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Bad advice from Fannie--"Multiple Parcels" from Dec. 2019 'Appraiser Update'

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Here is what they say in their selling guide:



FHA addresses excess land but excess land is not two or more separate sites

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.

What I can not understand is why FNMA would even think of including excess land since its not their business/mandate to securitize vacant land mtg loans.
 
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View attachment 42854I do not follow the logic of a "value in use" statement? The value is what the value is...and they are implying the value is zero (in use) but you need to value it at market. Again, as stated however, you do include the value in the grid and you are not doing 2 appraisals although you certainly need to support the value of the second lot with sales or extraction preferably.

You left out a portion of this that should have been highlighted. It is significant to the Thread Topic. In the first column Starting below where it says Guide(B2-3-04)

"Be Contiguous (unless divided by a Road, and the Parcel without a residence is non-buildable)

If you read over that it becomes a little confusing and/or contradictory

----------------------------------------------------------------------

I interpret that to mean "surplus Land"
 
Go back and read the statement form Fannie.

An can't lump two together as one where the vacant parcel has market-derived H&BU separate from the improved parcel.

This really should not be all that difficult to understand.
here i show i apply it - the adj lot has its own HBU value if sold separate, 90k for example.

I do not see that 90k diminished because it is a purchase package and mortgage together with the house. If it became one big lot of surplus land, of course the contributory value would be less from adj lot. But the adjacent lot remains what it is, its own plat, legal description, able to be sold separate at any time (with release from mortgage ) So its HBU if sold value of 90k remains 90k I do not see a conflict around HBU or anything misleading about that .

The lot is not for sale separate though on the eff date, it is sold as an adj lot along with the house, therefore it has an interim value in use , the potential HBU of the adj lot if owner wants to sell it remains.
 
Here is what they say in their selling guide:



FHA addresses excess land but excess land is not two or more separate sites

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.

What I can not understand is why FNMA would even think of including excess land since its not their business/mandate to securitize vacant land mtg loans.
It is their guarantor of loan and lending decision to make. Seems better collateral than some other properties they lend on imo. Like, ah, new construction that typially drops in value 10% or more the day after it closes.
 
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Adj lot at HBU for sale vacant separate build able lot value 90k
Improvement depreciated house in cost approach 120k, its lot value 90k. A total of 300k per CA. Opinion of market value X $. in SCA.

The loan closes . Two months later, the owner decides to sell the vacant lot. They price it at 100k, get an offer of 90k . They go to contract, sell it, restructure or pay off the mortgage to release it. Has the MV of the vacant lot diminished? No it has not. Therefore there is no HBU of its value because it is being sold with adj house/ encumbered under one mortgage .
 
Here is what they say in their selling guide:



FHA addresses excess land but excess land is not two or more separate sites

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.

What I can not understand is why FNMA would even think of including excess land since its not their business/mandate to securitize vacant land mtg loans.

No small part of the problem with Fannie's words in the recent newsletter is the erroneous applying of the terms excess & surplus to a situation where there are 2 parcels (one improved, other vacant) and where the vacant parcel is not necessary to support the improved parcel (and, of course, having its own H&BU).

The offering from Fannie needs further attention from Fannie. The man at Fannie to share your thoughts: Lyle_E_Radke@fanniemae.com
 
here i show i apply it - the adj lot has its own HBU value if sold separate, 90k for example.

I do not see that 90k diminished because it is a purchase package and mortgage together with the house. If it became one big lot of surplus land, of course the contributory value would be less from adj lot. But the adjacent lot remains what it is, its own plat, legal description, able to be sold separate at any time (with release from mortgage ) So its HBU if sold value of 90k remains 90k I do not see a conflict around HBU or anything misleading about that .

The lot is not for sale separate though on the eff date, it is sold as an adj lot along with the house, therefore it has an interim value in use , the potential HBU of the adj lot if owner wants to sell it remains.

So...where the H&BU of the vacant parcel is for development with SFR improvements, this cannot be ignored. If the appraiser lump the 2 as though 1, the appraiser would have to "X" NO to the question (paraphrasing) "Is the H&BU of the subject property as improved the current use?"

What one person might want to do and decide to do ("I want to the 2 as though 1") does not...:) let me repeat...does not trump what the market tells us.

Kapisch? :)
 
So...where the H&BU of the vacant parcel is for development with SFR improvements, this cannot be ignored. If the appraiser lump the 2 as though 1, the appraiser would have to "X" NO to the question (paraphrasing) "Is the H&BU of the subject property as improved the current use?"

What one person might want to do and decide to do ("I want to the 2 as though 1") does not...:) let me repeat...does not trump what the market tells us.

Kapisch? :)
I kapsich, but I am also appraising to what the market tells us....or in a real world scenario of an assignment like this, either one of us should appraise to what the market tells us rather than some pre conceived idea of what "should" happen. I gave my example that if the vacant site is worth 90k to market buyers as a vacant site, I do not see why its value diminishes in the market simply because it is sold along with a house today. if owner tomorrow decides to put the vacant lot up for sale as a separate lot, why would market see that vacant lot as less than 90k ? - since the adj lot can be sold separate at any time by releasing it from mortgage
 
Adj lot at HBU for sale vacant separate build able lot value 90k
Improvement depreciated house in cost approach 120k, its lot value 90k. A total of 300k per CA. Opinion of market value X $. in SCA.

The loan closes . Two months later, the owner decides to sell the vacant lot. They price it at 100k, get an offer of 90k . They go to contract, sell it, restructure or pay off the mortgage to release it. Has the MV of the vacant lot diminished? No it has not. Therefore there is no HBU of its value because it is being sold with adj house/ encumbered under one mortgage .

Analysis of H&BU as vacant is as 2 properties. Thus, what you propose is dead at inception.

So...when you rightfully conclude that the H&BU of the vacant parcel is for SFR development yet elect to lump the 2 together as though 1, let us know what follow after you correctly "X" NO to the question (paraphrasing) "Is the H&BU of the subject property as improved the present use?"

Give it a try and let us know what happens :).

[edit to include]: What one person might decide to do with the two parcels does not trump what the market tells us.
 
I do not see why its value diminishes in the market simply because it is sold along with a house today.

In your market what is a one-acre parcel worth?
In your market what is a two-acre parcel worth?
 
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