Why Your Appraisal isn’t Equal to Your Loan Amount
We’ve seen more than a few borrowers get blindsided by this.
They walk in with a clean appraisal, land with high market value, solid comps, maybe even recent upgrades, and still get offered less than they expected. That’s not a paperwork problem, and it’s not the bank being conservative just to be difficult. It’s your lender’s method of determining overall value.
Appraisals follow comps. Lenders follow risk. And that gap can be wide.
This happens most often when the market is hot, especially when buyers or outside investors push prices up faster than income can keep pace.
The valuation in the appraisal? It matters. But it’s not your available loan amount.
How do lenders decide what farmland is worth for the loan?
We start with the appraisal. That gives us a baseline. But remember, it’s a reference point, not a lending value.
Comparable sales have their place, but they don’t drive the deal. If the cash flow tied to the collateral doesn’t support the proposed rate, term, and amortization schedule, the overall valuation gets adjusted.
We also look at production records and stress scenarios. What happens to loan repayment if markets dip or inputs spike? If the land can’t carry the note under pressure, that affects how we value it, regardless of what the market says it’s worth.
The loan amount is sized to what the asset, in this case, collateral ag real estate, can support, not just to what it appraises for.
What factors change the deal, even with good land?
We’ve had plenty of deals where the farm land looked strong, and the borrower came in expecting certain loan terms. And then the structure came back tighter than they expected. Not because the appraisal was wrong, but because the income behind the property value itself wasn’t strong enough to carry the note on its own.
Lenders look at factors such as rental history, yield performance, and producer habits. If income is steady, it supports more flexibility. If it’s unpredictable, we look at the loan structure: shorten the term, shift payment timing, or increase equity requirements.
When the land looks good, but the numbers behind it don’t quite stretch far enough, it doesn’t always mean the deal falls apart. But it won’t be the same deal it would have been otherwise.
Looks good on paper? Great. But we lend based on what the land does, not just what it is.
Why doesn’t the appraised value always equal the loan size?
We hear this one a lot: “But the land appraised for more, why can’t I borrow against that?”
Here’s the short version: equity isn’t the same thing as borrowing power, and appraisals don’t tell the full story.
Appraisers give us a market snapshot. They don’t assess the operation’s liquidity, cash flow timing, or repayment risk. That’s where our job starts, and where the gap between land value and repayment risk is usually found.
So yes, a strong appraisal helps, but it’s not a simple formula. And that surprises people more often than it should.
Do all types of ag land get valued the same way?
No. Not even close.
Irrigated land tends to be more valuable, but it also attracts more scrutiny. Details such as water rights, allocation history, and long-term access matter. If something’s unclear, it changes the risk.
Pasture ground is a different story. It’s less liquid, comps are harder to pin down, and income tends to be more variable. This doesn’t mean it can’t be used as collateral real estate, but it usually doesn’t size quite the same.
Transitional land or anything marginal—light soils, inconsistent use, or spotty history—attribute to higher risk. These are the types of properties that might sell at a premium in the market, but from a credit perspective, we pull back.
Region matters too, along with demand and volatility. What the local market is actually doing, compared to what the sales data says, can shift the numbers. Two nearly identical pieces of land, one in a stable corridor, one in a speculative pocket, can result in very different loan terms, depending on the operation.
It’s not a formula. It’s pattern recognition. And over time, you get a feel for where to be cautious.
Can you have good collateral and still not get the deal?
Yes. It can happen.
The appraisal might look fine. The land might be productive and in the right spot. But that doesn’t always mean the loan works.
The issue isn’t always value. It could be timing. Liquidity. Existing leverage. We’ve passed on deals with a strong LTV (loan-to-value), not because the land didn’t support the amount on paper, but because the cash flow couldn’t support the structure.
Some borrowers expect strong ag real estate collateral to carry the whole deal. And sometimes it does. But when the rest of the financial picture is tight, the land alone isn’t enough.
That part tends to surprise people, especially if no one’s told them before.
What other factors lower what lenders will offer?
Sometimes the land is solid, the income checks out, and the cash flow holds, but the loan still comes back Sometimes the land value is solid, the income checks out, and the cash flow holds, but the term sheet still comes back with a loan amount than expected.
It’s possible that our internal policies limit what we can do.
Every lender has maximums and caps. Maybe it’s a ceiling on per-acre value, or maybe it’s a regional exposure limit. If we’re already deep in a geography, asset type, or commodity, we might have to pull back, not because the deal is weak, but because we’re managing overall concentration risk on our end.
Risk ratings matter too. These internal scoring systems don’t just affect pricing; they also affect loan structure. If the risk rating comes back higher than expected, meaning the deal looks riskier on paper, we may respond with shorter terms, require more equity, or create a tighter payment schedule.
None of this is about nitpicking the deal. It’s about staying inside the parameters we’re required to operate within, even when the borrower does everything right.
The biggest gap we see isn’t in the numbers. It’s in the expectations.
Borrowers tend to think in terms of the land’s market value—what it is appraised for, what it sold for, what it might be worth down the road. However, lenders aren’t just trying to price land. We’re also pricing repayment risk.
That tends to go further than a quick yes or no. It builds clarity before tension shows up. And in this business, that’s usually what makes the difference.
Start the financing conversation early. Our regional relationship managers walk through this every day, and it usually starts with a question, not a sales pitch.
Questions about Land Values?
Appraisal value isn’t the full picture. Let’s talk through how your land would be evaluated in a loan review.
Conterra Ag Capital is a private lender, focused exclusively on American agriculture. We offer a variety of specialized ag loans designed to meet the specific needs of farmers and ranchers nationwide. With a team of experience relationship managers strategically located across the country, we provide regional expertise and personalized service to our clients. Whether you’re a seasoned producer or new to the industry, Conterra is committed to supporting your agricultural endeavors. Our people, products, and process-driven approach to lending makes us unique.
Disclaimer: Please note that the information provided in this article is for educational and informational purposes only, and should not be construed as financial or investment advice. While we have made every effort to ensure the accuracy and reliability of the information presented, Conterra Ag Capital and its affiliates make no representation or warranty as to the completeness, correctness, timeliness, suitability, or validity of any information contained in this article. You should always consult a qualified financial advisor, tax professional, or other qualified professional for advice on your specific financial situation.
