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  #1  
Old 05-14-2012, 09:21 AM
Ken Miller's Avatar
Ken Miller Ken Miller is offline
 
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Default 2nd Lot Highest and Best Use

I am doing an REO appraisal for HUD. The mobile home sits on a corner lot and has a second vacant lot with road frontage. I've never come across this situation so I'm not sure how to address it in my report. The second lot would have more value if it was sold separate from the main lot that the mobile home sits on. Can anyone guide me on how to convey this in my report and if there are any additional steps or comments I need to include in my report? I'm in a time crunch, as this is for HUD, so if anyone is out there reading this and can help right away, I would GREATLY appreciate it. Thank you in advance for your help!
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Old 05-14-2012, 09:39 AM
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Below is what applies if this were a HUD loan. But as this is REO, it doesn't really apply. It seems as if that second parcel never should have been included under HUD guidelines. I would recommend calling the HOC. 800-225-5342

HUD Handbook 4150.2 Section 4-5

2. Excess Land
Excess Land is defined as the area by which the plot exceeds the area of a readily marketable real estate entity. This occurs when the subject lot is considerably larger than typical lots in the neighborhood and the excess is capable of separate use. Generally, the defining characteristic is an excess portion that can be subdivided and marketed as an individual parcel. However, in small communities and outlying areas, appraisers must use different criteria because the market may accept a wide variance in lot sizes. This segment of the market may show wide differences in lot use.

> If the plot contains excess land, delineate and appraise separately the readily marketable real estate entity and the existing or proposed improvements. Describe the excess land but do not appraise it with the primary 1 - 4 family residential building that is subject to a mortgage.

The lender will require that the value of excess land be excluded from the maximum mortgage amount that will be calculated only on a reasonable amount of land and improvements.
  #3  
Old 05-14-2012, 10:01 AM
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Two economic units. Treat them that way.
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  #4  
Old 05-14-2012, 10:02 AM
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The second lot has a 2 car garage on it. I wasn't sure about the excess land with it being on a separate parcel from the subject and having the detached garage on it.
  #5  
Old 05-14-2012, 10:56 AM
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Don't assume because they are distinctly separate parcels that they each have their own highest and best use. Their highest and best use could be combined under one ownership, something that's called "plottage."

But their HBUs could be individual. You won't know until you do your highest and best use analysis.

I would contact the HOC though, because they will want it reported a certain way.
  #6  
Old 05-14-2012, 11:23 AM
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I believe more information is necessary. If HUD has a mortgage on it, the first question that comes to mind is why there is a mortgage on a vacant parcel. Are they really single and separate, is there some type of blanket mortgage in place, etc.?
  #7  
Old 05-14-2012, 12:12 PM
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Quote:
Originally Posted by zdfenton View Post
Don't assume because they are distinctly separate parcels that they each have their own highest and best use. Their highest and best use could be combined under one ownership, something that's called "plottage."

But their HBUs could be individual. You won't know until you do your highest and best use analysis.

I would contact the HOC though, because they will want it reported a certain way.
The property is a mobile home built in the mid 70's. One lot is worth almost as much as the mobile home is worth. The second lot would be worth more as a vacant lot than it would be combined with the property. As far as I can tell the mobile home does not rest on any part of the second lot and could be sold seperately from the mobile home lot. Based on my understanding of the defenition of plottage, I feel it would not apply in this situation. There is another vacant lot next to this property that has the same dimensions as the subject's 2nd lot (75'x150') and is currently listed on the MLS for $15,500.

I emailed my client and they are looking into how HUD wants me to handle the two parcels.
  #8  
Old 05-14-2012, 12:25 PM
leelansford leelansford is offline
 
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Quote:
Originally Posted by zdfenton View Post
Below is what applies if this were a HUD loan. But as this is REO, it doesn't really apply. It seems as if that second parcel never should have been included under HUD guidelines. I would recommend calling the HOC. 800-225-5342

HUD Handbook 4150.2 Section 4-5

2. Excess Land
Excess Land is defined as the area by which the plot exceeds the area of a readily marketable real estate entity. This occurs when the subject lot is considerably larger than typical lots in the neighborhood and the excess is capable of separate use. Generally, the defining characteristic is an excess portion that can be subdivided and marketed as an individual parcel. However, in small communities and outlying areas, appraisers must use different criteria because the market may accept a wide variance in lot sizes. This segment of the market may show wide differences in lot use.

> If the plot contains excess land, delineate and appraise separately the readily marketable real estate entity and the existing or proposed improvements. Describe the excess land but do not appraise it with the primary 1 - 4 family residential building that is subject to a mortgage.

The lender will require that the value of excess land be excluded from the maximum mortgage amount that will be calculated only on a reasonable amount of land and improvements.

Based upon what the OP has told us, the 2nd parcel is NOT excess land as the 2nd parcel is a separate and distinct entity having its own (i.e., separate from the improved parcel) H&B Use.
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Last edited by leelansford : 05-15-2012 at 08:10 AM.
  #9  
Old 05-14-2012, 01:23 PM
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From FHA:

Quote:
Excess land is defined as that which is larger than what is typical in the neighborhood AND capable of a separate use. Generally, the excess portion can be subdivided and marketed as an individual parcel. However, in small communities and outlying areas, appraisers must use different criteria because the market may accept a wide variance in lot sizes. If the plot contains excess land, the appraiser should describe it but not value it. In this instance, the appraisal is based upon a hypothetical condition. A legal description of the portion being appraised is required. The lender will require that the excess land be excluded from the mortgage security.
If the "excess" area has a garage on it, I would not guess that it is excess land, but surpluss land, at least for a typical Manufactured home in my area...
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  #10  
Old 05-14-2012, 01:29 PM
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Quote:
The mobile home sits on a corner lot and has a second vacant lot with road frontage.
It's neither excess nor surplus. It's a different lot.
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