FHA H&b Use Analysis

[Deleted member 128537]

Out of curiosity, are you a general or a residential appraiser? And did you complete the appraisal as a residence?

I am a certified residential. I declined the order because I felt that the highest and best use was at least in transition. It was not clearly residential. There were some residential properties on the block, but when I took pictures up and down the block it was nothing but small commercial operations in what use to be residential homes. Plus everything was zoned commercial.

 

[Deleted member 128537]

Out of curiosity, are you a general or a residential appraiser? And did you complete the appraisal as a residence?

I am a certified residential. I declined the order because I felt that the highest and best use was at least in transition. It was not clearly residential. There were some residential properties on the block, but when I took pictures

The "Two Minute HBU Analysis." I guess that goes hand in hand with the "Five Minute Cost Approach."

IMO, we should do the HBU analysis and cost approach BEFORE we do the Sales Approach.

Quarter acre R1 lot as though vacant. Build a house.

But say you did a first pass cost analysis and the MV indication came out to $275,000. OTOH, your comps are pointing toward $200,000 or so. Is the HBU, as though vacant, still "build a house?"

If we had all be doing that in the early to mid 2000's we might have done some good in slowing down or lessening the impact of the RE crash in the late 2000's.

It could very well be. However the present improvements may not maximize value. I have that all the time where people over improve the property for the value of the site. So many people think that cost equals value. Just did a house the other day where the owner over built for the site and the MV wasn't close to the cost approach. I told him in this market he better have about 30 to 40% of the total value in the site. He decided to build a 800,000 home on a 200,000 site. I said that was his big mistake. He needs to build that house on a 500,000 to 600,000 site. But the highest and best use as vacant was still to build a house. But on that site a 300,000 to 350,000 house would have been more appropriate to maximize value. Had he done that he would have easily had cost equal to market value.

By the way I have done H & BU where I have stated the best thing is for the land to remain vacant.

 

[jay trotta]

Really? What are they thinking with all these changes?You have got to be kidding me that you are asking is H&BU required for any appraisal?

1,2, duh 3, take a breath Rex - its not really worth that much excitement, send some smooches along

 

[CANative]

1234567890

 

[Meandering]

If we had all be doing that in the early to mid 2000's we might have done some good in slowing down or lessening the impact of the RE crash in the late 2000's.

Naw,

Just would have made the do not use lists longer is all.

 

[hastalavista]

Client stated that H&B use analysis required for FHA appraisal now. Subject property is an existing home typical of the neighborhood. Could only find H&B use required for excess land. Anyone know where I can find this directive?

Nancy-

As others have stated, H&BU analysis is always required (to be developed as part of Standards Rule 1 and reported as part of Standards Rule 2) when the value opinion is "market value". Always.

Most residential appraisers take a H&BU course at the beginning of their career and then that is it. In a lot of ways, residential appraisers (and I do residential, so I count myself as one) are lucky because rarely is H&BU an issue, especially in established areas. But I can tell you based on my experience as a reviewer and consultant, the biggest errors (excluding fraud) I've seen in residential reports is the failure to do a H&BU analysis.

So, some friendly advice:
A. If it has been a while since you've had a H&BU class, take one. It is a fundamental step in the appraisal process and regardless if you never come up against a complicated H&BU problem, you will benefit from it.
B. Understand that the check-box on the standard GSE forms is not sufficient for the H&BU summary that is required in an SR2-2(a) report ("appraisal report"). I do a H&BU as vacant and as-improved in all my residential reports. Takes less than 2-minutes for most properties. When it takes more than 2-minutes, I can assure you that those are the situations where failure to do a competent H&BU can create serious issues.


Good luck!

 

[Lee Lansford]

The "Two Minute HBU Analysis." I guess that goes hand in hand with the "Five Minute Cost Approach."

IMO, we should do the HBU analysis and cost approach BEFORE we do the Sales Approach.

Quarter acre R1 lot as though vacant. Build a house.

But say you did a first pass cost analysis and the MV indication came out to $275,000. OTOH, your comps are pointing toward $200,000 or so. Is the HBU, as though vacant, still "build a house?"

If we had all be doing that in the early to mid 2000's we might have done some good in slowing down or lessening the impact of the RE crash in the late 2000's.

What you state "do the...cost approach BEFORE...the Sales Approach", you mean cost new, not depreciated cost right?

 

[CANative]

Maybe I should have phrased it "cost analysis" rather than "cost approach."

 

[samc6782]

i wish i was an avm.

This made me laugh.

 

[The Bob]

The "Two Minute HBU Analysis." I guess that goes hand in hand with the "Five Minute Cost Approach."

IMO, we should do the HBU analysis and cost approach BEFORE we do the Sales Approach.

Quarter acre R1 lot as though vacant. Build a house.

But say you did a first pass cost analysis and the MV indication came out to $275,000. OTOH, your comps are pointing toward $200,000 or so. Is the HBU, as though vacant, still "build a house?"

If we had all be doing that in the early to mid 2000's we might have done some good in slowing down or lessening the impact of the RE crash in the late 2000's.

That doesn't preclude the current use meeting the four tests and being the best use.
There's a reason H&B use analysis is on page 1. It determines what you will use for comps, so of course it has to come before the sales approach.

I have a small H&B use paragraph that covers about 99% of the appraisals I do. I may have purloined it off someone here at AF ...

HIGHEST & BEST USE: The subject is a legally permissible use allowed under current zoning. The lot size, shape and utility allow for the present improvements, and based on current market conditions, the existing improvements are the most economically feasible and productive use of the property. If vacant, the highest and best use would be to construct a single family dwelling.