also lend for refinancing, restructuring, rebuilding, and repurposing, as well as for personal-use property.

Appraiser Carole McCullough (Linthicum Heights, Maryland) began her career appraising undeveloped land, and she says that’s an area where many landowners don’t understand the value of their property.

“There’s a considerable difference between the value of a property as raw land and as development-ready land,” she explains. “In the latter case, the developer had already done the surveys, the topography. The property is ready to build on in one instance but not in the other. That makes a big difference to an appraisal.”

The challenge in finding comparables

It’s often hard to find comps for rural properties within a distance that would be considered reasonable in an urban or suburban area. A farm home might have only 10 similar properties within a 5-mile radius—none of which have changed hands in years. Moreover, each of those homes might be entirely different as to size, architecture, and condition. The land with each property might be of different size and used for different purposes. The properties might draw their utilities from nonpublic sources.

Appraisers can almost always find comps, but it will often require some digging—and some writing. The appraiser will often have to explain why he or she used certain comps.

In March 2014, Fannie Mae issued a Lender Letter entitled, “Property and Appraisal Requirements for Properties Located in Small Towns and Rural Areas.” While acknowledging that Fannie Mae’s guidelines for such properties are deliberately and necessarily broad, the letter provides clarifications and addresses some misconceptions.

One common misconception about Fannie Mae’s Appraiser Independence Requirements (AIR), is that lenders must use third-party vendors or appraisal management companies (AMCs). However, Fannie Mae allows lenders to use in-house appraisers whose function is separate and independent of loan production staff, as well as independent fee appraisers, third-party vendors, and AMCs.

“Although lenders are required to maintain a separation between the [loan and appraisal] processes,” the letter states, “…the AIR provides an exception for a small lender as long as the lender is able to demonstrate prudent safeguards and processes to isolate its collateral evaluation process from influence or interference from its mortgage production process.”

The letter goes on to acknowledge that comps for rural properties might be hard to find, and it gives the appraiser considerable leeway—so long as the appraiser’s decisions can be justified in the report.

Share your thoughts in the comments below: What are the steps you go through when you have been asked to appraise a rural property?

Article by Joseph Dobrian. Joseph Dobrian has been writing about commercial and residential real estate, and real estate-related finance, for more than 30 years. His by-line has appeared in The Wall Street Journal, The New York Times, The New Yorker, Real Estate Forum, Journal of Property Management, and many other publications. He is also a noted novelist, essayist, and translator. His website is, and he can be contacted at [email protected].

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