Maximum number of acres allowed for appraisal on a form 1004?

[Sand]

Hello all!

I have been asked to appraise a rural property with 257 acres on a form 1004. The property consists of a large home built in 2010, and older home that has heat and plumbing, but is in poor condition and currently used as storage, and a barn that is also used for storage. It is primarily dry land and there are no crops or livestock. The owner does not even have a horse! This is Montana and many residential properties are on 20+ acres and have a few horses, cows, etc. and these properties are routinely done on a 1004. Sometimes land values exceed the preferred 30% of value, but those that do generally are in a desirable location. The subject's land value is probably going to be in the $500-$1,000 per acre range, so not too outrageously high for the amount of acreage. Given the owner's use of the property which is essentially just for privacy, I do not consider this to be a farm or ranch property. I am a Certified General Appraiser, but I do not do farm and ranch appraisals. I am wondering if there is a maximum number of acres allowed when using a form 1004. The lender is, of course, trying to get this approved for secondary market so the interest rate is lower. Also, while this property could be subdivided, it is not in an area of high demand so I do not consider that to be the highest & best use at present.

Thank you!

 

[glenn walker]

There is no maximum amount of acreage on a 1004. BUT its deigned for a single family residence, I guess you could call the second smaller older home an-accessory unit. I do find it odd that a lender would make a FRT type loan on it but thats not your problem. In the end I guess this is a business decision, but the bigger issue is you stated that you don't do farm and ranch appraisals ? So if something ever does go south that could be an-issue. Personally, I would not take the assignment on a 1004 BUT I could be wrong, lets see what others say.

 

[Sand]

Thank you Glenn. Anyone else have any thoughts on this?

 

[J Grant]

Fannie Mae Releases New Guidelines for Rural Appraisals

"I have been asked to appraise a rural property with 257 acres on a form 1004. The property consists of a large home built in 2010, and older home that has heat and plumbing, but is in poor condition and currently used as storage, and a barn that is also used for storage. It is primarily dry land and there are no crops or livestock. The owner does not even have a horse! This is Montana and many residential properties are on 20+ acres and have a few horses, cows, etc. and these properties are routinely done on a 1004. Sometimes land values exceed the preferred 30% of value, but those that do generally are in a desirable location. The subject's land value is probably going to be in the $500-$1,000 per acre range, so not too outrageously high for the amount of acreage. Given the owner's use of the property which is essentially just for privacy, I do not consider this to be a farm or ranch property. I am a Certified General Appraiser, but I do not do farm and ranch appraisals.

Interesting ! The above - it is not just this particular owner's use of the property, but how would the market of buyers see the use of the property ?
if the typical homestead there is 20 acres, is that enough privacy for typically motivated res use buyer.? How much is enough - 40 acres, 100, acres... in area are many houses sitting on 200 plus acres of vacant land ? Or are similar large tracts in area used for grazing or crops -or being divided up - HBU is how market perception rather than the individual owner - but if dominant market and $ is paying to keep land intact and preserve it, then that is the HBU - gotta find out...

if many folks there have houses on huge tracts of land and it is res use of a giant 200-300 acre yard or wildlife, - that is what you have to determine - how likely is it the typically motivated purchaser would keep it intact and it really does serve a res use...ask a few area RE brokers who specialize in that kind of property and ask them.

Maybe partner up with someone who does ranch or farm/ag in the area - if fee is sufficient, and if a meager fee who needs it, because this is the kind of appraisal that might attract a review ..imo

 

[Tru Red]

I was going to say something similar to what J. Grant suggested. What is typical for the area? Are there a multitude of single family residences on 100 to 500 acre parcels? Or......is 20 to 40 acres much more typical? Are you going to have good comps (and by good, I'm suggesting acreage at or very near the same as your subject). The second home used as storage is easy. It's that acreage that has me wondering.

 

[Flakey]

A detailed HBU analysis would be crucial on this before determining the scope of work.

 

[alebrewer]

Couple of different things I look at when doing a H&BU analysis. (1) what is the overall site to value ratio for the home and 257 acres? I've found that, when acreage contributes nominally on a per acre basis, the use of larger sites for residential use increases. (2) when you pull sales data, what is the 'typical' site that homes are on, and used for residential? What is the upper end of site size for residential use? My guess is that 257 would be a bit large for SF H&BU, but it depends on your market...

 

[Michigan CG]

When I picture Montana I see lots of forest, some elk, deer, cattle and good ole boys drinking PBR.

What can the land be used for? Could it be ranch land? I would be wary of putting 257 acres on a 1004.

 

[Terrel L. Shields]

The owner does not even have a horse! This is Montana

If he has a Llama and a Toyota he is from California.

It has utility I would call outside of mere residential. It is either farmland (E?), ranchland, or recreational/hunting land. I would not say the HBU is mere "residential". Therefore, I would not do it on a 1004, although as pointed out, there is no requirement. Much of the mountain west seems to be in conversion to residential-recreation, a lot of it second homes for the wealthy.

First and foremost in my mind is that land is valued as if vacant and available for its highest and best use. I do not deduct land values for its (lack of) utility rather I deduct functional obsolescence for any improvements. Land is land and adjusted dollar for dollar. So a central question for me is that posed by Henry Harrison many years ago. Is the LAND worth more than the IMPROVEMENTS contribute? If 257 acres is worth $257,000, and the house is worth $500,000...then yes, you can argue the appraisal is a residential report. Even though divisible, I would not argue that the acreage is in anyway either "surplus" nor "excess" if it is fairly typical for 100 acre home tracts in the market area. If the land is worth $257,000 and the dwelling contributes only $100,000, then it is a LAND report.

In any case, the 1004 is a poor choice for reporting. If it is required by the lender, is going to FHA or FNMA, then I would decline the assignment. If I can write a narrative report, then I am good to go. I, not too infrequently, value "Executive Homes" on such acreage and they are complex assignments worthy of a 4 figure fee.

 

[Tru Red]

If he has a Llama and a Toyota he is from California.

LOL. So damn true.