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Recently we performed an appraisal that had two plotted lots on one parcel ID with the same address.  The second lot had a part of the garage on it and was also land locked.  Per FHA Guidelines the lender asked us to clarify if the additional lot was excess or surplus. In this case the lot was surplus.  It would not be feasible to divide the two parcels.  Here is the rule directly from the FHA Handbook. 

FHA Handbook 4000.1 Page 497

"Excess Land refers to land that is not needed to serve or support the existing improvement. The highest and best use of the Excess Land may or may not be the same as the highest and best use of the improved parcel. Excess Land may have the potential to be sold separately.

 Surplus Land refers to land that is not currently needed to support the existing improvement but cannot be separated from the Property and sold off. Surplus Land does not have an independent highest and best use and may or may not contribute to the value of the improved parcels.

 The Appraiser must include the highest and best use analysis in the appraisal report to support the Appraiser’s conclusion of the existence of Excess Land. The Appraiser must include Surplus Land in the valuation.

If the subject of an appraisal contains two or more legally conforming platted lots under one legal description and ownership, and the second vacant lot is capable of being divided and/or developed as a separate parcel where such a division will not result in a non-conformity in zoning regulations for the remaining improved lot, the second vacant lot is Excess Land. The value of the second lot must be excluded from the final value conclusion of the appraisal and the Appraiser must provide a value of only the principal site and improvements under a hypothetical condition. 

FHA Handbook