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My property consists of 19 acres, with good house improvements, and has been suitable for a reverse mortgage as there have been 2 reverse mortgages previously completed and paid off. To complete a Jumbo Reverse Mortgage, the appraiser must now consider the highest & best use for land subdivision. The land could be subdivided into 12 house lots, creating a very high market value price. In a reverse mortgage appraisal, can the Income Approach be used to evaluate the sale potential to a subdivision developer? The Sales Comparison Approach cannot verify the actual & true high market value because there are no good comps in my area, and my property cannot be compared to any similar properties due to its uniqueness and size.
By Joe C. on 12.26.2018Reverse mortgage appraisals, including those for jumbo reverse mortgages, typically rely on the Sales Comparison Approach rather than the Income Approach. This is because a reverse mortgage is based on the property’s residential value, not its potential for commercial development or income generation.
In your case, even though your 19-acre property has significant subdivision potential, the lender will likely require the appraiser to value it based on its current residential use rather than the potential income from a future land sale. The appraisal must determine the market value of the home and land as a single residential parcel rather than a hypothetical value based on subdivision.
Since you mentioned that there are no comparable properties in your area, the appraiser may use adjusted sales comparisons to account for your property’s size and uniqueness. However, they cannot rely solely on the potential value to a subdivision developer, as HUD and jumbo reverse mortgage lenders do not typically accept appraisals based on projected future use.
If the lender believes that a substantial portion of the value is tied to non-residential potential, they may determine that the property does not meet eligibility guidelines for a reverse mortgage. However, if the land is primarily used as residential, the appraisal should focus on its highest and best residential use.
If you're concerned about an undervaluation due to a lack of comps, you may want to:
- Discuss the issue with your lender before proceeding to ensure they are comfortable with the appraisal approach.
- Request an experienced appraiser familiar with larger properties and unique parcels.
- Consider alternative lending options if a reverse mortgage appraisal does not accurately reflect the full value of your land.
Related: Can you get a Reverse Mortgage on a Home with Acreage?
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