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Unique FHA Appraisal problem

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Restrain

Thread Starter
Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Normally, this would be posted under the HUD list, but I need some solid, quick help. I've been appraising for umpteen years and this one's got me buffaloed.

Subject: Manufactured home on 3.8 acres, existing FHA loan, looking for a REFI with another lender. Purchased home last year for $149,000.

Problem: Land value is $137,500 +/- which means that the land will exceed the usual Land/Value ratios and will violate HUD guidelines for excess land value. However, it does not violate the usual excess land guidelands, where the site is a readiliy marketable site, so we're looking at value as opposed to excess site size. The home has a remaining physical life of 30 years, but the remaining economic life is dependent on when someone buys the property and demolishes the manufactured home for a new custom home. This may be 1 year, or it may be 10 years, but the trend in the area is new custom homes in excess of $500,000.

Of course, the manufactured home sales that I will have to use are 10+ miles away due to the high land values in the area of the subject but those can be answered.

Question: How to write the report and how much land can be shown with the subject, and can I get around the land/value ratio problem?
 

Tim Hicks (Texas)

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
Roger, just state the facts. Let the underwriter decide whether want to lend on the land to value ratio. I don't see how they got an FHA loan the first time. The only true answer is to use like properties with regard to land size/value and manufactured home quality. That seems like a high land value for an unrestricted site, it sounds like a lake front property. Just make sure you compare lot values to lot sales of unrestricted sites (manufactured homes allowed) and not the restricted sites that do not allow manufactured homes. You will run into "excess land" issues if you have to adjust large amounts for lot values in your market grid. Also, if this one exists shouldn't there be others like it in the area and less than 10 miles away. Good Luck. That property is a underwriter addendum nghtmare.
 

Ben Vukicevich SRA

Senior Member
Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
Roger,

I don't see a problem. Excess land by HUD standards means, can the site be further subdivided and if it can, is the subdivided portion readily marketable-you know, typical HBU analysis. You stated in your post that this is not the case but rather that the land to value ratio will be extremely high. That's the DEU's worry. I don't know if HUD has a certain land to value ratio. I've never heard of one. It would be nice if someone knew and would post. I know on the conventional lending side, if you go over 50% land to value, the underwriter will sometimes ask for a land appraisal along with the URAR. Where the hell is Dick Dolman when you need him. He'd know the answer, being a DEU. I think HUD strictly worries about lending on sites that are further subdividable. So if your 3.8 acres can not be further subdivided as per current zoning regulations, appraise away on what's there.

Regarding REL: Put the REL in the "box" and let the DEU worry about that one also. I was jokingly thinking 223E program but do check page B4 of the 223E program in 4150.2 as it is some help for your REL problem. It states that the FHA required REL is 5 years before triggering 223E. So at least we know what minimum REL HUD is looking for-5 years.

Can't help you with the manufactured home part as I am a dedicated suburbanite. I never see those "things."

Ben
 

Brad Pack

Junior Member
Joined
Jan 15, 2002
Professional Status
General Public
State
California
Subject: Manufactured home on 3.8 acres, existing FHA loan, looking for a REFI with another lender. Purchased home last year for $149,000.

Problem: Land value is $137,500 +/- which means that the land will exceed the usual Land/Value ratios and will violate HUD guidelines for excess land value. However, it does not violate the usual excess land guidelands, where the site is a readiliy marketable site, so we're looking at value as opposed to excess site size.
Per the 4150.2 and the 4150.1:

"Excess Land is defined as the area by which the plot
exceeds the area of a readily marketable real estate
entity. This occurs when the subject lot is
considerably larger than typical lots in the
neighborhood and the excess is capable of separate use.
Generally, the defining characteristic is an excess
portion that can be subdivided and marketed as an
individual parcel. However, in small communities and
outlying areas, appraisers must use different criteria
because the market may accept a wide variance in lot
sizes. This segment of the market may show wide
differences in lot use.

If the plot contains excess land, delineate and
appraise separately the readily marketable real
estate entity and the existing or proposed
improvements. Describe the excess land but do not
appraise it with the primary 1 - 4 family
residential building that is subject to a mortgage.

The lender will require that the value of excess land
be excluded from the maximum mortgage amount that will
be calculated only on a reasonable amount of land and
improvements".

You may also want to reference: Excess Land and Surplus Land, The Appraisal of Real Estate, Twelfth Edition, page 198.

Assuming the HBU is in play, any "land to value ratio problem" is the lender's concern, not the appraiser's. Report the facts.

Good luck!
 
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