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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 12.26.2018

Hello Joe,

I am afraid you probably won’t like the answer.  The income approach is used mainly for commercial and other income-producing property.  In other words, what is a property’s value based on its monthly income 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 differently.  The investors who supply the funds to place the proprietary reverse mortgage programs do so knowing that the underlying security is the property, and they hope they never have to own that property. Still, the loan is repaid when the borrower no longer occupies the home as their primary residence. 

They do not want to own the home, much less want to have to develop the property to realize the house's total value that secures the reverse mortgage loan.  If the value was predicated on a use other than its current use, your heirs did not step in to pay the loan off. They did end up owning the property (especially if it was over-valued and they did not have the resources to develop it).

Still, there is no way to know how long it would take before it would be in a state where the property met the value once determined to be the highest and best use.  If subdivision would bring a higher and better service and additional weight, that might be your best avenue now. 

Related: Appraisers Use the Sales Comparison Approach, Not Zillow & Can you get a Reverse Mortgage on a Home with Acreage?

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