Residentail Appraisal with Excess Land?

[George Hatch]

We're looking at the market's reaction to a set of attributes, not at guaranteed results for those perceptions. It's a given that any project could get blocked at any stage of the game. That's one reason land purchases involve a lot of speculation and why land appraisals often involve way more questions that appraisals of existing structures.

But MV is MV and is determined by the actions of the participants. How they actually act, not how an appraiser decides to complete an appraisal.

If an appraiser significantly underappraises a property because they blew off the reasonable HBU analysis primarily on the basis that there are no entitlements or proposals that could turn out to be an extremely bad situation for the appraiser.

I didn't want to mention the licensing issue, but the fact that the OP isn't licensed to appraise land with HBU beyond 4 units will not be a defense for allegations of incompetency if that turns out to be patently unreasonable in that market area. He already mentions vacant lot shortages and high land values. In his place I'd be paying some attention to that little robot in the back of my head that's waving its arms and saying "Danger, Will Robinson, Danger".

 

[Terrel L. Shields]

I understand the concept of having a dwelling with 4 lots and the subject house is on one lot and the 3 vacant lots are readily salable. But when the house sits on one side of a single tract (lot) and yes, you COULD subdivide the tract, but unlike the lots above, to subdivide means you will have to survey it off and get approval of that in many jurisdictions and almost certainly in any town. You paid for a survey lately? Therefore, you are speculating upon the future subdivsion or other ill-defined future event which thus is not "as is"...It is "as if" and subject to survey, subject to approval, yada yada yada

A buyer is buying an intact tract made up of 1 parcel and looks at it that way. Show me a buyer who knows the difference in "Excess" and "Surplus"...none, nada, zip... They know that they won't buy it until they know the city will approve a split and it is most commonly sold that way when offered and the buyer wants to subdivide. We have enough trouble explaining it to folks as is. Come to think of it, we have trouble explaining it to appraisers.

 

[George Hatch]

This is how it works in my region:

Raw unentitled land with zoning and other attributes amenable to development are frequently bought by developers who proceed to do all the steps you're talking about. The basis upon which those purchases are made is upon the anticipated yield, not on the price/sf or price/acre. That price/unit for raw land is frequently 20% or less of the price/unit of a mapped subdivision with all the finished lots (but no structural improvements).

That's not an opinion, it's a fact. In my region, that is.

I'm not saying that's how land works in the OP's market or that's how the OP should handle this assignment but I am saying that they need to look at "comparable" land sale transactions before they form their opinion as to which basis they're selling and whether the subject's worth more as subdivision bait or as the SFR+acreage.

"Comparable" in this case ideally meaning other comparable tracts with similar status with respect to entitlements or surveying or whatnot.

In your region you've made reference to existing completed subdivisions with no buyers. In such a scenario I can well imagine and would expect that raw land would be basically unmarketable to a developer because of the ready access to the existing inventory at pricing well below costs. So in that case there'd be no reason to delve into the HBU analysis any further than that.

 

[Terrel L. Shields]

The old saw that you should not invest more than 22% of the project cost into the land is probably true today. We saw some builders invest 40% or more in land and thought they could raise prices forever apparently.

But would the question be is the house and acreage work X dollars and the house sold off separately and the land sold off separately less the cost to survey yield the answer of HBU? Which scenario is going to yield the highest amount ? Or, is the question AS IS - this is a house with surplus acreage, not an excess tract to be sold off? damifino

 

[George Hatch]

There's no way to know without looking at a half dozen location-specific factors like supply/demand for new housing, supply/demand for new lots, absorption time, development costs as well as all the site-specific attributes. I somewhat doubt the OP knows enough about any of these elements off the top of their head to even add to their description of the situation.

It ain't rocket science but you do have to be sufficiently aware of the possibilities to even start asking the questions.

Meanwhile my assignment for the day involves appraising an assemblage of (4) 10 acre lots located abutting the county line. It's located in one county (within the city limits of an incorporated city, no less) but it's only vehicular access and utility access is from the adjacent county. Driving to the next nearest point of entry for the county its located in involves a 7-mile trip. Kind of interesting. As far as I can tell, none of my comparable sales are located in the same city or county as my subject.

 

[Doug DeMars]

I've yet to find a lender/client willing to accept my fee for a residential property with excess land.

It generally takes a small amount of work to determine the surplus/excess factor unless the values are getting close to each other. It does take quite a bit of extra time to develop a credible report if the decision is excess. I've done plenty of appraisals where the HBU was clearly surplus and included an adequate representation of comps also having surplus land.

Sounds like an interesting job you have there George.

 

[Doug DeMars]

Meanwhile my assignment for the day involves appraising an assemblage of (4) 10 acre lots located abutting the county line. It's located in one county (within the city limits of an incorporated city, no less) but it's only vehicular access and utility access is from the adjacent county. Driving to the next nearest point of entry for the county its located in involves a 7-mile trip. Kind of interesting. As far as I can tell, none of my comparable sales are located in the same city or county as my subject.

We have some goofy over-lapping county "ranchette" stuff in my neck of the woods. Some properties are located in one county but have a zip code and city name from the adjacent county. Access can be had from either county but most people that live on the "other side of the county line" commute, shop, dine, etc...on the other side.

 

[The Warrior Monk]

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?

Such assignments should be performed by a Certified General appraiser. The reason is that the HBU of the property could be a 22-unit subdivision (ideally; likely something less if roads are needed, etc.).