ACTION BY REGIONAL OFFICE If the Regional Office is advised that the proposed minimum disposal price is not acceptable for purposes of FHA mortgage insurance commitment, the Regional Office shall promptly consult with the FHA Insuring Office and the Multifamily Housing Representative, and have a full exchange of information and viewpoints for the purpose of reaching agreement on a price that will be acceptable to the Regional Office and the FHA Insuring Office. If agreement cannot be reached within 10 working days, the Regional Office shall transmit a memorandum to the Urban Renewal Commissioner requesting a determination of the price, together with: (1) Summary of consultations with FHA Insuring Office and Multifamily Housing Representative. (2) One copy each of appraisal reports and other reports and studies pertinent to proposed disposal. (3) Regional Office recommendations. The Regional Office will be advised by the Urban Renewal Commissioner of the price agreed upon between URA and FHA. NOTIFICATION TO LPA As part of the HHFA concurrence in the proposed disposal, the Regional Office shall advise the LPA that the disposal price in which it concurs is: (1) The minimum acceptable price for the land. (2) The amount that will be attributed to the land by FHA for mortgage insurance purposes, subject to outstanding underwriting instructions, and will represent the fair market value of land for use in cost certification, when required. HOUSING AND HOME FINANCE AGENCY, Local Public Agency Letter No. 279. This Letter sets forth revised policies and requirements governing HHFA concurrence in a disposal price of land for private residential redevelopment. The purpose of this revised procedure is to reach a minimum disposal price which also constitutes (1) the amount FHA will attribute to the land for mortgage insurance purposes, and (2) the fair value of the land for uses in accordance with the Urban Renewal Plan. The The HHFA Regional Office will obtain agreement and acceptance by the FHA Insuring Office of a disposal price for FHA mortgage insurance purposes. disposal price approved by the HHFA Regional Office in conjunction with its concurrence in a proposed disposal (see Urban Renewal Manual, Sections 14-3-4 through 14-3-6) will have been accepted by FHA. The LPA shall notify all prospective redevelopers of that price. This Letter is not applicable in the case of a proposed disposal by negotiation to a redeveloper who has submitted evidence that he has adequate financing without FHA mortgage insurance and who agrees to be obligated to begin promptly and to complete the improvements without an FHA-insured mortgage loan. SELECTION OF REUSE APPRAISERS FOR RESIDENTIAL LAND Appraisals for the reuse value of residential land shall be performed only by qualified LPA staff or contract appraisers who are acceptable to both the LPA and FHA. For this purpose, the LPA shall furnish to the local FHA Insuring Office, for its concurrence, a list of acceptable appraisers of residential land. Appropriate distinction may be made between acceptable appraisers for singlefamily and for multifamily residential reuse. FHA concurrence is not required for the reuse appraisers of any nonresidential property. Subsequent changes in the concurred-in list shall be made as mutually agreed upon between the LPA and the FHA Insuring Office. The LPA shall furnish an information copy of the list and any subsequent changes to the HHFA Regional Office. LPA CONSULTATION WITH FHA INSURING OFFICE ON REUSE VALUE Prior to requesting HHFA concurrence in a proposed disposal price for residential land, the LPA shall consult with the appropriate FHA Insuring Office regarding acceptable land values and other matters relating to market conditions and probable rate of absorption of the contemplated housing. The estimate given by FHA prior to HHFA Regional Office concurrence in a proposed disposal price will be advisory only and will not be considered conclusive, either as an acceptable minimum disposal price or as an amount for mortgage insurance purposes. HHFA concurrence in a proposed price that is both the minimum acceptable disposal price and the amount that FHA will attribute to the land for mortgage insurance purposes shall be obtained in accordance with the procedures described below. PROCEDURES FOR OBTAINING HHFA CONCURRENCE Upon receipt of documentation from the LPA in support of a request for HHFA concurrence in a proposed disposal (see Urban Renewal Manual, Sections 14-3-4 through 14-3-6), the HHFA Regional Office will request a review of pertinent documentation by the FHA Insuring Office through the Multifamily Housing Representative, and will consult with those officials in order to arrive at an HHFA-agreed-upon disposal price. The request for HHFA concurrence shall state the preliminary opinion given by the FHA Insuring Office on land value. The HHFA Regional Office will notify the LPA of the agreed-upon price as part of the HHFA concurrence in the proposed disposal (see Urban Renewal Manual, Section 14-2-3, under the heading "FHA Review of Disposal Documents"). The agreed-upon price of which the LPA is notified is: 1. The minimum acceptable price for the land. 2. The amount that will be attributed to the land by FHA for mortgage insurance purposes subject to outstanding underwriting instructions, and will represent the fair market value of land for use in cost certification, when required. REVISED SUBMISSION REQUIREMENTS The Land Disposal Report, submitted with Part I of the Application for Loan and Grant, includes two copies each of first appraisals, market analyses, land utilization and marketability studies, engineering reports on the land, and other analyses and data on the marketability of the land or the estimated proceeds from land disposal. (See Urban Renewal Manual, Section 14-2–2.) Urban Renewal Manual, Sections 14-3-4 through 14-3-6, require, in support of a request for HHFA concurrence in a proposed disposal, two copies of reuse appraisals, reports, and studies not previously submitted. These provisions of the Manual are hereby modified so that the number of copies to be submitted is increased to four. The request for HHFA concurrence shall also include reports on prior consultation with the FHA Insuring Office on market considerations, probable rate of absorption of the contemplated housing, and the FHA estimate of land value. If the LPA had previously furnished copies of reuse appraisals, studies, and reports to the HHFA Regional Office, when requesting HHFA concurrence in a proposed disposal the LPA need furnish only additional copies to bring the total submitted to four. NOTIFICATION TO REDEVELOPERS All prospective redevelopers shall be notified by the LPA of the amount that has been agreed upon by HHFA as the minimum acceptable price for the land. The notification shall be to the effect that the announced price has been established as the amount that will be attributed to the land for FHA mortgage insurance purposes subject to outstanding underwriting instructions, and will represent the fair market value of land for use in cost certification, when required. This notification shall be included in any public announcement and offerings, and in any bidding documents prescribed by the LPA. If no public announcement is made or no bidding documents are used, such as may be the case in certain negotiated disposals, the LPA shall give each potential redeveloper a written statement concerning FHA price acceptance before entering into negotiations. If the HHFA-agreed-upon price is not determined at the time negotiations are started, the notification shall contain a statement to the same effect with respect to the agreed-upon price when it is determined. Any other limitation spec ified as a condition for FHA mortgage insurance shall also be included in every notification. FHA LAND VALUATION PRACTICE The FHA practice for establishing land valuations for multifamily housing is explained in the attached reprint of FHA Manual instructions for preparing Form H-2401-LV. The LPA should encourage prospective redevelopers to discuss the purpose of these instructions with the FHA Insuring Office. WILLIAM L. SLAYTON, Urban Renewal Commissioner. [Attachment to LPA Letter No. 279] UNDERWRITING REPORTS AND FORMS-FORM 2401-LV, LAND VALUATION-MULTIFAMILY HOUSING PROPOSED CONSTRUCTION CASES Purpose: To facilitate land valuation in multifamily projects. It should be completed as soon as it is possible to make reasonably accurate and firm estimates of the items to be included in the analysis. It is intended that the form accompany Forms 2264, 2401, and related documents for all processing and review activities. Prepared by: Valuation Section Number: Two copies Distribution: To the Field Office Docket INSTRUCTIONS The fair market value of land estimated under Item 1 assumes a fully improved site, served with all utility mains and streets. It is based upon comparison with equivalent sites in fully improved condition and further assumes a suitable subsoil which requires no piling or unusual foundations or footings. The only exception to this latter assumption is where all comparable equivalent sites have subsoil conditions similar to the site under appraisement and such conditions are already reflected in the sales and listing prices used for comparison. In the case where comparable equivalent sites do not require piling or unusual foundations or footings, and the land under appraisement does require either or both; the estimated cost of such items is shown under Item 1(a) and deducted from Item 1. The fair market value shown at Item 2 is therefore the value of the land fully improved but deducting any excessive cost included in the estimate of replacement cost of property attributable to unusual subsurface conditions. Either the figure shown at Item 1 or the figure shown at Item 2 will be the estimate entered on Form 2264, line 8, Section IV, "Estimate of Value by Capitalization." For example if no piling or unusual foundations or footings are required, use the figure under Item 1; if such items are required, then use the figure under Item 2. At Item 2(a) will be shown the amount included in the replacement cost estimate for site work and improvements within property lines which are also reflected in 1 or 2 as enhancement in land values. Such items may include cuts and fills, rock removal, and a sea-wall or retaining wall if these items are considered a necessary and permanent land improvement as opposed to a decorative item which adds nothing to the utility of the site. It will be noted that Item 2(a) also includes streets, sidewalks, and utilities on land to be released from the mortgage prior to final closing and dedicated to a public authority. These items become offsite improvements, but it is possible to include such items in the mortgage during the construction period. At final closing the land underlying such improvements, within the boundaries of the streets to be dedicated, would be released from the mortgage and the streets, etc. dedicated to the public. Under the circumstances just cited there should be no deduction in Item 2(a) for the cost of the land underlying streets that a builder may be required to dedicate to the local governing bodies. The value increment resulting from the dedication of street areas and the cost of the street improvements will be reflected in the increased value of the abutting areas. The market value estimate in Item 1 or 2 should be based upon comparisons with sites having similar utility. The appraiser must not let the use of unit square foot land prices warp his thinking. Let us assume two parcels of land equivalent in every respect except that parcel A is 150,000 sq, ft. in area and fronts on existing unpaved street rights-of-way while parcel B is 220,000 sq. ft., but requires setting aside 70,000 sq. ft. for streets to be improved and subsequently dedicated as off-site streets. If the sponsors are required to pay for street paving and utilities in both instances, there should be no difference in the gross market value estimates entered in these two cases in either Item 1 or 2 since the sites are equal in utility. The square foot prices will consequently be different. The figure shown under Item 2(a) is then deducted from Item 2 or 1 to produce Item 3, Estimated maximum warranted price of land in fee simple, after completion of required off-site improvements. This is the upper limit of the estimate to be entered on page 3 of Form 2264, Section VI, "Estimated Replacement Cost of Property." It should be obvious that this figure together with the costs shown under 1(a) and 2(a), if any, would give the sponsor the same amount in the replacement cost estimate as the value estimated under Item 1 or 2 and without duplication of the site improvement costs. In addition to finding the market value of land for valuation purposes, it is the responsibility of the Valuation Section to find the Estimate of Fair Market Value of Land in Fee Simple and "as is" for cost certification. Section 227 of the National Housing Act, as amended, provides for “an amount equal to the Commissioner's estimate of the fair market value of any land (prior to the construction of the improvements built as a part of the project) in the property or project owned by the mortgagor in fee. ." It is therefore imperative that the fair market value of the land "as is" be found correctly and that there is no duplication of the costs or effect of land improvements in the cost certification process. The amount to be shown at Item 3(a) will be the estimated cost of required construction off the site to be paid for by the mortgagor or by special assessments. The cost estimates for the items deducted under 1(a), 2(a), or 3(a) should also include the proportionate share of normal builder's fee or profit and risk allowance. Item 3 (a) deducted from Item 3 will result in Item 4, the Estimated maximum warranted price of land in fee simple and "as is" prior to construction of any site improvements. This should be the upper limit of the "as is" value to be found in the usual manner and recorded in Item 7. The proper figure for Item 5 is the indicated fair market value of land in "as is" condition estimated by direct comparison with sites in similar condition. An additional page 2 of Form 2401 should be used for this comparison and attached to the form 2401 as a supplement. Properly considered, this value usually will carry the most weight in finding the fair market value of land in fee simple and "as is" for cost certification. Item 6 is the actual cost of the land to the mortgagor, including all incidental accrued costs. While the cost of the land may, or may not, have a close relationship to the fair market value, it should be considered and weighed as a market transaction. Even the most carefully prepared estimate is subject to error of judgment or omission and should be tested for validity. The new form provides a check and means of reconciliation of three estimates, (1) a deduction of land improvement costs from the market value of the land fully improved, (2) an estimate based on direct market comparison with the land in its present "as is" condition, and (3) the actual acquisition cost of the land to the mortgagor, including all incidental accrued costs. The principles of valuation of land for cost certification purposes are fully treated in FHA Manual paragraphs 72917 and 72917.1 and they should be restudied and reviewed prior to processing any case requiring Cost Certification. Application of these principles requires the use of the market comparison approach in arriving at Fair Market Value of Land in Fee Simple and "as is." The term "as is" should be understood by the appraiser as it may have different meanings under varied conditions. For example, land that does not require off-site improvements or unusual site preparation would have the same value "as is" in Item 4 and as a finished site in Item 1. Preparation of a supplement to Form 2401 would not be required. Similar treatment would be accorded land where the purchase price to the sponsor includes the curing of site deficiencies by the seller and the furnishing of off-site improvements by a local public authority without special assessments. However, where the sponsor purchases raw land and is to complete all off-site improvements and the curing of any site deficiencies at his own expense, the appraiser will consider the "as is" value of the land in its "raw land" condition as of the date of the appraisal. The valuation will apply to the entire tract including those areas that may later be "off-site" as a result of subsequent dedication. The final conclusion, the Fair Market Value of Land in Fee Simple and "as is" is recorded at Item 7. It may be either of the amounts shown at Items 4 or 5, or an amount within the bracket indicated by these two items depending upon the weight given the supporting data and the best judgment of the appraiser. Wide differences between Items 4 and 5 would suggest the need for careful review of the estimates. In cases involving recent purchase, Item 6 may be significant, and in cases involving acquisition from a public authority, it is a definite limitation on the value estimate. Our attention has been called to a few cases where an Insuring Office found after completion of the processing that the costs of installation of off-site utilities or streets would be paid by others than the sponsor, or where unusual site requirements are required which were not previously considered. When this happens, it would require reappraisal of the land in its "as is" condition. However, this should occur rarely if the appraiser makes a proper effort during processing to ascertain the facts regarding payment of off-site work and the necessity and extent of excess costs resulting from subsoil conditions. Valuation of land 1. Fair market value of land when fully improved and served with This assumes a suitable subsoil which requires no piling or unusual 2. Fair market value of land fully improved, recognizing the excessive replacement cost attributable to unusual subsurface conditions ((1) above less (1-a)) 2 (a) Deduct amount included in replacement cost estimate for land improvements which are also reflected in (2) as enhancement in land value. Such items may include cuts and fill, rock removal, a sea-wall or retaining wall if considered a land improvement, and streets, sidewalks and for utilities on land to be released from the mortgage prior to final closing and dedicated to a public authority 2 3. Estimated maximum warranted price of land in fee simple after 4. Estimated maximum warranted price of land in fee simple and "as is", prior to construction of any improvements‒‒‒‒ 5. Indicated market price of land in "as is" condition estimated by direct comparison with sites in similar condition_-_ 6. Actual acquisition cost of land to mortgagor including all incidental accrued costs____ 7. Fair market value of land in fee simple and "as is". (Date) 11 of these 2 figures is the estimate entered on form 2264, line 8 of sec. IV, "Estimate of Value by Capitalization," i.e.: if no piling or unusual foundations or footings is required, use (1); if such are required use (2). 2 See discussion of this type case in instructions. This is the upper limit of the estimate to be entered on p. 3 of form 2264, sec. VI, "Estimated Replacement Cost of Property." This is the fair market value estimate to be entered on p. 3 of form 2264 for cost certification purposes under IX, "Certificate of Value." |