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RURAL HOUSING SERVICE

Multifamily Farm Labor Housing (Off-Farm)

Appraisal Assignment Guidance

Section 514/516 New Construction

(Version Apr 2023) 

IMPORTANT NOTE TO APPLICANT: The appraisal must be submitted with the application. If an 

appraisal is submitted prior to the application submission, it will be returned to the applicant. 

Background: Rural Housing Service (RHS) provides direct and guaranteed loans to eligible applicants 

for multifamily farm labor housing projects. In support of these programs, RHS requires the services of 

qualified persons or firms to provide appraisals of subsidized MF-FLH properties. All appraisals must 

be in compliance with the current edition of the Uniform Standards of Professional Appraisal Practice 

(USPAP) and USDA RD RHS Multifamily Housing appraisal requirements set forth in 1) CFR-Title 7-

Part 3560-Subpart P-Section 3560.751 to 3560.753, 2) Handbook-1-3560-Chapter 7-Security 

Requirements, and Handbook 1-3560-Chapter 12, Farm Labor Housing, Loans and Grants. A copy of 

the requirements can be found at the following links: 

1) 7 CFR 3560, Subpart P (Appraisals) 

2) HB-1-3560 Chapter 7 (Security Requirements) 

3) HB-1-3560 Chapter12 (Farm Labor Housing) 

Off-Farm Labor Housing projects are designed to increase the supply of affordable housing for farm 

laborers regardless of the farm where they work. Appraisals for MF FLH Off-Farm projects will 

typically be ordered by the applicant. In these instances, the party who engages the appraiser should be 

named as the client, is responsible for payment of the appraisal services, and must supply the appraiser 

with the necessary information to complete the appraisal in accordance with RD/RHS requirements. 

USDA Rural Development must be identified as an intended user of the appraisal. 

As used within this assignment guidance, Value #’s are reflective of Attachment 7-C of Handbook 1-

3560 “Quick Reference of Values to Request”. The Values should be cited exactly as they appear in 

further sections of this guidance.

Subject Property: The appraiser must identify the location, total number of units, property 

characteristics, RHS Farm Labor Housing restrictive use status, and other pertinent information 

regarding the subject property within the appraisal report. A discussion and analysis of the demand for 

farm labor housing within the subject market must be included. The appraiser must identify the 

construction site and its valuation prior to construction. The appraiser should also obtain a copy of the 

proposed plans and specifications for the improvements to be constructed on the site. 

Budget: As discussed in further sections of this guidance, in accordance with RD Handbook 1-3560: 

Proposed Project Budget: Required for all new construction projects. Applicant’s proposed 

project operating budget covering the operation following completion of construction 

This budget form – RD 3560-7 or FIN1000 (or developer budget addressing all the income and 

expense items as identified on these forms) should set forth the project’s proposed budget after 

completion of construction at stabilized occupancy.

The prospective income approach to value should be based on analysis of the most current proposed 

budget for the “prospective” valuation analysis. The proposed budget should be obtained from the 

appraiser’s client. Copies of the budget, used by the appraiser in performing the income approach, must 

be included in the appraisal report. 
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Professional Qualifications: All multi-family Off-Farm, Farm Labor Housing appraisals submitted to 

Rural Development must be performed and prepared by a licensed State Certified General Appraiser, 

licensed within the state in which the subject property is located. A copy of the appraiser’s license shall 

be included in the addenda of the appraisal report. 

The appraiser must have the specialized knowledge and experience necessary to be competent to 

appraise Off-Farm subsidized Farm Labor Housing. The appraiser must understand RHS MF-FLH 

programs, value types and definitions, real property rights, intangible property, use restrictions, pertinent 

property tax considerations, and methods for valuation of various types of favorable financing involved 

in the appraisal of subsidized Multi-Family Off-Farm, Farm Labor Housing. 

Client and Intended Users: The appraiser must understand and agree that USDA Rural Development 

(USDA RD) is not the appraiser's client but must be named as an intended user. All reports must be 

addressed to the client. The intended users are USDA RD and any other parties identified by the client. 

Other intended users may require reporting that differs from USDA RD requirements. Requirements that 

differ may appear in the same appraisal report. Rural Development’s Review Appraiser will identify any 

review questions, issues and/or concerns regarding the appraisal which will be forwarded to the 

owner/applicant by appropriate RHS staff, unless the owner/applicant authorizes RD appraisers to 

directly communicate with the appraiser per USPAP confidentiality requirements. 

Property Contact: The appraiser’s client should provide the appraiser with the project contact 

information in most cases.

Project Information: The appraiser’s client should provide the appraiser with property specific data 

relevant to the assignment. Specific data to be provided to the appraiser is identified in Attachment A to 

this guidance. 

Confidentiality: The appraiser must keep all information and materials furnished by the client, RHS, 

the owner/applicant, and/or property contact regarding the subject property confidential, as required by 

USPAP. The appraiser may use such information only in connection with performance of the 

assignment. The appraiser must agree to prevent the unauthorized disclosure, misuse, or alteration of the 

confidential information. Any information obtained through public sources is not considered 

confidential information. 

Nondiscrimination: Appraisals of RHS MF-FLH Off-Farm properties must comply with the Fair 

Housing Act and its amendments. According to the Act, it is unlawful for an appraiser to use factors that 

are discriminatory on the basis of race, color, religion, sex, handicap, familial status, or national origin in 

the sale, rental, leasing, or financing of housing. 

Assumptions, Hypothetical Conditions, and Limiting Conditions: All extraordinary assumptions, 

hypothetical conditions, and limiting conditions must be clearly and accurately disclosed within the 

appraisal report. A statement that the use of the extraordinary assumptions and/or hypothetical 

conditions might have affected the assignment results, as required by Standard Rule 2-2 (a), must be 

included. Unless specified by RHS, hypothetical conditions must be agreed to prior to their use as part 

of the valuation process. Extraordinary assumptions included within the appraisal must be reasonable 

and are subject to additional clarification, if necessary, at the request of RD. 

Potential Environmental Hazards: The appraiser must note any suspected environmental hazards, 

including issues external to the property that could adversely impact the property's value. Examples of 

environmental hazards would include damaged asbestos-containing building materials, underground 

storage tanks, chemical leaks, spills, or staining of ground surfaces, or on-site waste disposal such as 

sludge, oil, paints, or chemical residues. If the appraiser observes any suspected environmental hazards, 

he/she must notify the client immediately and refrain from finalizing aspects of the appraisal that could 

be impacted until resolution of the issue(s) or until instructed otherwise. 
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Americans with Disabilities Act (ADA): Appraisers must be familiar with the general provisions of the 

ADA because subsidized housing is a property type that is likely to be affected. The appraiser must 

consider what effect (if any) noncompliance with the ADA has on the value of the subject property. Any 

effect on value must be addressed and supported within the appraisal report. 

Appraisal Report Formats: The appraisal must meet USPAP requirements of an Appraisal Report as 

defined in USPAP Standard Rule 2-2 (a). Narrative formats are typical for most multi-family appraisals 

with the level of detail dependent on the scope of work and the requested appraisal values. 

Appraisal Reports must include all financial data provided by the owner/applicant or RHS. Financial 

data includes prospective budgets, rent schedules, all proposed loan amounts, terms, current rates, any 

favorable financing rates and terms, restrictive use provisions (RUP) or restrictive use covenant (RUC), 

LIHTC restrictions, tax credits (federal and/or state), market occupancy levels, number of rental 

assistance units (if any), and land use restriction agreement (LURA). 

The project’s proposed (upon completion of construction) budget as provided to RHS must be 

included in the appraisal report. 

All provided cost estimates, scope of the construction, and proposed financing must be included, 

considered, analyzed and discussed in the appraisal report. 

Approaches to Value: In compliance with USPAP and RD requirements, all three approaches to value 

must be considered as part of the valuation analysis. 

For some assignments, development of a particular approach to value may not be necessary. In such 

instance the appraiser must explain why exclusion of an approach to value is not necessary for credible 

assignment results as required by USPAP. 

For Value #1, as defined below, all favorable financing on any loans are to be valued and reported 

separately. Value of all intangible assets are to be reported individually and separately and are not to 

be added to any other value conclusion. 

Values Required by RHS: RHS requires an “as-is” value of the site which will underlie the proposed 

improvements (Value #3 below) and a “prospective value” of the project upon completion of 

construction (Value #1 below). 

Explanatory Notes: 

• an “as-is” valuation under Value #3 as defined below, considering the subject site in its 

current physical condition; 

• a “prospective Value #1” as defined below, prospectively upon completion of construction; 

• an “insurable value” as defined below, prospectively upon completion of construction; 

• a reporting of Conventional Rents for Comparable Units (CRCU) in the prospective physical 

condition. 

• Value of favorable financing as defined in further paragraphs of this guidance. 

The specific values required for RHS’s intended use for this assignment must be referenced in the 

appraisal exactly as written below (being the bolded value definition and the parenthetical sentence 

immediately following the bolded type). 

These definitions are taken directly from Handbook-1-3560, Attachment 7-C, which provides market 

values defined as follows: 
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Considering valuation of the subject, as of the date of completion of construction, the following 

definition should be cited. 

#1 “Prospective Market Value, Subject To Restricted Rents within 7 CFR Part 

3560.752(b)(1)(i)”. (The appraiser must consider all restrictions and report the value of intangible 

assets individually and separately from the real estate. “Prospective Value”, as defined by 7CFR 

3560, Subpart P, means the forecasted value of the housing and related facilities as of a specified 

future date. For Agency appraisals, this date will typically be the projected completion date of 

proposed new construction or rehabilitation.) 

A request for “market value, subject to restricted rents” means the appraisal will take into

consideration any rent limits, rent subsidies, expense abatements, or restrictive-use conditions 

that will affect the property as a result of an agreement with the Agency or any other financing 

source. Each type of financing involved, including, but not limited to, interest credit subsidy, 

low-interest rate loans from other sources, tax-exempt bond financing, tax credits, and grants, 

must be valued individually and separately in the appraisal.

The cost approach for Value #1 is developed by estimating the current cost new to construct 

the proposed structure(s), including a market derived entrepreneurial incentive or profit; 

deducting depreciation, if any, from the total cost; and adding the estimated land value. The 

Cost Approach must be well reasoned and supported. 

The income approach for Value #1 should be based on the proposed budget for the 

“prospective” valuation analysis upon completion of construction and at stabilization. The 

budget must be included within the appraisal report. 

Site (land) Value of the subject must be provided separately utilizing the following definition: 

#3 “Market Value within 7 CFR Part 3560.752(b)(1)(ii)”. (Appraisal of the subject property is 

an “as-is” valuation. “As-is value” as defined by 7CFR 3560, Subpart P means the value of the 

housing and related facilities as of the effective date of the appraisal. It relates to what physically 

exists and is legally permissible at the time of the appraisal and excludes all hypothetical 

conditions. All restrictions and prohibitions currently existing must be considered.) 

A request for “market value”, means the appraisal will take into consideration the most probable 

price which a property should bring in a competitive and open market under all condition’s 

requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and 

assuming the price is not affected by undue stimulus. Implicit in this definition is the 

consummation of a sale as of a specified date and the passing of title from seller to buyer under 

conditions whereby: 

(A) Buyer and seller are typically motivated;

(B) Both parties are well informed or well advised and acting in what they consider their best 

interests;

(C) A reasonable time is allowed for exposure in the open market;

(D) Payment is made in terms of cash in United States dollars or in terms of financial

arrangements comparable thereto; and

(E) The price represents the normal consideration for the property sold unaffected by special or 

creative financing or sales concessions granted by anyone associated with the sale.
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Highest and best use statement and analysis (7CFR 3560 Subpart P, 3560.753) The highest and 

best use is to be concluded for the subject site as though it was vacant, and for the subject property 

as improved, if improvements have been made. If the highest and best use of a subject property is 

for something other than MFH, the appraisal report must provide this information to the Agency 

for consideration in the loan process. In addition to being reasonably probable and appropriately 

supported, the highest and best use of both the land as though vacant and the property as improved 

must meet four implicit criteria. The highest and best use must be:

(1) Physically possible; 

(2) Legally permissible;

(3) Financially feasible; and

(4) Maximally productive. 

For purposes of this guidance, Value #3 is required to determine a site value prior to the 

proposed new construction

Insurable Value (after completion of construction): – Insurable value is defined as: The value of 

the destructible portions of a property which determines the amount of insurance that may, or 

should, be carried to indemnify the insured in the event of loss. The estimate is based on 

replacement cost new of the physical improvements that are subject to loss from hazards, plus 

allowances for debris removal or demolition. It should reflect only direct (hard) construction costs, 

such as construction labor and materials, repair design, engineering, permit fees, and contractor's 

profit, contingency, and overhead. It should not include indirect (soft) costs, such as administrative 

costs, professional fees, and financing costs. 

(Source HB-1-3560 Chapter 7) 

(See Attachment 7-I.)

“Conventional Rents for Comparable Units (CRCU)”: All reports must conclude Conventional 

Rents for Comparable Units (CRCU) for the subject’s units. CRCU should be reported for the 

subject in the prospective post construction condition. 

CRCU is defined by RD as: “Market rents for comparable rental units in conventional housing 

located in the same geographic area as a particular Section 514, 515, or 516 project.” 

(Source: 7CFR 3560.11). 

Competing rental properties from the same or closest most similar market as the subject property 

should be the basis for determining CRCU for the subject. Selection of rentals from dissimilar 

markets is not appropriate. 

“As-is Value” or “Prospective Value within 7 CFR 3560.752(b)(2)”. An “as-is value” is 

assumed in Value #3 above. A “prospective value” of the housing is required in Value #1 above. 

As-is and Prospective are further clarified as: 

(i) “As-is value” means the value of the site as of the effective date of the appraisal. It relates to 

what is legally permissible at the time of the appraisal and excludes all hypothetical conditions. 

(ii) “Prospective value” means the forecasted value of the housing and related facilities as of a 

specified future date. For Agency appraisals, this date will typically be the projected completion 

date of proposed new construction or rehabilitation. 
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Value of Tax Credits: The value of Tax Credits, if any, that have been awarded to the property or 

that are anticipated to be awarded to the property must be valued and reportedly individually and 

separately from the real estate.

Value of Favorable Financing: When third party financing of the subject project is determined 

by the appraiser to be favorable, the appraisal report must contain a narrative identifying each

source of financing (example: RHS 538 guaranteed funding, HOME loans, FHLB funding, State 

Housing Authority funding, grants, etc.) the amount and terms of each type of favorable financing 

must be described, and the present value of each type of favorable financing must be developed 

and reported individually and separately. 
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Appraisal Requirements: 

1. All appraisal reports must comply with the current edition of USPAP. Specifically, all reports 

must include all items required by Standards 1 and 2 of USPAP: The content of an Appraisal 

Report must be consistent with the intended use of the appraisal and include the following 

information: 

a) Identification of the appraisal report type, 

b) Identification of the client and any other intended users of the appraisal, 

c) Identification of the intended use of the appraisal, 

d) Description of the subject real estate,

e) Identification of the real property interest (property rights) appraised, 

f) Identification of the purpose of the appraisal, 

g) Identification and definition(s) of the value type(s) reported, 

h) Identification of the effective date(s) of the appraisal and the date of the report,

i) Description of the scope of work used to develop the appraisal, 

j) Disclosure of all assumptions, hypothetical conditions, and limiting conditions that 

directly affect the appraisal, including a statement that their use might have affected the 

assignment results, 

k) Description of the information analyzed, the appraisal methods and techniques employed, 

and the reasoning that supports the analysis, opinions, and conclusions; exclusion of the 

sales comparison approach, cost approach, or income approach must be explained, 

l) Description of the use of the real estate existing as of the date of value and the use of the 

real estate reflected in the appraisal,

m) When an opinion of highest and best use was developed by the appraiser, summarize the 

support and rationale for that opinion,

n) A signed certification in accordance with USPAP Standards Rule 2-3. 

2. All reports must include an executive summary. 

3. All reports must include a legal description of the subject property. 

4. All reports must include original photographs of the subject property. Additionally photographs of 

all land comparable sales (if a site valuation is provided), comparable rentals and comparable sales

are preferred, however, if photos from other sources are used the source of the photo must be 

identified within the appraisal.

5. All reports must (as applicable) include the following maps, showing the location of the subject: 

• Regional map

• City map

• Flood plain map 

• Land Sales map 

• Sales Comparables map (if applicable)

• Rent Comparables map 

6. All reports should include the following exhibits of the subject property: 

• Survey (if available)

• Site plan

• Aerial photograph 

• Floor plans with exterior dimension 
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7. Income Approach Methodology: All analyses within the Income Approach must be well reasoned 

and supported. Prospective valuation of the subject (Value #1) must use the proposed budget 

which contains the subject's proposed rents, other income, vacancy, and operating expenses.

All income and expense data used must be included in the addenda of the report.

Capitalization Rate: The capitalization rate selected for valuation of the subject by the income 

approach, must be derived from the most recent sales of similar properties in the local (or nearest 

similar) conventional apartment market. A base capitalization rate is derived from these sales which 

may then be adjusted qualitatively for factors related to specific benefits and/or restrictions 

applicable to the subject property. Support for the overall rate should be provided using other 

accepted methods such as development of the band-of-investment, debt coverage ratio formula, and 

regional investment criteria surveys, however primary determination of an appropriate OAR is to 

come from conventional market transactions as described above. Appraisers need to explain their

rationale for their determination of the capitalization rate determined appropriate for the subject 

property. 

8. Remaining Economic Life (REL): All reports must include a well-supported estimate of the REL 

after completion of construction of the subject. 

9. A market rent adjustment grid (re: CRCU Value above) showing specific adjustments in 

percentages or dollar amounts must be included and be well supported by data summarized in the 

report for post construction condition. 

10. Exclusion of rental units from valuation. The owner/applicant must provide appraisers with 

instructions and supporting information on any rental units that do not, or will not, produce rental 

income at the time of the appraisal.

11. Favorable Financing: When third party financing of the subject project is determined by the 

appraiser to be favorable, the appraisal report must contain a narrative identifying each source of 

financing (example: RHS 538 guaranteed funding, HOME loans, FHLB funding, State Housing 

Authority funding, etc.) the amount and terms of each type of favorable financing must be 

described, and the present value of each type of favorable financing must be developed and 

reported individually and separately. 

12. Proposed Construction Cost Estimates: Appraisals of properties with proposed construction must 

include Form RD 1924-13, or other cost estimation documents, in the addenda. 

13. A copy of this Appraisal Assignment Guidance must be included in the addenda of the appraisal 

report. 

Review of Appraisal: Appraisal reports are subject to review by Rural Development. Appraisers must 

be prepared to discuss their analyses, opinions, and conclusions and provide additional written support, 

clarification, and a revised appraisal if requested. 

A revised report addressing all of the Rural Development Reviewer’s questions, comments and/or issues 

is required within 10 business days of issuance of the notification document by Rural Development. Any 

additional fees and/or costs associated with revisions or responses must be discussed with the appraiser’s 

Client, however revision of the appraisal addressing any items in the RD notification document are 

required. 

It is extremely important that all comments from the RD reviewer be addressed in the appraiser’s 

response. Upon receipt of the response / revised appraisal report, the review process will continue, and a 

determination will be made of whether the revised appraisal is or is not acceptable for agency use. 

If no response from the applicant’s appraiser is received, the RD review process will be concluded, and 

a determination will be made of whether the original appraisal is or is not acceptable for agency use.
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Accountability: The engaged appraiser must inspect the subject property and be prepared to discuss the 

appraisal report. A staff appraiser or associate may participate in the appraisal assignment and must 

either sign the report or be identified in the appraiser's certification by name as having provided 

significant professional assistance. If a staff appraiser or associate has provided significant professional 

assistance in preparation of the report, the staff appraiser or associate is to be present during any 

discussion of the assignment. The engaged appraiser must sign the report in all instances. 

The appraiser’s valuation process must be transparent to and understandable by RD staff. If the pro 

forma income, vacancy, expenses, or capitalization rate, are not adequately supported, the RD Review 

Appraiser may request the appraiser make corrections and or clarifications that provide the necessary 

support. If a response from the appraiser is not received or does not adequately correct, clarify, or 

address the concerns of RD, the appraisal report may be found unacceptable for agency use. 

USDA RD must be expressly excluded from any exculpatory language limiting the appraiser's liability 

that may exist in the appraisal report. 

Defense of Appraisal: The appraiser may be requested to defend the appraisal in court or in Rural 

Development's appeals process. This would constitute a consulting assignment that would be negotiated 

separately from the original appraisal assignment. 

Submittal: Submit appraisal and any revisions in a searchable .pdf format to the appraiser’s client who 

is then responsible for submitting the appraisal to RHS.

Direct questions regarding:

Project Information: Appraiser’s Client 

Appraisal Guidance Questions: SM.RD.PSSCustomerService@usda.gov 

Note(s) & Special Instructions for the appraiser: 

1. Contact the Client to obtain/confirm any additional information you need to complete the appraisal 

per this Appraisal Assignment Guidance and any additional information you determine appropriate. 

Attachments Follow
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Attachment A

Property & Transaction Information 

Off-Farm FLH Section 514/516 - New Construction 

Information that must be provided by the owner or applicant to the Appraiser: 

1. Project Name, Address and Property Contact Information 

2. Legal Description of Subject Property. 

3. Project Information: # of Units and Unit types 

4. Proposed Plans & Specifications 

5. Current transaction documentation: 

a. Current Owner 

b. Contract or Sales Agreement for site

c. Construction Cost Estimates (RD Form 1924-13) or similar construction cost estimate.

6. Financing Information: 

a. Proposed RD Loan(s) amount, rates, and terms. 

b. Proposed Third-party loan(s) amount, rates, and terms (if applicable)

c. Grant(s) (if applicable)

d. Low Income Housing Tax Credit (LIHTC) maximum tenant rents (if applicable). 

7. Rental Assistance (RA) units at project (if applicable)

8. Proposed Operating Budget 

9. Restrictive Use Provisions (RUPs), Restrictive Use Covenant(s) (RUCs), Land Use Restrictions 

(LURA) Information:

a. Date RUPs/RUCS will expire

b. LURA terms, expiration

c. Any other restrictions placed on the property by any entity other than RHS

10. Capital Needs Assessment (CNA) 

a. CNA “Post Construction” if available. 
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ATTACHMENT 7-I

USDA Rural Development

Insurable Value Calculation

Property Name:

Street Address:

City, County, State, Zip:

BASE COST

Main Structure

Sprinkler

Other

Adjustments and/or Multipliers

TOTAL BASE COST PER SQ. FT

Building Area Square Footage

TOTAL REPLACEMENT COST NEW

EXCLUSIONS Per SF Percent

Excavations

Foundations

Site Work

Site Improvements

Architect’s Fees

Underground Piping

TOTAL EXCLUSIONS

INCLUSIONS

Appliance Packages

Patios / Balconies, etc.

TOTAL INCLUSIONS

CONCLUDED INSURABLE VALUE

Total Replacement Cost New

Less Total Exclusions

Plus Total Inclusions

CONCLUDED INSURABLE VALUE

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