HUD Treatment of Excess Land in the HBU Analysis

[ZZGAMAZZ]

Subject is a small SFR on one-half acre in Moreno Valley, CA.

Based upon zoning standards, and subject to developmental guidelines, the lot can be split into two lots.

The half-acre lots are routine for this neighborhood, and the portion of the lot above-and-beyond what is required to support the current improvements are defined as surplus rather than excess based upon my interpreation of HUD "excess" land guidelines. (See the "AND" section of the definition.)

Comparables in the SCA have similar lot sizes.

My question(s):

Does the HUD definition pertain to the HBU analysis as well? If so, the "as vacant" definition of HBU that supports a lot split when the market improves appears to contradict the HUD requirement describing the lot as surplus--rather than excess--which by a traditional, non-HUD working definition cannot be split.

 

[CANative]

I know I posted a reply last night. Oh well, that's what I get for using HughesNet.

If similar half acre lots are typical in the neighborhood are area then there is neither excess nor surplus land. You don't need to bring those terms into the discussion really.

HBU analysis as improved applies the 4 tests but the focus is on 3 possibilities: Continue current use, modification, demolition and redevelopment.

If you're referring to the excess land discussion in 4150.2, 4-4 then what they're saying is that if the appraiser finds that there is excess land it is to be value separately which is probably the best treatment of excess land. Excess land can have it's own separate HBU which can be the same or different than the improved portion of the lot. They want this done by using a hypothetical condition and the opinion of value of the excess put in an addendum.

 

[CANative]

What!?

No one wants to argue?

 

[ZZGAMAZZ]

Yes I was referring to 4150.2, 4-4. I think I can deal with the issue in the SCA because the lot size is typical for the neighborhood, and the comps are similar in lot size. However, I wasn't sure if the 4-4 definition extended to HBU as well. Based upon my understanding of HBU analysis, a lot is excess if it is larger than necc to support current improvements, and it has the potential for a life of its own by being subdivided into a separate lot. The subject lot in this assignment would be excess by the traditional definition but not by the FHA definition if I'm getting it right. My goal is to do just that and than explain in the HBU narrative that the treatment of excess land is per the Scope of Work based upon HUD convention. On the other hand, I might have it figured out 100% wrong, or I might not need to address the issue at all.

I just figured your response was 100% correct so nobody else bothered to respond but now that you're fixin' to argue I guess I better just sit back and wait...

 

[CANative]

Someone always wants to argue. Sometimes I'll post something and think I'm really smart and all of a sudden Santora flies in and makes me feel like an appraiser weenie. But I learn something so it's good... I guess.

It seems to me that just because something can be done (divide of some of the lot and try to sell it) does not mean that it should be done. How come no one else in the neighborhood has divided and sold?

 

[ZZGAMAZZ]

Nobody else wants to subdivide because it is a Godforsaken neighborhood (literally it is, if I have any conception of the afterlife) with a pit bull in every single yard...oops I didn't say that...although from what I've heard the City website describes the area as "sanctuary for reprobates too inhuman to live in South-central..." (although I paraphrased...)

Actually and in my opinion the fact that subdivison isn't occuring is largely because there was no need for additional parcels during the boom because new construction tract developments were springing up on every corner for miles although in the central city area; and there is no market in the declining market for additional residential development...so the parcel for the sake of the HBU analysis would be defined both "as vacant" and "as is" as the current improvements, on an interim basis, with a new lot created when the market turns all things being cyclical.

Honestly I have been trying to diagram for myself the various components of HBU for a long while and a seminar or two didn't help much because the focus is always on textbook theory rather than real world examples...

 

[CANative]

You are doing the HBU analysis as improved (says so on the form but who needs the form) You have 3 choices. Continue the current use, modify the improvements (make them bigger etc.), or demolish and redevelop.

Which choice makes most sense?

 

[ZZGAMAZZ]

It appears that I have neglected to read the form during the past 5 years and thought the typical residential analysis required both "as vacant" and "as improved" scenarios. If so, the HBU "as vacant" would be 2 parcels. If not, and with the current SFR near the front of the deep lot, HBU would also be to split, with provision for access to the rear lot, and I'm not sure if that fits into your category #2.

Also I would like to know from somebody familiar with residential lending, does HBU analysis affect collaterization?

 

[Couch Potato]

The "as vacant" scenario is only necessary if you are working toward an SRA designation from AI. It is their opinion that it needs to be there, but there is no other reason to do so on a Fannie form.