FHA Farmland

[Xavier Hargrove]

Just curious about any thoughts on this one. I got an FHA refinance order, when I inspected the property it was a ranch on 10 acres that the owners used as a farm. They sold eggs and goats under a business name to the local community. The land also had a couple of outbuildings, which were upgraded to be electric and used as chicken coops and storage. There were also produce fields. Also, the owner was in the middle of adding additional sqft to the home. One part was finished, siding, utilities, permits. The other section is permitted but was not finished, you couldn't safely live in it, nor was there any access to it at the time of inspection.

Now local zoning is 1/10 DU/AC. The subject is located in a rural area where large land sizes paired with dwellings are typical. I can't say the typical buyer would use it as a farm though at least there is not a lot of data to support it. There is one other similar situation that sold 10 months ago on the other side of the main town (20 miles away).

My thought is to acknowledge the farmland, require a well test, and add the finished sqft in the sketch but not the unfinished sqft with an explanation in the addendum. Then appraise it with whatever contributory value the outbuildings may have. Should I be asking more questions?

Any thoughts would help, Happy Holidays!

 

[Mark K]

Ask your client. It doesn't sound like it would be a good fit for an FHA loan. Others will surely comment.

In my mind its not so much Ag usage (lots of people sell eggs, honey, etc.) but the incomplete home could be problematic.

 

[Larry Phillips]

Good morning, it seems that the Client should be consulted. It is possible to do the report 'subject to completion.' Then value is given to items to be completed as normal with construction. Comparable selection may require time and distance beyond typical to obtain pertinent sales.

 

[Dublin ohio]

Then appraise it with whatever contributory value the outbuildings may have

At one time FHA did not include the value of outbuildings, barns, silos, etc if they are used for the actual farming purposes. They considered them part of a commercial operation and not to be included in the OMV. Not sure if that policy still exists

 

[Terrel L. Shields]

My thought is to acknowledge the farmland,

It is hardly "economic" per se

require a well test

why?

add the finished sqft in the sketch but not the unfinished sqft

again, why not sketch it and treat it as unfinished?

Since it is a refinance, it has been approved previously. BUT your first task is to go to the lender and find out if they want the property "subject to completion of on-going construction". Then, I'd give short shrift to the "agriculture" angle. It's no different than someone selling knick-knacks on line from their house imnsho.

 

[lostinthezone]

The 4000.1 is your friend here. I'd take a look through that and verify, but my initial thought is that the primary current use and likely the highest and best use of the property is as a residence. It's tough to make a living on ten acres on farm income. I'd comment on the farming activity but make clear your determination of the uses. As far as the well test goes, the 4000.1 copy I have requires a well test for "areas of intensive agricultural uses within one quarter mile", your call as to whether this qualifies as "intensive" or not. For the unfinished area here's what my copy says about the sketch;

"The Appraiser must include a building sketch showing the GLA, all exterior dimensions of the house, patios, porches, decks, garages, breezeways, and any other attachments or out buildings contributing value. The sketch must show “covered” or “uncovered” to indicate a roof or no roof (such as over a patio)."

Assuming that the unfinished area poses no health and safety concerns, my take on that is that if you think the attached unfinished area contributes value, you need to have it on the sketch. I'd verify all of this with the latest copy available of the 4000.1 to make sure there haven't been any changes since the copy that I have. By the way, I'm assuming that by "no access" to the unfinished area you mean that there is no interior access from the finished area to the unfinished area. If you mean that you were not able to view it in it's entirety, then that's a problem. My 2 cents....

 

[Xavier Hargrove]

Ask your client. It doesn't sound like it would be a good fit for an FHA loan. Others will surely comment.

In my mind its not so much Ag usage (lots of people sell eggs, honey, etc.) but the incomplete home could be problematic

I appreciate the input, not a lot of response from the lender they are requesting to omit the renovation.

 

[Xavier Hargrove]

It is hardly "economic" per se

why?

again, why not sketch it and treat it as unfinished?

Since it is a refinance, it has been approved previously. BUT your first task is to go to the lender and find out if they want the property "subject to completion of on-going construction". Then, I'd give short shrift to the "agriculture" angle. It's no different than someone selling knick-knacks on line from their house imnsho.

I remember reading if the well is located near the farm then FHA requires a well test due to the potential of leakages. The lender is requesting to do as is but omit the addition.

 

[Terrel L. Shields]

The lender is requesting to do as is but omit the addition.

That is contrary to what exists therefore is a hypothetical that must be explained in the report.

Find out what program this is going to go thru and then determine the required scope of work. If an in-house loan, you can do it but must still mention the hypothetical. If FmHA (Rural Development) you basically must follow FHA 4000.1. But work this out with the lender and if they are asking something contrary to what the loan buyer requires.

 

[sputnam]

FHA loan or not. If it's market value, you do a Highest and Best Use analysis. The final HABU, in this case, will involve answering a relatively simple question. Does famland sell for more per unit than land used for residential development? The answer is specific to the market.

If your opinion of HABU doesn't match the Client's Intended Use then, you have to check in with your Client to see how they want to proceed. Your job description, as appraiser, does not include making that decision.