FHA Request For A Home On 20 Acres, Approx 10-12 Acres Leased/farmed

[Blue Velvet]

This may have been covered before, but I couldn't see how to search this topic. I am working on a report for a newer home on 20 acres (1 parcel) in a rural area. The rear portion of the parcel (approx 10-12 acres) is leased to a farmer who grows alfalfa. The lender is asking me not to include the portion of the land leased/used for crops. The questions on my mind are: 1. Is this an automatic FHA rejection if the land is being farmed? 2. Highest and Best Use: The additional acreage is considered by me to have a separate highest and best use, as farm land or as an additional homesite. 3. Can I do what they are asking and put enough statements in the report to not include a value for the additional land? Is that misleading or unethical? 4. Would it be subject to a split?

I have spent about an hour trying to look these topics up, not finding clear answers. I have 800 things to do today. I'm hoping you experts can point me in the right direction. Thank you so much.

 

[DJBanas]

If your fee is less than $1200, tell the AMC/Lender that due to new information you are not qualified to perform this appraisal. Good Luck with this one.

 

[hastalavista]

FHA requires that excess land be identified but excluded from its valuations. So if you have concluded that the rear section is excess, then it can be excluded (with proper disclosure and citation of the FHA protocol) from the valuation.

My only concern would be the lease of the land. Is this a short-term (annual) or longer-term lease? I would find out what the terms/conditions of the lease are, and then dig a little deeper in the handbook (and probably call the HOC). I think I would have the same concern as you: While I should exclude this from the FHA valuation because it is excess, I don't want the report to be misinterpreted that I'm excluding the land simply because it is on a lease.

Good luck!

 

[residentialguy]

FHA requires that excess land be identified but excluded from its valuations.

How can on conclude that land producing an income is "excess"? Having 10 acres of sand, ok...but 10 acres of farmland??? As you suggested...it really stinks of excluding it simply because it is income producing and won't jive with FHA.

 

[Michigan CG]

How can on conclude that land producing an income is "excess"? Having 10 acres of sand, ok...but 10 acres of farmland???

Alfalfa land is going to get $150-$200/acre rent.

The lender is asking me not to include the portion of the land leased/used for crops.

FHA states that you may not value EXCESS land but you must IDENTIFY it in the report and you must list the actual land area in the report and then explain what portion is excess land.

BUT..........are you sure it is excess land? What are the zoning requirements of the area? What are the minimum site area and frontage requirements? Is there demand for land in the area where the "back" area would have its own separate Highest and Best Use?

No matter what you do in the end you are going to need answers to those questions and you are going to need to develop a land value for the subject as a whole and also the smaller land area should you deem the rear of the land to be excess land.

If your parcel is 1,320 deep then it would be 660' wide..........what is the minimum front footage? If it is 330' then you possibly would have a Highest and Best Use of two parcels, I stress POSSIBLE. If the minimum frontage is 500' then your land is not excess but rather surplus. Sucky surplus, excellent excess.

 

[Blue Velvet]

If your fee is less than $1200, tell the AMC/Lender that due to new information you are not qualified to perform this appraisal. Good Luck with this one.

You were more right than you even know

 

[Blue Velvet]

Thank you all for taking the time to help. I appreciate it. I didn't feel right simply excluding the land and I discussed the option of doing it subject to a split, which seemed like it would work for everyone. But things went in an odd direction when I started getting calls and texts from the homeowner's wife. She said it would take too long and cost a lot of money and they needed to refinance quickly. I asked her to work with her lender on any questions, but she did not stop texting, calling, and emailing me. Her husband had told me during my inspection (she was not there) that a local farmer paid them to grow alfalfa, along with several other neighbors. You can also see tilled rows on the aerial map. She laughed that off and said that it is NOT farmed. She said they tried to operate a mini farm but didn't make enough money. "Someone gave us $1,000 about 5 years ago but that wasn't worth it". I tried to respond minimally and asked her to discuss everything with her lender.... but the messages kept coming. She started saying I was making false statements and costing her money, and if I didn't correct the false statements, she was going to seek legal advice and report me to the licensing board. Also, demanding that I give her the report now. She was tired of waiting. I was unprofessional for taking so long. On my end, the report was officially still on hold.

The client asked me today to proceed subject to the split but I said I really didn't want to be involved. That's just too much drama.

 

[RSW]

I would walk away from the assignment and take my losses.

 

[Michigan CG]

and I discussed the option of doing it subject to a split,

Appraisers do NOT have the authority or power to require someone to split a property which is what one is doing when they make the report subject to a split. Numerous appraisers have been trained to do that and it is wrong.

 

[Terrel L. Shields]

The client asked me today to proceed subject to the split but I said I really didn't want to be involved. That's just too much drama.

Go...nothing good can come from it and block her number.

I would walk away from the assignment and take my losses.

Without a second thought.