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My property consists of 19 acres, with good house improvements, and has been suitable for reverse mortgage as there has been 2 reverse mortgages previously completed and paid off. To complete a Jumbo Reverse Mortgage, the appraiser must now consider a highest & best use for land subdivision. The land could be subdivided into 12 house lots, which would create a very high price in market value. In a reverse mortgage appraisal, can the Income Approach be used to evaluate 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 12.26.2018

Hello Joe,

I am afraid you probably won’t like the answer.  The income approach is used mostly for commercial and other income producing property.  In other words, what is a property’s value based on the monthly income it brings to its owner.  It’s not used for a property that is not currently being used for its highest and best use and could potentially be worth more money if it was used for something else or in this case, was subdivided.   

The program will not allow the property to be appraised for something that it “could” be in the future if developed in a different manner.  The investors who supply the funds to place the jumbo reverse mortgage programs do so knowing that the underlying security is the property and their hope is that they never have to own that property but rather the loan is repaid when the borrower no longer occupies the home as their primary residence. 

They really do not want to own the home much less want to have to develop the property in order to realize the full value of the home that secures the reverse mortgage loan.  If the value was predicated on a use other than its current use and your heirs did not step in to pay the loan off and they did end up owning the property (especially if it was over-valued as is and they did not have the resources to develop it), there is no way to know how long it would take before it would be in a state where the property actually met the value that was once determined to be the highest and best use.  If subdivision would bring a higher and better use as well as additional value, that might be your best avenue at this time. 

 

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