Can we appraise a house on 5 acres that is part of a larger tract?

[PropertyEconomics]

I've got a request to appraise a new house on just 5 acres. The parcel owned by the borrower is actually 25 acres. There is no survey showing the 5 acres; thus, one would have to assume where it is and that the house actually sits on the 5 acres. Is this acceptable for FHA? Thanks

Somedays this Forum cracks me up.

 

[JennC]

It's a USPAP issue, not an FHA issue. I can't find the Q&A USPAP questions that refers to it, that's were I though I saw it.

Everybody is right, it has been discussed on the forum at length.

 

[The Warrior Monk]

I am not familiar with FHA requirements.

However, the request is being made on a hypothetical property. The general rule is that lenders do not lend on hypothetical properties, since the don't exist and obviously cannot be mortgaged. Typically such requests are made to make a property that doesn't fit a loan program look as if it fits a loan program.

I have done numerous appraisals on hypothetical properties (typically for legal reasons). They are typically complex assignments, and involve plenty of research and analysis; e.g., review zone code and other legal issues, HBU analysis, explanation for the reason for the use hypothetical condition (which must be credible), etc.

 

[PropertyEconomics]

It's a USPAP issue, not an FHA issue. I can't find the Q&A USPAP questions that refers to it, that's were I though I saw it.

Everybody is right, it has been discussed on the forum at length.

Jenn ... I think you will find that this is a Lender / Insurer issue and not a USPAP issue. Appraisals under hypothetical conditions are allowable under USPAP .... the issue is that lenders will not accept hypothetical appraisals as a general rule. Im sure there are exceptions, but I dont think any of those exceptions fit this instance.

Research of appropriate Fannie, Freddie, FHA, and VA guidelines will essentially answer the question as others have pointed out.

 

[Mr Rex]

Will FHA insure properties with large acreage or excess land?

Answer

Excess land is defined as the area that exceeds the size of typical lots in the neighborhood AND is capable of a separate use. Generally, the excess portion of land 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.

Reference 'Handbook 4150.2 REV1, Section 4-4 and 4-5A2; HOC Reference Guide (1-17)'



FWIW, FHA does not have a limit on acreage. If the typical lots in the area are 15 acres, then +/-15 acres are OK as is. If the subject has excess land as is described above, then it is subject to a HC and the smaller piece would require a legal description.

On the other hand, my most recent experience with this was in a county that its not atypical to have home sites from 10-40 acres, but due to limited activity, the most recent sales were under 3 acres. Per the HOC, since I could not readily establish marketability of the larger site, they required that the borrower have a smaller site surveyed and recorded (to make it legal) . The borrower called me to ask how big of a site, and I recommended the smallest portion that could legally be subdivided in that county, about 1 acre, and that way he had the minimum amount of land encumbered since he didn't need the excess land value to refi etc.

 

[Michigan CG]

I've got a request to appraise a new house on just 5 acres. The parcel owned by the borrower is actually 25 acres. There is no survey showing the 5 acres; thus, one would have to assume where it is and that the house actually sits on the 5 acres. Is this acceptable for FHA? Thanks

Most likely the lender wants you to state that the parcel is five acres ignoring the other 20 acres. This is not acceptable unless the five acres is legally split from the other 20 acres.

Many UWs do not know FHA rules.

 

[Randy Pippin]

"109. Appraising Physical Segments (5-Acre Portion) Page 1 of 1
USPAP FAQ's 2006
Home Previous
109. APPRAISING PHYSICAL SEGMENTS (5-ACRE Next PORTION)
Question: A local lender has asked me to appraise only a 5-acre portion of a 62-acre parcel, stating that Fannie Mae will lend on no more than 5 acres. Am I permitted to comply with this request?
Response: Standards Rule 1-2(e)(v) states that the subject of an assignment may be a physical segment of a property. However, appraisers must also comply with any supplemental standards that might apply (see SUPPLEMENTAL STANDARDS RULE).
If the assignment requires compliance with supplemental standards published by Fannie Mae, the appraiser must be aware of the current policy. As stated on page 35 of the Fannie Mae Handbook for Appraisers:
Some appraisers report that they have been asked to appraise only a portion of a larger site: for example, the borrower owns a 30-acre site and you are asked to appraise only five acres and the property improvements. Fannie Mae considers this an unacceptable appraisal practice…
Failure to recognize this supplemental standard would be a violation of the ETHICS RULE or COMPETENCY RULE. "

 

[JennC]

Thank you Randy, I know I read in there somewhere. Perhaps it was on the Fannie Site where I saw it.

It's very difficult to do a search on this...I tried. My search words came out with unrelated topics.

 

[Bearslide]

Will FHA insure properties with large acreage or excess land?

Answer

Excess land is defined as the area that exceeds the size of typical lots in the neighborhood AND is capable of a separate use. Generally, the excess portion of land 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.

Reference 'Handbook 4150.2 REV1, Section 4-4 and 4-5A2; HOC Reference Guide (1-17)'



FWIW, FHA does not have a limit on acreage. If the typical lots in the area are 15 acres, then +/-15 acres are OK as is. If the subject has excess land as is described above, then it is subject to a HC and the smaller piece would require a legal description.

On the other hand, my most recent experience with this was in a county that its not atypical to have home sites from 10-40 acres, but due to limited activity, the most recent sales were under 3 acres. Per the HOC, since I could not readily establish marketability of the larger site, they required that the borrower have a smaller site surveyed and recorded (to make it legal) . The borrower called me to ask how big of a site, and I recommended the smallest portion that could legally be subdivided in that county, about 1 acre, and that way he had the minimum amount of land encumbered since he didn't need the excess land value to refi etc.

As usual, Mr. Rex has it right. In other words - appraisal subject to sub-division.

 

[imhere]

Mr Rex has it correct

Will FHA insure properties with large acreage or excess land?

Answer

Excess land is defined as the area that exceeds the size of typical lots in the neighborhood AND is capable of a separate use. Generally, the excess portion of land 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.

Reference 'Handbook 4150.2 REV1, Section 4-4 and 4-5A2; HOC Reference Guide (1-17)'



FWIW, FHA does not have a limit on acreage. If the typical lots in the area are 15 acres, then +/-15 acres are OK as is. If the subject has excess land as is described above, then it is subject to a HC and the smaller piece would require a legal description.

On the other hand, my most recent experience with this was in a county that its not atypical to have home sites from 10-40 acres, but due to limited activity, the most recent sales were under 3 acres. Per the HOC, since I could not readily establish marketability of the larger site, they required that the borrower have a smaller site surveyed and recorded (to make it legal) . The borrower called me to ask how big of a site, and I recommended the smallest portion that could legally be subdivided in that county, about 1 acre, and that way he had the minimum amount of land encumbered since he didn't need the excess land value to refi etc.

I just confirmed (before reading this post) this statement by Mr Rex with a FHA staff appraiser. This is correct as stated.

In my case, the subject is 5.75 acres in a 20,000 sq.ft. zone. There was a propose subdivision within 1/2 mile in the same zone at the 20,000 sq.ft density, since scrapped due to the current maket conditions. I am the second appraiser and the first valued the eintire lot for the FHA (refi) loan.

BTW, any outbuildings or other improvement must comply with FHA guidelines.