Fannie Mae's New Highest and Best Use 2020

[Terrel L. Shields]

I have a similar sized lot on the subject's street with similar zoning that recently sold for $425,000. The added value of this 1/3 acre lot if combined with the improved 1-acre lot won't be anywhere near $425,000. These are being sold together and the bank wants to be appraised together.

Then you are doing it wrong. HBU of the improved lot is a tear down (as if vacant) if it isn't worth the value of the smaller vacant lot.

 

[J Grant]

I am working on one right now with a similar situation except the extra lot is buildable, it's very proximate to the ocean, any available land (which is scarce) is being developed with residential improvements, some older homes are being bought for teardowns. I have a similar sized lot on the subject's street with similar zoning that recently sold for $425,000. The added value of this 1/3 acre lot if combined with the improved 1-acre lot won't be anywhere near $425,000. These are being sold together and the bank wants to be appraised together.

In this case, can I check Yes to HBU on page 1 of the URAR?

in this case maybe no, since teh lot is so valuable, I can't answer on this specific case each is different - if the subject is a big expensive house contributing more than tearing it down then HBU could be yes butyl a smaller or ordinary house where trend is tear such houses down for land value....maybe no

 

[adventure0us1]

Then you are doing it wrong. HBU of the improved lot is a tear down (as if vacant) if it isn't worth the value of the smaller vacant lot.

I'm not contending the house should be torn down. The subject is a large older house on an acre that contributes plenty to the value. The subject is on an acre. They are selling the front lot, which is separate and .30 acres, with the house. They haven't offered the lot for sale before but it is very valuable due to a lack of buildable land in this area. It's not likely the HBU would be to combine them together, tear the house down, and build a newer/bigger improvement.

 

[George Hatch]

"It's not likely" looks like you're not sure.

Can these two parcels be sold separately? Depending on the jurisdiction a "near the ocean" location can possibly trigger certain limitations.

It's not likely the HBU would be to combine them together, tear the house down, and build a newer/bigger improvement.​

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In terms of your current assignment the question you're trying to answer with the improved parcel is whether it's currently worth more right now as the existing house or for it's land value. You don't need to get into speculating what the bigger/better house that might be built thereafter or it's value. None of that conjecture speaks to the subject's current land value.

At a minimum you'll need to look at land sale data (including homes that were sold for land value) in order to answer the question about the improved property's HBU. That info will clue you in to whether the 2nd parcel is worth more if sold separately or if bundled in with the improved parcel as additional lot area - which it sounds like you already think the former is the case and not the latter.

I don't really see how you can answer these questions in an appraisal report without at least pulling and presenting some land sale data, even if only as 1-liners in your report.

 

[adventure0us1]

"It's not likely" looks like you're not sure.

Can these two parcels be sold separately? Depending on the jurisdiction a "near the ocean" location can possibly trigger certain limitations.

Yes, I spoke with Code. Both lots can be sold separately.

It's not likely the HBU would be to combine them together, tear the house down, and build a newer/bigger improvement.​

​

In terms of your current assignment the question you're trying to answer with the improved parcel is whether it's currently worth more right now as the existing house or for it's land value. You don't need to get into speculating what the bigger/better house that might be built thereafter or it's value. None of that conjecture speaks to the subject's current land value.

At a minimum you'll need to look at land sale data (including homes that were sold for land value) in order to answer the question about the improved property's HBU. That info will clue you in to whether the 2nd parcel is worth more if sold separately or if bundled in with the improved parcel as additional lot area - which it sounds like you already think the former is the case and not the latter.

I don't really see how you can answer these questions in an appraisal report without at least pulling and presenting some land sale data, even if only as 1-liners in your report.

The house is 1925 built prominent architect-designed home with recent updating and additions (modern kitchen and sunroom). The improvement is worth more now than for its land value.

Going back 3 years there are no land sales over 1 acre in this market. I have a sale of a .36 acre lot (the subject's extra lot included in the sale is .30 acre). This lot sold for $425,000 in Sept of 2020 and offers good support for the value of the additional lot on its own. Similarly, there are several homes built recently (after 2015) on 1/3 acres or less in the 2,000 to 2,800 sf range selling between 1 - 1.5 million. There is a demand for the front vacant lot to be developed with a residence.

The 2nd lot is worth more sold separately and not bundled in with the improved parcel.

 

[The Warrior Monk]

Going back 3 years there are no land sales over 1 acre in this market.

It's not just land sales, but improved sales where the improvements have no contributory value. Those would be those properties that transferred where the improvements were subsequently razed. Or in some cases, it could be where something must remain but otherwise has not contributory value, such as the existing footprint, a facade must remain (such as with a historic residence), or something similar.

 

[Terrel L. Shields]

You don't need to get into speculating what the bigger/better house that might be built thereafter or it's value. None of that conjecture speaks to the subject's current land value.

Bingo. We have a winner.

 

[George Hatch]

The house is 1925 built prominent architect-designed home with recent updating and additions (modern kitchen and sunroom). The improvement is worth more now than for its land value.

Going back 3 years there are no land sales over 1 acre in this market. I have a sale of a .36 acre lot (the subject's extra lot included in the sale is .30 acre). This lot sold for $425,000 in Sept of 2020 and offers good support for the value of the additional lot on its own. Similarly, there are several homes built recently (after 2015) on 1/3 acres or less in the 2,000 to 2,800 sf range selling between 1 - 1.5 million. There is a demand for the front vacant lot to be developed with a residence.

The 2nd lot is worth more sold separately and not bundled in with the improved parcel.

When it comes to appraising land in a metro area the geographic boundaries for that market is WAY different than the boundaries for an SFR market segment. Depending on your local market there might be little/no overlap among the buyers for land vs the buyers for existing SFRs. As well, the 6-month window is out because vacant land values don't move in lock-step with SFR prices. And because that market is so much more thinly traded.

Throw in the coastal location and that can really increase the level of difficulty. Albeit still doable.