Excess land or surplus land

[TerryRohrer]

If there is a market for homes with sites in that size range, that is the most likely buyer for that property. I would not get into the development business for a typical appraisal fee. Around here, acreage lots are the market out of town. Whether 20 or 650 acres, these are residential tracts (14" rainfall, mind you).

 

[Terrel L. Shields]

Scenario - FHA purchase transaction. Residential. House is maybe 1000 sf. The area contained inside of the red lines is the entirety of the parcel. Just outside of city limits. 3.36 acres.

Is this excess land or surplus land and how would you proceed in the valuation? Give the additional land value or not?

What I'm thinking - The parcel acreage is larger than the typical lot in the market AND the right side of the lot absolutely looks like it could be subdivided off. I'd figure I would start by telling the lender that I can't value the back acreage, because I consider it to be excess land. FHA doesn't allow valuation of excess land. And just see how they want to proceed. But if they tell me to proceed "how I see fit", the only thing I can think of is to value the first "typical" acreage for the area, and give $0 for anything extra. So if the typical lot is 1 acre, then the additional 2.26 acres gets nothing.

No..no...no. Would not do that.

I would not get into the development business

Exactly. If there are other 2-5 acre parcels in the market area then the market is likely for 2-5 acre parcels. Someone might want place for a horse, to build a shop or barn, etc. I'd hunt comps with larger tracts. And I would value the tract at the same price similar tracts were selling for.

 

[Trihard]

Scenario - FHA purchase transaction. Residential. House is maybe 1000 sf. The area contained inside of the red lines is the entirety of the parcel. Just outside of city limits. 3.36 acres.

Is this excess land or surplus land and how would you proceed in the valuation? Give the additional land value or not?

What I'm thinking - The parcel acreage is larger than the typical lot in the market AND the right side of the lot absolutely looks like it could be subdivided off. I'd figure I would start by telling the lender that I can't value the back acreage, because I consider it to be excess land. FHA doesn't allow valuation of excess land. And just see how they want to proceed. But if they tell me to proceed "how I see fit", the only thing I can think of is to value the first "typical" acreage for the area, and give $0 for anything extra. So if the typical lot is 1 acre, then the additional 2.26 acres gets nothing.

The market decides. It looks like its rural. In 99% of those situations just add it to the total site size and comp it.

 

[RSW]

It looks like several of the lots around the subject property are very similar in size as the subject. You really need to do an extensive H&BU analysis before you call it excess or surplus.

 

[sputnam]

There's no zoning, and the lot to the right is the same shape as the rectangular piece. Even if the septic system went a little to the right for the subject property, I think the right side of the entire lot could at least be subdivided off as a flag lot and still have marketability.

You need to confirm that it could be split. Zoning isn't the only issue.

Presumably, your assignment is to provide an opinion of the market value of the subject property. What the lenders do with that is a lender issue, not an appraisal issue. If you determine that is excess land then, the Highest and Best Use of the property may be to subdivide and build another residence. To accomodate HUD rules about that, you may need to provide multiple values in your appraisal report. The value of the entire property, the value of the portion of the property with the dwelling, and the value of the excess. If your Client tells you that you can't give value to the excess property then, your property description should only include the portion of the property with the dwelling.

 

[Jerry Bone Jr]

Scenario - FHA purchase transaction. Residential. House is maybe 1000 sf. The area contained inside of the red lines is the entirety of the parcel. Just outside of city limits. 3.36 acres.

Is this excess land or surplus land and how would you proceed in the valuation? Give the additional land value or not?

What I'm thinking - The parcel acreage is larger than the typical lot in the market AND the right side of the lot absolutely looks like it could be subdivided off. I'd figure I would start by telling the lender that I can't value the back acreage, because I consider it to be excess land. FHA doesn't allow valuation of excess land. And just see how they want to proceed. But if they tell me to proceed "how I see fit", the only thing I can think of is to value the first "typical" acreage for the area, and give $0 for anything extra. So if the typical lot is 1 acre, then the additional 2.26 acres gets nothing.

Fannie Mae's New Highest and Best Use

Fannie Mae seems to have a problem with appraisals that involve excess land, and the appraiser's characterization of Highest and Best Use.

www.workingre.com

https://singlefamily.fanniemae.com/media/9071/display

 

[J Grant]

So, are you saying that I should move forward with a valuation of just the house and the typical acreage needed for the area with a hypothetical condition that the parcel was separated to exclude the excess land? I figure they'll split up the valuation process to value the excess land separately since it is included in the contract.

As I understand it, FHA requires the excess lot NOT be included in the valuation $ number. However, that does not mean the parcel was separated !! ( the lot is not separated legally or physically. ) What it means is that for analysis purposes per the FHA assignment condition, the excess lot value was not included in the $ market value opinion.

There is no HC that the parcel was "separated." The HC is that the value of the parcel is not counted in the appraisal

That said, I have no idea per zoning if that front narrow lot for the subject along the road meets minimal zoning and can be legally its own lot. That is a zoning issue wrt whether you have a two dividable parcels each with enough with road frontage or just a big surplus odd shape lot)

 

[Zoe]

It looks like several of the lots around the subject property are very similar in size as the subject. You really need to do an extensive H&BU analysis before you call it excess or surplus.

That is biggest factor imho if MV definition is being used. I agree with OP that I would want a legal description and possibly survey if H&B use indicates subdivision.

I would also ask homeowner if they really wanted to mortgage all that land on an FHA mortgage or survey out their parcel and leave that other lot alone. If it were me, I would not want both those parcels on an FHA mortgage if I owned the property.

I would explain that to the homeowner and my client. Let the homeowner make the call. Client could make call based on H&B use on MV opinion. It looks like 2nd lot should not be in a 30 year FHA mortgage on H&B use with MV definition.

 

[Zoe]

Convince homeowner they don't want to mortgage it all. You do house and lot for FHA and move on.

I could do that easily.

Dear homeowner, let me explain why you don't need to mortgage all this land for your loan.

Are you okay? You do what you want. I am telling you I would not do it. I would do your house and lot and forget the other lot.

H&B use is sometimes to keep land. Land don't depreciate. "hold" would be best on H&B use on that second lot and not mortgage it.

Market value cannot be negative. If it is negative, it is naught. "0"

If it has no market value then there is no market value. It is naught,...........0 market value definition.

Don't mortgage your second lot homeowner. Okay?

You have questions?

Here is my number. You can reach me.

 

[Dublin ohio]

You need to confirm that it could be split. Zoning isn't the only issue.

Presumably, your assignment is to provide an opinion of the market value of the subject property. What the lenders do with that is a lender issue, not an appraisal issue. If you determine that is excess land then, the Highest and Best Use of the property may be to subdivide and build another residence. To accomodate HUD rules about that, you may need to provide multiple values in your appraisal report. The value of the entire property, the value of the portion of the property with the dwelling, and the value of the excess. If your Client tells you that you can't give value to the excess property then, your property description should only include the portion of the property with the dwelling.

From 4000.1

vi. Excess and Surplus Land(A)Definition

Excess Land refers to 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.

Surplus Land refers to 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 to the value of the improved parcels.


Required Analysis and Reporting

The Appraiser must include the highest and best use analysis in the appraisal report to support the Appraiser’s conclusion of the existence of Excess Land. The Appraiser must include Surplus Land in the valuation.If the subject of an appraisal contains two or more legally conforming platted lots under one legal description and ownership, and the second vacant lot is capable of being divided and/or developed as a separate parcel where such a division will not result in a nonconformity in zoning regulations for the remaining improved lot, the second vacant lot is Excess Land. The value of the second lot must be excluded from the final value conclusion of the appraisal and the Appraiser must provide a value of only the principal site and improvements under a hypothetical condition