Highest and Best Use question, please

[Mary Tiernan]

Pardon my ignorance on this issue, but it just doesn't come up very often in my rural areas.

Completed an appraisal of lakefront property - 50' of frontage with additional lots across the road for garage in one legal description, typical usage in this area, typical frontage.

But

borrower owns an additional adjacent vacant lot with 50' +/- of lakefront.

Original appraisal completed on the house and the land it sits on.

Client now wants the additional vacant lot incorporated making for a total of 100' of waterfront.

I do not think this is the highest and best use of the vacant lot - I think highest and best use is to keep the lot separate. This is based upon land sales and the fact that the largest frontage found is 75' in 2005 and tyical waterfront lots are 50'.

Spoke with a couple realtors for verification of my findings - definitely the additional lot has more value to be built than what the contributory value of the additional 50' would provide.

So, I have drafted a memo to my client explaining the situation and that the additional lot would best be appraised separately as vacant land and this could be completed upon receipt of a survey verifying no encroachments on the separate waterfront lot.

Is this the correct course of action?

Again, apologize for my ignorance, but in this area of small to large acreage sites with little residential building, highest and best use of excess land is not an issue I run into very often.

Thanks for the help.

 

[stefan olafson]

Mary,

It sounds like the lender needs more collateral for the loan. I believe your assumptions, as described, are more than likely quite accurate. You may want to do some matched pair analysis to verify the loss in value from 50' of frontage to 75'.

As you know H&B use is the physically possible, legally permissible, financially feasible use which is the maximally productive use of the property.

Is a 100' lakefront legal?

It sounds like you have a physically possible 100' lakefront that may be legally permissible, the financial feasibility sounds like it's in question as does the maximally productive use.

An appraisal on the 50' of additional lakeshore does sound like the way to go.

 

[timd354]

Pardon my ignorance on this issue, but it just doesn't come up very often in my rural areas.

Completed an appraisal of lakefront property - 50' of frontage with additional lots across the road for garage in one legal description, typical usage in this area, typical frontage.

But

borrower owns an additional adjacent vacant lot with 50' +/- of lakefront.

Original appraisal completed on the house and the land it sits on.

Client now wants the additional vacant lot incorporated making for a total of 100' of waterfront.

I do not think this is the highest and best use of the vacant lot - I think highest and best use is to keep the lot separate. This is based upon land sales and the fact that the largest frontage found is 75' in 2005 and tyical waterfront lots are 50'.

Spoke with a couple realtors for verification of my findings - definitely the additional lot has more value to be built than what the contributory value of the additional 50' would provide.

So, I have drafted a memo to my client explaining the situation and that the additional lot would best be appraised separately as vacant land and this could be completed upon receipt of a survey verifying no encroachments on the separate waterfront lot.

Is this the correct course of action?

Again, apologize for my ignorance, but in this area of small to large acreage sites with little residential building, highest and best use of excess land is not an issue I run into very often.

Thanks for the help.

Mary,

It sure sounds like your analysis is correct....good luck in making the lender understand or care.....most likely the response you will get is can't you just do it like we said?....or some other such nonsense..

 

[Mountain Man]

Your Highest and Best Use seems reasonable to me... Maximally Productive can NOT be ignored. The only way I see around this is to do two appraisals in one report as a narrative. But then, I'm guessing they want it on a Fannie form... :icon_rolleyes:

 

[Michigan CG]

It sounds like the lender needs more collateral for the loan.

Bingo.....

 

[c w d]

What about HBU means you can't appraise a property as a client wants it appraised? The tests required for HBU allows the appraiser to determine what would produce the highest value of a property. It does not mean that is the only use of the property. You are being asked to appraise the property for a specific use. The loss of potential value between the best use and another use should be determinable through market analysis. You've already mentioned the typical property is 50' frontage. You also mentioned there are other properties of 75' front footage. Compare the two and determine a loss of value per unit measurement. Then you should be able to apply that to your subject property as defined by your client. Then caveat the appraisal appropriately so that the reader understands. Or do I not correctly understand your conundrum?

 

[Mary Tiernan]

Which is one question I had - can I do it for the lender with two parcels under one report, when the separate parcel's highest and best use is vacant land? And, if I do, do I make it subject to combining the lots and state broadly the H&BU is not as combined, but rather as separate parcels?

The only problem with the 75' frontage property is that I had appraised it before it sold in 2005, for $50,000 less than it's selling price. It then sold within 3 months to a realtor (for $50,000 above appraised value, - $280,000 which of course was not the appraisal they used) and has been on the market for $300,000 since then by the realtor who bought it - speculation gone awry?

Sales prices on the lake for the past two years ranges $139-$190,000, with the highest sale in past five years this $300,000 sale.

I really cannot consider this a valid sale - I considered my appraisal to be rock solid - so another appraiser had an opinion higher than mine - and now it lingers on the market for 3 years?

So, essentially there are no valid sales with more then 55' of frontage. Now, this lake has frontages that range 30-55', and I honestly found no value for the differing frontages. There is one area of the lake with a road between the houses and the lake, and I did find a small difference in value for that, but no difference for 15' of frontage - nice, rural lake - 4 sales in the past one year, 3 sales in the year prior.

Now I can go to differing lakes and find the frontage plus do an analysis of price differences between the lakes and come to a valid conclusion.

I like simple residential reports. Wah.

BTW - yes, it is a collateral problem - HO thinks $320,000 . . . keep on dreaming . . .

 

[stefan olafson]

Mary, You need to do two (2) complete appraisals, one of the 50' with improvements on it and one of the vacant adjacent parcel with no improvements.

As far as packaging them together? Why? The clients file is plenty thick for two appraisals.

Doing the two reports then "do I make it subject to combining the lots and state broadly the H&BU is not as combined, but rather as separate parcels?"

The answer is no. You have already stated that the H&B use is as two parcels and you can show from the market that the vacant 50' parcel does not automatically increase the value of the two parcels by addition.

You report two separate values, one for each parcel.

 

[Mary Tiernan]

Thanks Stefan

I just didn't want to "combine" the lots - I didn't think it felt right - I did write to the client and inform them of the issues and suggested a separate order - just reconfirming after what cwd said . . .

 

[Tim Schneider]

Is a lot with 50' frontage legal to build a new home on?