• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

HBU Question

Status
Not open for further replies.

Diane Lagrou

Junior Member
Gold Supporting Member
Joined
Dec 31, 2005
Professional Status
Certified Residential Appraiser
State
Ohio
Single family home on .67 acres fronting a main roadway. Surrounded immediately by residential homes, varying in size, age, etc, but typically similar lots. Zoning changed to General Industrial within last few years as community wants to encourage business development along this roadway (several new businesses have already been built in several areas along this road). Subject located in close proximity to an airport which has seen large expansions over last 5 years.
I know what the community would like to eventually see in this area, but has no plans in the works to buy up these residential lots. Zoning is currently LNC, and subject can be rebuilt as residential if destroyed, if completed within 6 months. If not, reverts to General Industrial and no residential build allowed.

- The subject lot by itself does not have a separate/different HBU as no business could possibly use the .67 acre lot.
- The several lots along this road and surrounding the subject as a whole have a different HBU
- Although as of today, the current use is HBU, I know the future use will likely change (5-10 years) and I think the HO knows this and is just sitting on the house waiting for the city or developer to come by and buy up his and his neighbors land to develop.
- House is currently C5 and report would be subject to repairs to bring up to at least C4 per lender guidelines
- I have not talked to the lender about this yet as I am looking for opinions/guidance on handling this.
- This was ordered as a conventional refinance

So, current use "is" HBU since the subject's lot cannot be physically used for Industrial/Business but do I talk about what the future use is likely to be since the city changed zoning from RR to Gen Indust.? This would be a interim use?

Diane
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
So, current use "is" HBU since the subject's lot cannot be physically used for Industrial/Business but do I talk about what the future use is likely to be since the city changed zoning from RR to Gen Indust.? This would be a interim use?
Diane

In my opinion....
The zoning change and the emphasis by the city (with the subject losing its right as a residential-use if destroyed... or possibly vacated for 6-months (you should look into that as well)) means that sooner or later, the subject's use will eventually change.
A 29ksf site may or may not be desirable for an independent H&BU. What does the new zoning say about site area and allowable uses?

Since this is a residential mortgage assignment (and I assume it needs to conform to the Fannie Guidelines), you should know that while the USPAP allows the appraiser to become competent during an assignment (along with disclosure to the client before and in writing within the report) Fannie Mae does not. So you should consider carefully if you have sufficient competence (no insult here intended) to move forward. From what you describe, I believe it is within the license-level of a Certified Residential Appraiser to do some preliminary H&BU analysis; however, your state might not allow it (specific license requirements for your state).

If there is assemblage occurring in this newly designated zoning, and if your property and the neighboring properties are candidates for assemblage, then depending on the time-line, H&BU as residential would be an interim use.
If, despite the zoning change, there is no reasonable expectation that redevelopment or assemblage will occur at this time, then H&BU as-improved is likely as-is.
However, based on this:
Although as of today, the current use is HBU, I know the future use will likely change (5-10 years) and I think the HO knows this and is just sitting on the house waiting for the city or developer to come by and buy up his and his neighbors land to develop.
the remaining economic life of your subject is no more than 5-10 years. So, regardless of its physical condition and remaining useful life, if we assume that the total economic life is 60 years, the improvements have a total depreciation (all forms) between 83% to 92%. It is doubtful that a a GSE-guidleine lender will make a GSE-type loan on such a property with such a short remaining economic life anticipated.

Interim use can be hard call to make. The easy ones is when it should be redeveloped now but there is some reason (an existing lease, let's say) why it cannot be redeveloped now. In that case, the current use is interim because as soon as the existing lease expires, the property will be redeveloped.
Another example is a approval-process lag. If it takes me 2-years to get approval, then I may keep the house as-is and rent it out for those two years. That would be an interim use as well.
Assemblage is not an interim use (IMNSHO); it is a process that creates interim uses for the amount of time it takes to assemble the project.
But, if a property will be eventually developed in the future and the improvements still contribute value, then H&BU as-improved is as-is. It is just the remaining economic life of those improvements (How much longer will they contribute value to the site? They'll contribute value to the site up to the point when the site becomes more valuable to redevelop) will be shortened, all other things being equal. 5-10 years redevelopment horizon creates a 5-10 year horizon for the remaining economic life.


Good luck!
 

Diane Lagrou

Junior Member
Gold Supporting Member
Joined
Dec 31, 2005
Professional Status
Certified Residential Appraiser
State
Ohio
Thank you Denis. I have come to the conclusion that this is beyond my experience and although I would welcome the challenge to dig into it, the lender 1: I'm sure would not pay an acceptable fee and 2: FNMAE wouldn't accept it, so that makes the decision a little easier to come to.
I do appreciate all the information and guidance you provided. Looking at it from the remaining economic life and assemblage view point, it makes sense how it would need to be approached.

I see from this property's records, that since it's purchase in 2006 (yes, at the height before the crash) and now, he refinanced in 2012, just 5 years ago, and I would bet that appraisal states nothing about the zoning change or land use changes going on around him.
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks