Leased Acreage

[Abester]

This flies in the face of knowing the "Intended User"

Bullhockey. The lender is the intended user. If the lender is going to ultimately try to package the loan to Fannie, it's the lender's responsibility to clearly state it. Regardless of that, the original post asks:

Does Fannie Mae take the same stand on leased farm land as it does as if the homeowner were farming it himself?

Fannies stand is an underwriting issue. The appraiser is to form an opinion of the market value of the property. Fannie's stance IN NO WAY impacts the value of the property.

 

[Abester]

The appraiser should be competent to know the assignment conditions imposed

Appraisers should have the fortitude to stand up in the face of all that has been going on in the mortgage business, including Fannie's position, and do what they are paid to do: provide an unbiased opinion of value. If the lender's don't what to lend based on that, tough. I had the fortitude when the last 1004 revision came out. More folks will get some fortitude after this shake out is over...

 

[Louis Pompeo]

Bullhockey. The lender is the intended user. If the lender is going to ultimately try to package the loan to Fannie, it's the lender's responsibility to clearly state it.

Dear God....please give me patience and tolerance. Amen

Fannies stand is an underwriting issue. The appraiser is to form an opinion of the market value of the property. Fannie's stance IN NO WAY impacts the value of the property.

If FNMA underwriting insists that the improvements on only a "typically" sized residential site be valued - that is an Assignment Condition. The appraiser is required to employ a hypothetical condition in the valuation of the property and ignore the larger parcel.

This is the same as a lawyer coming to me for an estate appraisal. The lawyer/tax representative is my client and intended user - but I know that he is going to give it to the IRS.

The property was owned by a partnership. The decedent was a 1/5 owner.

The attorney wants an appraisal of the property. I question what he is going to do with the appraisal and he informs me that it is going to IRS for estate purposes. At that time, I advise that what he really needs is a "partial interest valuation," not just a valuation of the whole property. I also advise him of the other conditions that the IRS requires in an estate valuation.

This is the competency of which I speak. It is required for the IRS appraisal, as well as the FNMA appraisal.

 

[Mike Kennedy]

Appraising the Entire Site of a Property
Selling Guide, Part XI, Section 404: Site Analysis
The property site should be of a size, shape, and topography that is generally conforming and acceptable in the market area. It also must have comparable utilities, street improvements, adequate vehicular access, and other amenities.

Fannie Mae is clarifying that the appraisal must include the actual size of the site and not a hypothetical portion of the site. For example, the appraiser may not appraise only 5 acres of an unsubdivided 40-acre parcel. The appraised value must reflect the entire 40-acre parcel.


It's a Highest and Best Use Issue ( note 1004_05 hypothetical condition issue as well- Lease Terms? does the lease transfer on sale? etc. etc. )

https://www.efanniemae.com/lc/ou/pdf/app_rural_props.pdf

 

[Terrel L. Shields]

the lender is going to ultimately try to package the loan to Fannie, it's the lender's responsibility to clearly state it.

I agree. Fannie only has to be satisfied when the loan goes to them, not to anyone else.

but I know that he is going to give it to the IRS.

Lawyers don't "give" the IRS an appraisal. They use the appraisal to determine if the IRS is owed money. The only time the IRS will see that report is if the IRS disputes the claim. You are making the other guy's argument.

The issue imho, is that which is the most valuable? The dwelling? The land? If it is the land, then you should be doing a LAND appraisal. And that is likely going to mean it will be difficult (say impossible) to write a fannie mae compliant report. I have seen no small number of 40+ acre tracts appraised on a fannie form where land that is obviously worth $2000-5000 an acres is labeled $600-1000/ac and the dwelling value inflated to reach those "magic" fannie mae percentages.

So what are your comps? Are they all over 20 acres? Then maybe you can 'get 'er done'...personally, it looks like a way too much work for a $275 fannie report so I hope your fee is a lot closer to 4 digits.

 

[PropertyEconomics]

I dont need patience Conor (but certainly respect your prayers for it ... sometimes they come in highly handy here) .... the simple fact is IF YOUR CLIENT requires an appraisal that is compliant with FANNIE GUIDELINES ... then it is incumbent upon the appraiser to follow those guidelines. FANNIE DOES NOT LEND ON AGRICULTURAL PROPERTIES ... so completion of this assignment, under Fannie guidelines, is not possible and if that is the scope of the assignment ... HELLO ????
There are many issues regaring this property as many have noted, but taken at face value, and if the property is leased for farming purposes, it is highly doubtful that it meets Fannie requirements. A simple call to Fannie can solve the problem and get an answer that is good for not only the appraiser but also for the "client" (lender). Closing a loan that cannot be sold serves no one ... and IF the appraiser does their due diligence and finds out the property does not meet Fannie lending requirements it is incumbent upon the appraiser to tell their client so they may seek alternate avenues of financing, which may very well lead to an assignment to appraise the property.

When we start acting as professionals our clients will treat us as professionals. And it is our job to know the intended users and intended use of the reports we prepare along with the guidelines our clients require us to follow. Anything short of that is not only a potential USPAP violation but also highly unprofessional. We are appraisers .. NOT form fillers.

 

[Abester]

Closing a loan that cannot be sold serves no one

Where in the definition of value does it say that a loan has to be able to be sold in order for a property to have value?

know the intended users

True that. Fannie says to include all the acreage. Hence my original point about which part of the property was most significant to value. If follows then that the property most certainly can be appraised, and one cannot simply draw credible conclusions about the property without having appraising it, and one cannot credibly have the conversation with the lender about the allocations until one has completed the requirements of Standard 1 (and your conversation should certainly meet the requirements of an oral report with all the requisite documentation in the file).

 

[Terrel L. Shields]

PE
When an appraiser holds themselves out to be an appraiser, should they actual hold themselves out as a "fannie mae" appraiser? I mean what other profession requires its practioners to read the minds of their clients beside Gypsy Fortuneteller? I understand what you are saying and USPAP implies, if not mandates, the appraiser understand the assignment but on the other hand, a regulated lender knows to give the appraiser clear instructions.

I inspected a property Dec. 12th. I haven't completed the report. Why? Because the lender 'forgot' to provide me the details of the construction. Finally, his loan secretary sent me a contract for a manf. home to be built on the property. The fellow is building a new chicken farm. I asked her. OK. I have a generic set of specs and plans for a poultry barn. How about the bids and how MANY houses are being built. She rummaged thru her file and said, "Well, its either 3, 5 , or 6....I have bids for all of them." OK. which one? She didn't know. Called the lender a couple days later. How many houses... 5 or 6. I'll get back with you....haven't heard from him since. But somehow I am responsible for guessing. It will only make from 1 - 1.4 million dollars difference in the report.

Am I really guilty of a USPAP violation if he gives me the go-ahead to do a farm with 6 houses on it and it turns out the guy had decided on 5? It shouldn't. Under strict standards, it is. In fact, I stood accused of violating FSA rules hence USPAP recently when a lender provided FSA with a report I had done for the bank. The bank never related that they intended to send it to FSA, but somehow I was supposed to read their mind. Nevermind that 95% of the rural appraisals I do never go near FSA.

17% of all loans go to fannie mae. SO 83% of the time we are supposed to preempt the lender by asking them if it is a fannie/freddy report. And what if they don't know? Forget? Lie? We still get hung out to dry??? maybe it is that way, but it should not be.

If the OP was asked to do a fannie mae appraisal on a large acreage tract and that large tract was neither typical of RESIDENTIAL properties in the community and that I could demonstrate that with the comparables, then the OP should certainly give pause to doing a fannie compliant report. But if the lender does not intimate WHAT kind of report and WHO it goes to, then why is it the appraisers responsibility to vet the underwriting?

How many appraisers know their clients well enough to know whether they participate in some federally backed lending program or not? How many loan officers even know where the loan will end up? Why do you think you get all those stupid stips from private equity UWs? Do you think the UWs you talk to work for fannie mae directly? or even the lender? Fannie's rule are what they are, but the interpretation of those rules vary from lender to lender; hedge fund to hedge fund; bank to bank. So a

simple call to Fannie ...

may give you an answer. Call back. You might get a different answer.

No appraiser can read the lender's mind. If the lender cannot even provide the basic information about how the loan is structured, then I see no obligation for the appraiser to insert themselves into the underwriting decision.

From the OP I cannot tell if the property is agricultural. It is a large site. Many large sites can be used for agri as an interim use. That hardly qualifies as a working farm. Nor does it not say that the average residential property in a given area might not be 20 - 40 or more acres in size. AND obviously to me, fannie will take a house and 5 acres and not take that same house and 80 acres even knowing that the 80 is worth more than the 5 and thus their collateral position is far better. That makes no underwriting sense. The more land fannie could control, the lower the LTV ratio.

So we play this game. Whether the loan can be paid back is a secondary issue. It's a variation of pin the tail on the donkey. Pin the blame on the appraiser - either way.

 

[PropertyEconomics]

Terrel ... if the clients requirements are to meet Fannie guidelines, the appraiser does not have to be a FANNIE appraiser but they must, as part of the scope of work, meet Fannie guidelines.
You can tell the property is agricultural because it is LEASED for agricultural uses. I do not know whether that is an interim use or not, hopefully, the appraiser will knwo after doing a full and complete highest and best use analysis as required by USPAP.
Whether you or I disagree with Fannie underwriting guidelines or their lending practices is not for us to pass judgement on. Our scope of work, if in fact the lender is asking for a Fannie compliant report, includes Fannie guidelines and an appraiser must adhere to those guidelines.
Fannie says to include all the acreage, true, but if in fact it is an agricultural property then the appraiser knows it will not meet Fannie guidelines. I made a poor statement about selling of the loan, let me rephrase, IF the intended use is for Fannie purposes, the property does not meet the lending criteria. It is no different than doing an FHA assignment and finding that the property does not meet minimum FHA standards and halting the assignment. All I am saying is that a call to Fannie could well serve the client and the appraiser equally. It is the responsiblity of the appraiser to determine the intended user and the intended use of the report.
The client should be persuing other avenues of lending, and my clients would be appreciative if I told them this property will not meet Fannie requirements, however, Farm Credit Services or USDA Rural Housing offer programs under which this property would fit. The appraisal requirements may be different and thus the scope of work could well change.
Im in favor of serving the needs of the public and the client when advising them each .... I believe protecting the public trust is something we should take seriously.

I also agree that an appraiser can simply appraise this property, using the best comparable sales they have, make no mention of Fannie guidelines and let the chips fall where they may. Perhaps in that instance, if it were sent to Fannie they would reject it (or underwriting would), a new assignment would be ordered for say USDA and the appraiser can be paid twice for doing the work. Its just not how I choose to do business if I know going in that the assignment does not fit a lending program.

At this point I remain convinced it is prudent to call both the client and Fannie and clarify the issues as I stated in my very first post in this thread. IF the lender doesnt know if its going to Fannie or not, then the appraiser has to make a decision. If they know that the property will not meet Fannie guidelines, the better darn well not write to Fannie guidelines or state they are doing so within the report.

I think we can all agree that professionalism is our goal and that is all I am really arguing for here.

And with respect Terrel to your chicken improvements, it looks like you have an extraordinary assumption to make at 6 houses when valuing the property, and if you find 5 when you reinspect, then the conditions of your appraisal were not met and the "subject to" value would not have been satisifed. There are no violations in that instance as you well know.

 

[Abester]

You can tell the property is agricultural because it is LEASED for agricultural uses.

That is not necessarily true. If I lease a single faily house, that does not mean it necessarily is an investment property.