MEANING AND DIFFERENCE BETWEEN EXCESS LAND AND SURPLUS LAND
Excess land is land that is not needed to serve or support the existing improvement. Thus, the highest and best use of excess land may or may not be the same as the improved parcel. Excess land is valued separately and may have the potential to be sold as a separate parcel if subdivided. FHA defines excess land as “that which is larger than what is typically in the neighborhood and capable of a separate use.”
While an excess portion can often be subdivided and marketed as an individual parcel, sometimes in small communities and outlying areas, appraisers must use different criteria because the market may accept a wide variance in lot sizes.If a lot contains excess land, the appraiser should describe it and address it in the highest and best analysis, but it should be treated separately in the valuation process.Often, a legal description of the portion being appraised is required, and the lender may also require that the excess land be excluded from the mortgage security.
Surplus land is land that is not currently needed to support the existing improvement. However, it cannot be separated from the property or sold off. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel.
A larger than typical lot will be classified as Excess Land or Surplus Land. We’ll take a look at each and see how they differ.
Excess Land refers to the land that is not needed to serve or support the existing improvement. The highest and best use of the Excess Land may be different than the improved parcel. It may be possible to sell off the excess land from the main parcel.An example of Excess Land would be an adjacent vacant parcel that fronts a roadway and has easy access to the lot from the road.
On the other hand, Surplus Land is not needed to serve or support the existing improvement, however, it cannot be separated and sold off. Surplus Land does not have a different highest and best use and it may or may not contribute to the value of the overall parcel.
An example of Surplus Land would be a home situated on a larger than typical parcel with no direct access other than traveling over the main parcel. The home or other improvements may be situated on the site such that no division of the property is possible without negatively affecting the functional and legal use of the property.
The difference between these two scenarios is significant. In one situation the additional land has the potential to have a different highest and best use and there is the potential to legally separate them and sell off the additional land. The second scenario does not allow the additional land to be sold off. The potential value of Surplus Land is much less than that of Excess Land.
In both situations, it is necessary to consider what is legally permissible considering the current zoning regulations. A certain zoning designation may allow parcels to be subdivided into smaller parcels with minimum size requirements. In addition to size considerations, the zoning may have certain setback requirements for the front, back, and sides. If these guidelines cannot be met then it may not be possible to legally subdivide the parcel without possible zoning variances.
