Residentail Appraisal with Excess Land?

[NC Values]

I just received a FMNA refi residential appraisal request for old home located on 5.5 acres. Home is located in a R-2 zoned area (4 units / acre zoning) and with the town city limits with a very limited supply of buildable lots and high land values. Tax value for the land is $240,000 likely way below market value if land was subdivided. Appears to be a clear case of excess land (site larger than typical and would support alterative use of subdividing the lot).

Lender is aware of the lot size and requested I value home as is and provide a site value. I have not inspected the property or done market research but I suspect the value of the lot vacant may approach r exceed the value of the home on a single lot. What do I need to do if this is true?

 

[Lee Lansford]

I just received a FMNA refi residential appraisal request for old home located on 5.5 acres. Home is located in a R-2 zoned area (4 units / acre zoning) and with the town city limits with a very limited supply of buildable lots and high land values. Tax value for the land is $240,000 likely way below market value if land was subdivided. Appears to be a clear case of excess land (site larger than typical and would support alterative use of subdividing the lot).

Lender is aware of the lot size and requested I value home as is and provide a site value. I have not inspected the property or done market research but I suspect the value of the lot vacant may approach r exceed the value of the home on a single lot. What do I need to do if this is true?

What do you mean by "lender...requested I value home as is"?

If the value is in the land, you have a land appraisal before you.

By your words, you appear confident of the trend and demand for the 5.5 acres with improvements.

What would the most probable buyer be doing with the property following purchase?

It is what it is.

 

[Terrel L. Shields]

If the value of the land is more than the value of the dwelling and land as a residence, then you have a HBU issue... So is the land "excess" to the site or "surplus" to it?

 

[ZZGAMAZZ]

Question: Would the surplus/excess decision be based on HBU?

For example, if the lot is larger than needed to support the existing improvements, the remaining portion(s) of the lot wouldn't be economically feasible if a significant market didn't exist for vacant parcels--and the property would be "surplus" rather than "excess" regardless of the acreage.

Or not????

p.s. I just saw Post#3, after I posted.

 

[PropertyEconomics]

What you do if its true? Appraise the property ... its simply an appraisal assignment.

 

[J Grant]

If the value of the land as vacant exceeds the value of the property as improved less reversion/demolition costs, then redevelopment of the site becomes the maximally productive use of the property, and continued use of the existing improvements that do not represent the highest net value of the site is considered to be financially unfeasible

Above from a definition of HBU as improved (which is what is being asked )

If you think MV of land as a vacant lot, zoned for subdivision, is , for example, $500,000, and the value of the property AS IS, with the house in place, is $550,000, and it would cost $75000 to demolish the house and fill in the hole and ready the lot to as vacant , then the house does not contribute as much to value as cost to remove it, the HBU is not the present use.

If the value of the lot as improved is $550,000, and it would cost $25,000 to remove the house, fill in hole and have lot prepped as vacant, and value of lot vacant is $500,000, then HBU is present use.

HBU as vacant and HBU as improved can be different. So I would specify in addendum that HBU as vacant is as a sub dividable lot, instead of an intact 5.5 acre lot with one home, you are answering the question of HBU as improved. The URAR question on the HBU is,

"Is the HBU as improved the present use?" And then yes/no is checked, and if "NO" is checked, a narrative explanation is made.

An alternate use for these kinds of properties is interim use, (which would mean no is checked for present HBU, and explain). Interim use is leave the improvement standing and habitable, with a view that the property will continue to appreciate as an investment being that HBU as vacant is a lot that can be subdivided.l

I just received a FMNA refi residential appraisal request for old home located on 5.5 acres. Home is located in a R-2 zoned area (4 units / acre zoning) and with the town city limits with a very limited supply of buildable lots and high land values. Tax value for the land is $240,000 likely way below market value if land was subdivided.

The issue for you is not what the lot is worth as subdivided (future), the issue for you as an appraiser is estimate a current eff date, value for lot "as is". What is today's value of the 5.5 acre site zoned for greater density per acre than the present one house on the 5.5 acre lot, with potential to be subdivided into smaller lots.


Appears to be a clear case of excess land (site larger than typical and would support alterative use of subdividing the lot).

Correct.

Lender is aware of the lot size and requested I value home as is and provide a site value.

Doing the appraisal as is and providing a site value is still leaves the HBU analysis. to be done and answered. The question asked is , as improved, what is the HBU, present, or other. Either way, whichever HBU is opined, you are still doing an "as is" appraisal and providing a site value opinion.

I have not inspected the property or done market research but I suspect the value of the lot vacant may approach r exceed the value of the home on a single lot. What do I need to do if this is true?

See above comments...the top definition question etc. If you find the value of present use is not HBU, then you answer no and explain. IF as improved, subject house adds more value to the lot than cost of tearing it down and remeitation, then the HBU is "yes" present use. Either way, I would explain in narrative than HBU as vacant would be for an investment property for future subdivision due to zoning and demand for lots.

Are there any homes on large lots like the subject in area, and if so, what are they selling for, as compared to the value of the lots as vacant?

If there is demand in an area for a home on a large lot and buyers pay as much or more for them and retaining them as private residences, then that makes a case for HBU as present use.

In some areas, buyers will pay extra for a large lot and a small house, and keep the lot as is, using it for privacy and to build amenities such as tennis courts as well as to expand the existing house. This is typically seen in more upscale areas, and there should be some houses scattered about on similar large lots, so it depends on the area and demand.

You said subject is an older home... is it a small, depreciated, low value older home, or a larger, restored, architecturally appealing older home? The former would likely add little or no value to lot, the latter might.

 

[George Hatch]

It's also possible the lot could be divided leaving a smaller improved SFR parcel with the remainder being marketable as subdividable land.

5.5 acres x 4/ac = a maximum buildout of as many as 22 units. That would be the best case scenario from a developer's standpoint assuming everything about the topography, access to utilities, the local political environment and the city itself all lined up.

If this site really does have potential for subdivision - and depending on market conditions - the appraisal of such a property would involve a fairly extensive analysis to determine its value to a developer. You will not be stuffing such an analysis on either a URAR form or the 1-pg Land Appraisal form that been around forever.

Just finding the data for such sales might involve data sources you don't have access to.

The property may be worth more in its existing use, but in order to even develop such an opinion you would need to be able to consider the alternatives and compare your SFR sales to your land sales to see which are returning the higher prices. And your analysis of the land sales would have to be made in terms of the dominant unit of comparison, which may not be strictly based on lot area as such. Those sales may be selling based on their yield and the buyers may be valuing them on price/unit.

YMMV

 

[PropertyEconomics]

Not all larger parcels will ever be divided ... and while the tests of H&BU may theoretically indicate something different, they dont measure quiet enjoyment of a larger parcel of land which many desire.
We dont have any information about lot supply, demand or pricing.
Comparison of similar positioned properties, those with potential for division, but not divided and similarly improved will provide good analysis as to value indications for the subject.

 

[Terrel L. Shields]

A real issue that I have always been a mite foggy on is that when you are asked to appraise a property "AS IS"....then what happens if the lot is subdividable but isn't. In other words, if it is a single lot, "AS IS"....it is not subdivided and thus is not excess...rather is surplus. That applies to 4 acres or 40.

A house in the corner of a 40 acre farm could be subdivided in many if not most jurisdictions. But that is a future event depending upon a survey, and even perhaps planning committee approval. Therefore, AS IS, it is NOT subdivided thus to artificially subdivide it for analysis is a HYPOTHETICAL...contrary to what exists.

A little clarity might be useful. In "summation" in rural property, the assessor and many FmHA style methods segregate land types .. 1 acre for the house; 20 acres for pasture; 65 acres for crops; and, 4 acres for "unusable" or wasteland, roads, etc....

Such methodology relies upon "pure" land sales and imho, isn't a great way to value property but it's routinely applied. I would value the property as 1 likely....but like PE said, we lack details of the situation...just guessing.

 

[J Grant]

A real issue that I have always been a mite foggy on is that when you are asked to appraise a property "AS IS"....then what happens if the lot is subdividable but isn't. In other words, if it is a single lot, "AS IS"....it is not subdivided and thus is not excess...rather is surplus. That applies to 4 acres or 40.

Two HBU questions...HBU site as vacant, and HBU as improved (if an improvement is on the site). Both can be "As Is"

If a lot zoning allows subdivision into smaller lots, but the lot "as is" is one large not yet subdivided parcel, it is still is excess land, if there is land that could legally be permissible to divide up and sell a portion off, or subdivide the later site into developable parcels apart from the smaller parcel the improvement sits on

A not yet subdivided larger site will be worth more in future when it is subdivided but "as is", the value opinion would be for a large site able to be subdivided per zoning into X number of parcels...assuming there are investor or spec home builder buyers in the market for a large raw piece of land with ability to be subdivided.

If no or few investor /builder buyers are present, the HBU might be to sell the land as one large building site for an owner to build a large home or expand existing home/ enjoy a large private lot for a house.