Excess Vs Surplus

[PeterPetrelli]

I know there have been a couple other threads about this issue but I'm still a little confused.

I've got a subject parcel with improvements and a secondary parcel on the same deed, adjacent to the main parcel. The main parcel is roughly 20,000 sq ft and the second is about 8,000. I identified the second parcel as excess land because the main parcel is already at the top of the market in terms of size and the second parcel is obviously already separated from the main. It seemed fairly cut and dry to me that the second parcel was excess but the underwriter came back saying that because the second parcel is not "buildable" (his word), it must be considered surplus land.

It's zoned for SFR but because of the shape (long and narrow - about 50 foot wide), he is probably right that you could not build a house on it due to set back requirements and such. I'm just struggling because you could still sell the parcel separately from the main parcel. For instance, the neighbor on the other side may want to purchase it to expand his yard. Anyway, I've not run into this before so I'm wondering if my thinking is correct or not.

Any help will be appreciated! Thanks

 

[Mr Rex]

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.

What is the H&BU of the additional acreage?

 

[glenn walker]

I tend to agree with the UW but you may also be correct. Since this will not change your value opinion I hate to roll over but in reality the small parcel is kind of like a marketable easement but only of use to the existing owner or maybe the neighbor. The other issue is most likely the subject property's loan will be encumbering or secured on both parcels. If so the owner really cannot sell the small parcel until he/she either pays the mortgage off or received a partial release from the bank and that would be highly unlikely. I guess my point is the small parcel may not really be marketable until the owner pays off the mortgage ?

 

[CANative]

Is it likely this additional parcel would or could be marketed and sold separately? If not it could be described as being part of a single economic unit and therefore surplus to the whole property.

 

[Michigan CG]

..............It's zoned for SFR but because of the shape (long and narrow - about 50 foot wide), he is probably right that you could not build a house on it due to set back requirements and such. .........

This is something you absolutely have to know when doing your Highest and Best Use analysis. I am guessing that the loan officer is correct.

 

[timd354]

Is it likely this additional parcel would or could be marketed and sold separately? If not it could be described as being part of a single economic unit and therefore surplus to the whole property.

Since the second parcel is apparently not buildable, there likely is not much if any of a market for the parcel...with the possible exception of the neighbor, who is going to buy an 8,000 sf unbuildable parcel?

 

[CANative]

Since the second parcel is apparently not buildable, there likely is not much if any of a market for the parcel...with the possible exception of the neighbor, who is going to buy an 8,000 sf unbuildable parcel?

That's what I was thinking. It's not likely that the two lots would transfer separately... which is why I might characterize them as a single economic unit. In which case the additional lot would simply be surplus land.

And in any case IMO excess land is undivided land where there is more land area than needed to support the HBU of the improvements and is readily marketable including the cost to divide it without undue delay.

 

[PeterPetrelli]

What's confusing me is that the second parcel is separate from the main parcel, different tax ID and different legal description. Regardless of who might actually want to buy the parcel, the ability to sell it still exists. By definition, surplus land cannot be separated but this piece of land is/was already separated therefore, by deductive reasoning, is it not excess land?

I feel like I'm missing something here. Forgive my thick head!

 

[Sid Holderly]

Partial releases are not uncommon in this area, depends on lender. I would go with excess since it appears separable even though there would be limited buyers. It seems to have more value than if surplus. Bit, I am not there and that might change my mind. There may be middle ground between the theoretical definitions and actual practice where any of use are.

 

[CANative]

Separating parcels is not the measure of excess or surplus land.