HBU/excess land

[Dublin ohio]

No, not excess land. As others have said, it is a separate parcel that needs a separate appraisal. Nothing to stop you from including both in one report with the value of the additional parcel as a site adjustment or a separate line item in the grid, but you need to appraise it to support your adjustment. Whether you include the lot appraisal in your report is your call but you might as well include it in the addenda since they are probably going to ask about it.

If it is FHA or Fannie. They have their own rules. FHA says include it but no value given. Fannie says "value in use".

 

[jay trotta]

Value in Use: “The value of a property assuming a specific use, which may or may not be the property's Highest and Best Use, on the effective date of the appraisal. Value in Use may or may not be equal to Market Value, but is different conceptually”.

 

[sputnam]

I have a current assignment that I'm hoping to get some advice on. The subject improvement is on a typical sized lot in a neighborhood. There is an additional lot next door that is a viable building lot that has a separate deed and Tax ID#, and could be sold separately. The agent said they were initially going to sell the lot separately, but the sellers decided to include it with the sale of the lot with the improvement on it, and they priced it accordingly (basically what they thought the site with improvement plus the vacant lot are worth). Clearly the additional lot is excess land. I confirmed with the town that the lot could be sold and built on. I explained to the AMC that this assignment will need to be two separate appraisals, one for the lot with the improvement and one for the vacant lot. The lender plans on putting both parcels on one deed if and when the sale goes through. The lender is insisting that both the lot with the improvement and the vacant lot be included on one appraisal. If you were in my shoes, what would you tell them at this point? Can this be done as a hypothetical (in which case the OOV may come back well below the contract price)? Appreciate any feedback, thank you.

It does not have to be two separate assignments or two separate reports. It doesn't require a hypothetical. If the HABU for the property is to divide and have two single family dwellings... that is how you value the LAND.

 

[Zoe]

Remember H&B use is only required in MV appraisal. MV is only value definition I am aware of that requires H&B use analysis. However if your client wants it valued as whole, then that is what your client wants using MV definition. Some mentioned use value which does not require H&B use analysis.

The lot has value and could be sold separately to build a house or something on. If your client is taking a mortgage on both lots, then they want the appraisal to include both lots being sold together as one unit. The next owner may want to sell the vacant lot or they may want to keep it with the improved site.

Do not leave the value of the vacant lot out of your appraisal. Make an adjustment.

Explain everything in your narrative comments on what you shared here.

you do need to form an opinion of MV on the vacant site to make an adjustment in your sales comparison approach.

 

[Carnivore]

This thread topic is very interesting. For example the CG's think differently about assignments than res appraisers.

What we ALL DID NOT know is who is the actual client. We do know this assignment came through an AMC. We do know it's a purchase. So
Res Appraisers default to the most common source , Lenders. & F/F. CG's otoh have a unlimited & wide range of clients. CG's are absolute fundamentalist. They know how and what questions to ask their potential Clients. They also know how to advise their potential clients based on the wants and needs of that client. Regardless, Clients don't always reveal what they actually want to happen or what their hoping for. We have to assume they are looking out for their best interest.

So when I said jgrant was correct, I assumed we had all the facts & details of the assignment.

What is so great about the OP's assignment is that we will all be around for quite a long time. Artificial Intelligence will make a dent, but it can only predict. For it to replace us , it first has to know everything, which will be impossible, unless we all are neuro linked with AI.

Just thinking out loud.

 

[Zoe]

Imagine the homeowner said I want you to appraise this together because I want to sell them together right now.

If you focus on that, then you will see your client's position. If they get it back, they want to sell it as a whole because of the mortgage.

So, if you can develop opinion of MV on vacant site (which you can), then add that in your sales comparison grid on the 1004. Explain in narrative what you did.

If there is no demand for vacant sites in that area? You have a deeper problem.

If you don't think the site would sell as if vacant, then you give it no market value.

In that case you might just find the highest most competitive sales and do qualitative analysis and lean towards the upper end of the indicated value range.

I would discuss with homeowner why they have not sold it. Homeowners are invaluable sources of data along with many others.

The homeowners are market participants.

 

[J Grant]

This thread topic is very interesting. For example the CG's think differently about assignments than res appraisers.

What we ALL DID NOT know is who is the actual client. We do know this assignment came through an AMC. We do know it's a purchase. So
Res Appraisers default to the most common source , Lenders. & F/F. CG's otoh have a unlimited & wide range of clients. CG's are absolute fundamentalist. They know how and what questions to ask their potential Clients. They also know how to advise their potential clients based on the wants and needs of that client. Regardless, Clients don't always reveal what they actually want to happen or what their hoping for. We have to assume they are looking out for their best interest.

So when I said jgrant was correct, I assumed we had all the facts & details of the assignment.

What is so great about the OP's assignment is that we will all be around for quite a long time. Artificial Intelligence will make a dent, but it can only predict. For it to replace us , it first has to know everything, which will be impossible, unless we all are neuro linked with AI.

Just thinking out loud.

Someone on another board called AI "Artifical Ignorance," and I believe that to be true. While it can conduct some human-like, rote tasks, like composing emails for companies that used the same generic language and messages anyway, it actually can not create, it can just combine and replicate what people have already done ( lots of copyright lawsuits now challenging AI for that very thing) It also does not "think", it computes. Take this board: AI program now does the spell check and half the time it comes up with the wrong words, though spelled correctly.

The folks who will profit from AI are the ones touting how it can be the solution to everything - no it can;t, it can solve or assist with some problems, while making things worse or getting it wrong in others. We are not going to be replaced so fast, and our role might change into some kind of partnership with or oversight of AI assistance in certain cases.

 

[Mark K]

If it is FHA or Fannie. They have their own rules. FHA says include it but no value given. Fannie says "value in use".

Yeah, Alebrewer made that pretty clear in reply #4 but since the OP didn't specify, I'm assuming that he's interested in what his options are for a lender that wants a realistic value.

If FHA says 'give it no value' then the OP should incorporate a HC. You can't (shouldn't) ignore an item of significant value, pretending it doesn't exist, in order to make it fit into the lender's guidelines without a HC.

If Fannie says 'value in use', then it needs a separate appraisal since the appraisal for Parcel 1 with house is for MV. Having one report with two parcels with two different definitions of value would be confusing at best, misleading at worst.

"Value in use" for an adjacent, second site is probably nothing more than a privacy buffer or location for a garden, a value likely significantly less than a building site.

 

[J Grant]

Fannie suggests the second parcel be valued in use , for its contributory value to the whole. They do not say the purpose of the appraisal is value in use. The appraisal remains a market value purpose assignment. I assume this is not an FHA assignment ( which specifies the second lot not contribute to value ). If it is a Fannie assignment, the second lot contributes X $ to the total value - which can be different than the $ amount the second lot is worth as a stand-alone lot.

I am not a fan of Fannie's statement on how to handle it, but it does make sense. IMO, they made this statement because some appraisers can not understand how to value an improvement sold as a package deal along with a second lot. When a the subject is sold along with a second lot, the second lot is encumbered by the same mortgage, and the owner would need to either pay down the value of the second lot in the mortgage if they wanted to sell it, or sell the lot and pay off the mortgage at closing.

Below from Working RE, their opinion of Fannie's newsletter on it:

On the Fannie Mae/Freddie Mac appraisal forms, the question “Is the highest and best use of the subject property as improved (or as proposed per plans and specifications) the present use?” is followed by “Yes” and “No” checkboxes. If the subject property clearly has excess land, as in the case of the house on two lots described above, the correct answer to this question is usually “No,” followed by an explanation that the highest and best use involves treating the improved and unimproved lots as separate entities in the valuation process. The fallout from this is that Fannie Mae will not purchase loans involving appraisal reports if the “No” box has been checked.

Apparently, Fannie Mae has been looking for a workaround to this situation. In their “Appraiser Update” newsletter of December 2019, Fannie Mae advised appraisers that “Excess land is considered ‘value in use’ for the purpose of the appraisal, so the land should be described and it’s contributory value included in the grid.” That comment left numerous appraisers scratching their heads. The concept of “value in use” does not mesh with the definition of “market value” printed on the form, and thus did not resolve the issue of checking the “No” box regarding highest and best use.

 

[Mark K]

Fannie suggests the second parcel be valued in use , for its contributory value to the whole. They do not say the purpose of the appraisal is value in use. The appraisal remains a market value purpose assignment. I assume this is not an FHA assignment ( which specifies the second lot not contribute to value ). If it is a Fannie assignment, the second lot contributes X $ to the total value - which can be different than the $ amount the second lot is worth as a stand-alone lot.

This sounds like Kamala-speak.