Land to Improvement Value Ratios

[pato]

Need to know what underwriters consider as problem ratios of land to improvment ratios. In other words what ratios run up red flags. Pato in Texas. Have lender concerned about a residential with DW home on acerage.[/b]

 

[Randy Beigh]

pato

Fannie used to have a guideline on that and I believe it was 25 or 30%. But, I think they have not gone there anymore.

For starters, you should ask the underwriter.

From my experience, if it is excessive, all one needs to do is explain the situation and that should do it. If your land/value ratio is to high and you didn't explain, that is likely what sent up the red flag.

 

[Tim Hicks (Texas)]

Every mortgage company seems to have a different guideline. You need to ask the underwriter. I have seen some companies accept up to 40%.

 

[Mountain Man]

I run into that situation all of the time when it comes to the executive, lake properties in my area. I have a looong addendum explaining it with the comparable grid of improved sales, and some lot sales to support the land value. It just requires more work, more data, and a lot of explaining. If it can be proven, the UW should have no problem with it.
Mell.

 

[jdbiggers]

I only once had a problem with the ratio...of course the ratio was 95% land value. Really irked them that the home (an old single-wide) was only worth a few thousand dollars and the land values were in the $50ks

Bottom line is YOU have to tell THEM what typical ranges are. Don't let them tell you what is acceptable in the market or not. YOU are the appraiser. Give them an inch and they think they're a ruler!

John-David Biggers

 

[jtrotta]

The ratio was 30% and a brief statement should be made just to provide everyone of your awareness. Is it typical of the area or not :?:

Good Luck :!:

 

[nunnda]

I got a request about a year ago, after completing a 2055 exterior only assignment, for a land to improvement value ratio. I laughed so hard it hurt. :lol:
But the loan officer was dead serious. Apparently, she has an appraiser who gives her this information regularly.
:x :x I told her if she wanted a land to improvement value ratio she should have ordered a 1004, and asked her why she felt she needed this. She said for home insurance purposes. Go figure! :roll:

 

[Joe Birrell (NY)]

Sorry for late response, took a couple of days to figure out this new site format. Old reference to Fannie Mae "Property/Appraisal Analysis" (section 402.02 - Degree of Development & Growth), indicated 30%.
We had this problem constantly years ago because we are in a fully developed urban area with land now at $50 per sf. If area is at least 75% developed land in excess of 30% is no big deal. UW's haven't asked about it, as we "boiler plate" this in all reports.

 

[Restrain]

As I do numerous homes in north Dallas where 90% of the value is in the land, I face this every week. Cite land sales, state that the ratio is x% and is common and typical. If you're dealing with acreage, they get nervous if the site is over an acre, so if your dealing with 5 acres, 10 acres, etc. be sure to cite a similar sale and state that such site sizes are common and typical and range from 1 acre to x acres. Good luck.

 

[Richard Carlsen]

I think a lot of UW (and appraisers) confuse Land to Value ratio guidelines with financing excess land. I do prime waterfront locations up to $6,000 per front foot on a 100' waterfront site with $75,000 worth of improvements on them. Here you are in the 85 to 90% ratios. And they are financed just fine. It goes back to if they want the deal, they'll make it work.

Lending institutions generally don't want to finance vacant property and that is why many tend to restrict value to using 5 acres only. Anything over that is considered "excess" even though the market may well demonstrate that houses on 10 acre parcels sell right and left.

In a platted situation, there is nothing that can be done because you cannot consider less land. Therefore, you must comment on the site value and justify it in order to keep them happy.

When they chop the subject down to 5 acres, I have found in my market that they are not taking that much away from the total site value. If I consider only 5 acres of a 10-acre site, most of the value is in the front 5 acres and usually only about 20 to 25% can be attributed to the back 5 acres so it is generally no big deal.