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  #1  
Old 06-26-2011, 02:28 PM
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23Degrees 23Degrees is offline
 
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Default Opinion of Site Value - The Dichotomy of Perceived Expectations

Abbreviated version - What is up with the wide gap between compensation and typical expectations for determining site value (improved or not) when completed as a stand alone assignment vs. when included as part of the URAR (cost approach or not)? Potential exposure to liability and complaint repercussions exist for both, arguably on the same level. After Fannie dumped the requirement for the CA and opinion of site value why has there not been resistance to the constant demand for this figure without proper consideration given to the added responsibility and exposure to claims and sanction?

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Although the offer has been present on a few occasions I've never accepted an assignment that was dedicated solely to the development of an opinion of value for a site - vacant or otherwise. One can read some of the threads on assignments of this type and it becomes apparent that the considerations involved with these can be fairly complex, even when one is not dealing with raw undeveloped land but with vacant land classified as "sites" ready for development. It seemed to be generally implied that the fees involved would be at least equal to and will often surpass what is considered to be customary in the geographic area for an appraisal suited for development on the URAR. Not to advocate that a form is necessary for a land appraisal but the forms that are in place include a sales grid for comparables. While it can be argued that such a form can be completed using "dumps" or teardowns, the optimal situation not open to arbitrary dismissal would be the use of similar vacant sites - something that would certainly add to the difficulty in areas where vacant land sales are non-existent or rare.

With the above as background has anyone else given thought to the expectations involved from all parties with regard to an assignment of the type noted above and compared them to the expectations involved with regard to typical scope of work, payment, and liability when an opinion of site value is included on the URAR? Is not that opinion of site value an appraisal itself incorporated into the report of the appraisal of the real property as a whole?

We've had all level of discussions on the cost approach regarding its usefulness, applicability, and even discussed the suitability of the methodology itself involved with this approach. No sense in going over that again or ever expecting everyone to agree on these items. But can we agree that whether one is forced to provide a specific opinion of the site value via mandatory inclusion of the cost approach or if one includes it voluntarily, that suddenly there is a fairly large responsibility that has been assumed? Whether or not one actually ever gets called to the carpet for that figure is irrelevant. One complaint or state board investigation regarding ANY aspect of the report opens up the entire report to scrutiny.

As to the dichotomy of perceived expectations, open up a couple of threads discussing vacant land appraisal. Suddenly, for example, we have certified appraisers becoming quite concerned about providing an opinion of the value for land zoned commercial, even if located in a primarily residential area. Yet there is little evidence for concern when the certified appraiser completes an assignment of a residence zoned commercial and provides an opinion of the site value within that report. And of course there is the common comment invoking competency with regard to completing a land appraisal thrown at some of the OP's of these threads while it is a certainty that they have filled in the "opinion of site value" field on the URAR on a large bulk of their assignment history.

There is obviously a wide range of scope being applied to this portion of the URAR ranging from detailed analysis of vacant land sale data when available, precision cost studies and detailed depreciation analysis all the way down to the basic PFA. Without vacant land data could it be argued that both are vulnerable to the perils of selective enforcement in the event of a claim or complaint? Could it be argued that even with vacant land data, the opinion of the site value provided within a standard URAR - ie: the appraisal of the site - is extremely vulnerable to sanction or other repercussions without a scope of work and accompanying work file that could be expected by some interrogators to be in line with what would be standard fare if one were engaged to complete an appraisal of the site alone, say via one of the land forms? Would the typical cost approach disclaimer that we are all aware of be sufficient to ward off all concerns?

Not that it would ever happen, but would there be a benefit to a widespread backlash against this almost ubiquitous demand for completion of the cost approach even when it is clearly not applicable or necessary for credible results? It seems that with some clients, even if they do not demand a cost approach, an opinion of the site value is still a requirement, just thrown in there with no consideration given to the fact that the proper derivation of this figure could be just as complicated, or more so, than the appraisal of the real property named on the assignment. Anyone else find this maddening or are my perceptions of the dichotomy I've attempted to describe misguided or a result of a basic misunderstanding on my part?

If this perception is not exposed as misguided, the next time you complete a URAR with cost approach or have an assignment condition for inclusion of an opinion of the site value ask yourself if you would accept this as an assignment on its own and how much you would need to charge for it to account for the work involved under those conditions and the potential liabilities in the event of a claim or complaint.
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Old 06-26-2011, 05:31 PM
leelansford leelansford is offline
 
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Most (and, I mean most, IMHO) appraisers who develop the CA where the intended use is residential lending and where there is a definite dearth of market data (e.g., virtually no recent sales or offerings of competing parcels of vacant land) for opining a credible opinion of site, are virtually clueless as to their responsibilities. The result: garbage. But, I suppose that even where some reasonable data are available for development of an opinion of site value, many appraisers appear to employ the SWAG method.

Might a competent appraiser develop (as best possible under the circumstances) the CA in such a situation IF the CA is a requirement of the assignment but the appraiser has rightfully concluded that the CA has, at best, limited practical application and will not provide meaningful results? Yes (see FAQs accompanying the current USPAP; see FAQ #264).
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  #3  
Old 06-26-2011, 05:39 PM
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Terrel L. Shields Terrel L. Shields is offline
 
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Quote:
But can we agree that whether one is forced to provide a specific opinion of the site value via mandatory inclusion of the cost approach or if one includes it voluntarily, that suddenly there is a fairly large responsibility that has been assumed?
I didn't have to guess that you were from California. I suppose there is something "different" about "land" (aka site) values in that state that occurs virtually no where else.

Apparently, land is an ephemeral figment of imagination...something akin to BEV (business enterprise value) or "intangible" values, going concern or "blue sky". It really does not exist. Only "property" exists in that context.

Therefore, since land is inscrutible and thus incalculable, isn't it impossible to extract a value thereof? And if one element of the value of a property cannot be estimated, then how can one safely calculate the contribution of any other feature or element of the "value" like "view" "garage" "number of bedrooms"....how can you run a linear regression of property without addressing a major driver of value? you can't. Thus, to run MLR on a California property you have to assume that land value = zero or that all land values are exactly equal in the sample used in the MLR.

I do rural property. I would not consider an appraisal valid if I did not value the land. I use 3 comps for land, typically and I use 3 - 5 comps for improved sales, typically. I never use any sales where "land" is not a component of the value. Therefore, I have to determine the land value of ALL the improved comps in order to make an adjustment for site. Failure to do so makes for some strange appraisals. Failure to include that land component would, imho, expose me to far more liability that doing the land component. Somehow, I bet that system would work in California, too. But OTOH...maybe it truly is different and "land" value is incalculable as you say...
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  #4  
Old 06-26-2011, 06:30 PM
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Mike Garrett, RAA Mike Garrett, RAA is offline
 
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Certainly an appraiser can determine a site value but is it accurate and not mis-leading?

Direct sales approach. Are the sales truly comparable? Did the appraiser do an HBU analysis?

Extraction method...is the cost data accurate and meaningful? Did the appraiser use the right quality section, was the data accurately adjusted for the locality? Was the depreciation accurate?

Allocation Method...Is the county accurate in allocating a site value percentage?

The entire system for residential site valuation is fraught with dangers. This is the reason most competent appraisers shy away from doing a cost approach and determining a site value.

Fannie Mae, FHA, and the VA have all said the cost approach is not necessary for most residential properties....the exception is new construction. The Appraisal Institute (AI) has strongly urged appraisers to not rely on a cost approach as the determining factor when appraising residential properties. The market rarely uses cost as a basis for purchasing existing residential properties. So, why the hell do the clients want us to provide a cost approach including a site value?

So it can be used by insurance purposes, of course. Let them make that decision...it's not our job. The simple solution might be for appraisers to charge an additional fee for making such a determination.
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  #5  
Old 06-26-2011, 10:32 PM
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Similar thoughts have been expressed on this subject to varying degrees. I have always been in the camp that there are land sales, appraisers need to find them, they exist.

The argument that there are no land sales typically comes from urban appraisers and anyone who judges them is an idiot. I know that anyone who lives in a rural or semi rural are not being truthful when they say there are no sales. The sales are there but not necessarily through the MLS.

Six months ago this subject came up with an appraiser, in an urban area. He services Detroit and the metro area. I mentioned to him that the argument was there are no land sales in this economy in urban areas. His response was those appraisers are lazy and don't know what they are talking about.

I believe him and when appraisers in rural and semi-rural areas say there are no land sales they aren't looking.

In order to keep current I would suggest an appraiser get in contact with their local assessors one day every two months and find recorded land sales. The problem with this method is that many appraisers will not go out and confirm those sales if they actually take the time to find them. Confirmation (verification) of the sale is in USPAP 1-4.

I do about 2-8 vacant land reports per month and I do not use a form, they are all narrative. The land sizes range from 2-200 acres. Because of my frequent work on vacant land I have a nice data base of land sales.

My large data base comes in handy sometimes. A while back for a litigation case the "appraiser" stated there no land sales in the area for a number of years when in fact the land next to the subject sold 6 months before for $35,000 and there were four other land sales within five miles of this rural property in the previous year.

In another litigation case for an unbuildable residential lot I did not find one sale through the MLS but did find six sales by talking to the assessors and then confirming the sales with the buyers.

In that case I had four sales that confirmed a value of $3,000 for the lot, one sale at $10,000 and the sixth sale was a buildable lot that sold for $12,000. The other side of the case was at $36,000. Easy win.

A final thought on the subject is how does one adjust for site value without land sales other than SWAG?
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  #6  
Old 06-26-2011, 10:36 PM
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I haven't been providing a site value for about a 18 months now. No one has said anything. The only times I've been asked to provide one are with USDA loans for some reason. Fine.
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  #7  
Old 06-26-2011, 10:49 PM
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I did not want to make the previous post too long but have one more anecdote. About 10 years ago when I worked for an MAI he accepted an assignment for "land under water". The subject site was to be remediated wet lands. The site was under water much of the year and was a government project. I was pretty new and was not a very happy camper as it was my job to find similar properties. No one else would take the assignment.

I let him know that I was not happy and there was no way to find sales. He (35 year MAI) told me I would find sales and appraising was not always easy. Our contract was a six-month turn time for $5,000 for 20 acres of worthless land (in my opinion at the time).

His direction was to call every assessor within 30 miles of the subject where there was river properties and then make one phone call a day to find additional information about any leads. For some assessors I had to drive to the office to talk to the assessors personally.

After about a month of not really trying real hard I had a few leads. Those leads turned into those buyers/sellers giving me more leads. After two months I had about 10 sales or so. After three months I had confirmed all sales with either the buyer or seller or both.

That experience taught me a lot about research, finding data and verifying data. It was one of the most valuable parts of my learning experience in this business. After that when people tell me there are no sales I am skeptical.

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  #8  
Old 06-26-2011, 11:06 PM
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I certainly do not want to make this a CG vs CR thread but I find that Cert Gens are much more comfortable placing value on land. I think completing a highest and best use for a commercial property is done more often by CGs thus the highest and best use analysis is easier for them because they have done it so often.

I also think looking at so much data, as CGs often do, understanding how to allocate land value, using a residual technique, etc is just easier for those who are CGs.

The class work is different, measuring indicators from a larger data set is different, there is just a distinction between the two licensing classifications.

I dont really see any more liability doing land than doing any other assignment where you are opinining a value ... it is what it is .. an appraisal and there are often many aspects of different values within a single report.

I dont have the aversion to appraising land as others appear to.
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  #9  
Old 06-26-2011, 11:22 PM
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Quote:
Originally Posted by PropertyEconomics View Post
......I dont really see any more liability doing land than doing any other assignment where you are opinining a value ... it is what it is ..
There is less liability in land appraising but unless you have the data it is a long process of gaining the data and for the typical residential appraiser it is not worth the time to find the data for one report every few months.

Then add in to the equation that the AMC model wants to pay $150 for a report for land on a form that no one can justify the adjustments and it is simply not worth it to keep up on recent land sales.

The residential appraiser getting screwed by the AMC model and the residential appraiser ignoring the requirements of knowing market data to support the typical appraisals they write by not knowing site values and the thus not being able to make credible site adjustments.

The system is broke.
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  #10  
Old 06-26-2011, 11:23 PM
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I think appraisers allowed the system to break by not commanding a fee sufficient to allow them to complete their work. The system may be broke but it can only be fixed by appraisers ....
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