Appraisal Multiple Lots

[J Grant]

http://proevalue.com/excess-vs-surplus-land-FHA-appraisals.htm

Excess Land:
Land that is not needed to serve or support the existing improvement. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land may have the potential to be sold separately and is valued separately.

Surplus Land:
Land that is not currently needed to support the existing improvement but cannot be separated from the property and sold off. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel.

 

[hastalavista]

I am appraising a property that is being sold with an additional lot- from OP post #1. Doesn't that mean they are assembling it?

This is a topic that I'm always eager to discuss and learn. I'm leaving town shortly but will give you a quick response now:
1. Just because there are two parcels involved in the transaction doesn't mean the intention is to assemble. Here's an easy one: Let's say the contract involved two houses, side-by-side. Would we presume that the intent is to assemble those to parcels into a single parcel? Probably not. Same thing here.

2. As to the question excess if the subject's zoning allows subdivision and the parcel is large enough to subdivide, just because it can be done doesn't mean it should be done. And if it shouldn't be done, than it isn't excess land.
Webster, in his article "A Discussion of Excess Land Concepts and Theory" (The Appraisal Journal, 2015) simplifies it this way (I'll paraphrase): You need three things are needed for portions of an existing parcel to be "excess"-
1. Marketability
2. Severability
3. Preservation of the H&BU of the remainder property

In regard to #2, if the zoning allows subdivision, then presumably (and barring any physical or other legal constraints, it can be severed.
In regard to #3, as long as what remains isn't changed (its H&BU), then it isn't negatively affected (it can be a bit more complicated than that, but you get the gist: don't split if the impact is negative on what remains).

#1 is what Rex (I believe) initially was calling out. If there is no market, even #2 and #3 pass muster, then it isn't excess land. It could become excess in the future, but not now. The purpose for identifying it as excess land is because once triggered, excess land needs to be valued separately. But if no one is buying it, it isn't marketable and isn't excess land at this time.

Remember- we are talking about a portion of an existing parcel. No market, no demand, no excess land. It is surplus (not needed for the existing use/improvement but does not have its own H&BU such that it should be valued separately).
An existing parcel is different; whether there is a market for it or not, there is a H&BU. The market-demand will determine when whatever should be built will be built.

 

[timd354]

I am appraising a property that is being sold with an additional lot- from OP post #1. Doesn't that mean they are assembling it?.

No, that does not necessarily mean they are assembling it.

 

[J Grant]

No, that does not necessarily mean they are assembling it.

That is true...would like to discuss more, interesting topic but sick as a dog...bad cold or flu...rarely get sick so now am....happy posting everyone.

 

[Michigan CG]

IF this were excess land (a section of the single parcel) then this outline is partially correct.
Within the form, the easiest way to value excess land is to do it separately in the addendum and conclude a value. However, what is not explicit in the instructions your received is that the value of excess land isn't typically the value as-if it were already split. Back to the basics, if there is excess land (it meets all the criteria for independent H&BU and is not needed to support the existing improvement; either as-is or for future expansion), then that would be values as if it were a stand-alone lot but then the costs to get it split/holding costs/selling costs and my favorite (EI) would be factored into that analysis; the result would be the contributory value of the excess land.
For example...
If split and sold: $100k
Less selling costs: -$5k
Less lot split costs: -$2.5k.
Less holding costs: -$2.5k
Less EI: $10k
Contributory value = $80k
This would then be added in the sales grid as a line-item, to the indicated value of the cost approach if the cost approach were completed, and to the value of the income approach, if the income approach were completed. It would be the value conclusion as identified on page 2 of the form.
This would be a correct method for valuing excess land for a Fannie Mae compliant loan.

I quoted all of this for context.

If we have excess land then we have two highest and best uses for the two parcels (or for excess land that is not separate). From what I can tell from your post, after discounting, you are adding the discounted land to the sales grid for a total value of the subject property (improved parcel and unimproved parcel with a separate highest and best use).

That doesn't work as the Highest and Best Use of the subject property is to be separate and the vacant lot ready for development. Checking the YES box on Highest and Best Use on the form would be indicating the parcels As-Is is the highest and best use and it is not. We cannot add the two together and conclude a value of the property As-Is as the current use is not the highest and best use.

 

[timd354]

That is true...would like to discuss more, interesting topic but sick as a dog...bad cold or flu...rarely get sick so now am....happy posting everyone.

Sorry to hear that you are feeling ill...get well soon

 

[hastalavista]

I quoted all of this for context.

If we have excess land then we have two highest and best uses for the two parcels (or for excess land that is not separate). From what I can tell from your post, after discounting, you are adding the discounted land to the sales grid for a total value of the subject property (improved parcel and unimproved parcel with a separate highest and best use).

That doesn't work as the Highest and Best Use of the subject property is to be separate and the vacant lot ready for development. Checking the YES box on Highest and Best Use on the form would be indicating the parcels As-Is is the highest and best use and it is not. We cannot add the two together and conclude a value of the property As-Is as the current use is not the highest and best use.

As-vacant, the H&BU would be to split the lot if there was excess land.
As-improved, it depends. If the existing improvement makes a lot split non-feasible (say, it straddles the line where the lot should be split), and assuming the improvement contributes value, then H&BU as-improved would not be to split the land.

 

[Michigan CG]

As-improved, it depends.

But if we assume that the second lot is excess land then we cannot just add the second parcel to the total value as the two parcels together are not the Highest and Best Use. The assignment would be two appraisals. One could write two reports or put both values in one report.

 

[hastalavista]

But if we assume that the second lot is excess land then we cannot just add the second parcel to the total value as the two parcels together are not the Highest and Best Use. The assignment would be two appraisals. One could write two reports or put both values in one report.

I'm not following you.

Are you referring to the description of the subject by the OP (which is already two separate lots and therefore, the 2nd lot is not excess but its own, independent entity) or to something else?

 

[Deleted member 130081]

Seriously?

J provided the FNMA excerpt that shows two separate parcels may be used to securitize a single loan. So, I see no reason why you can't combine two parcels on a single form, with a value that reflects the sale of them together, end of story, unless someone can provide where the selling guide says you now need two appraisals. Yes, each parcel may have its own highest and best use, yes there may be a difference in value of selling them together as opposed to selling them separately but who cares? So what? Explain all of it and move on. Two tax keys, two addresses maybe, two legals, one value. For crying out loud write it up and go to the next one.