Can you value as vacant.if its improved?

[The Warrior Monk]

I know of a note that was written, closed, and has since been paid off on a subdivision in which only the land was considered in value. I do not have access to the document because I dont have access to it ... but I know for a fact it happened.

Are you telling me that the mortgage only covered the land, and if the lender foreclosed on the property, the borrower retains rights to the building? I'll place a bet that's not what the mortgage stated. It must, otherwise the lender didn't lend on a hypothetical property.

 

[PropertyEconomics]

In the March 2008 Q&A, even though the situation doesn't exist, it could actually exist. In other words, the property rights dealing with the land and improvements could actually exist separately, and often do. It is more common in investment properties, but it also exists in owner-occupied residential assignments also.

FAQ 114 also addresses the issue. Basically, it's stating that one can pick a random lot size (in that case, 5 acres), and appraise it without a hypothetical condition.

The only way the Q&A and FAQ interpretations can be reconciled with the definition of hypothetical condition is that hypothetical conditions do not apply to the appraisal of property rights, but rather "land and improvements.

If indeed that ASB means to say that hypothetical conditions don't refer to property rights, I believe they must clarify the issue. I also believe the ASB is falling into the trap of appraising "land and improvements," rather than "property rights."

David .. I could not disagree with you more. I believe this is EXACTLY how the statment should have been made ... although it wasnt.

 

[Webbed Feet]

If the client wants an appraisal of land with no improvements but there are improvements then an HC is appropriate, and IMHO warranted.

Mr. Wiley is proposing appraising the land only, not using the HC that the improvements do not exist, and without stating through a HC that the improvements do not exist he is appraising a component of the whole, and the whole has other components and is not vacant.

Mr. Wiley's approach would be more appropriate if he were appraising say a McDonald's site where the land is leased and the building is owned by McD's (McD's rarely buys land but builds their buildings on leased land). In that case the improvements do exist and the subject of the appraisal is the land component, knowing that the improvements do exist.

I have not read pages three and four of this thread yet, but Mr. Evans is right exactly where my thinking was headed. So is Mr. Rex in asking how it is that something that is described in USPAP, by definition, to be a HC is now suddenly not an HC just because the nast HC words are not spoken?

I'll read on. But I think some other top posters are going to chime in about intended use, property rights, and form of ownership before this little debate is concluded...

 

[Webbed Feet]

I personally believe that FAQ 113 missed the mark in that the property rights, as David mentioned earlier are separate between the land and the improvements .. when ownership is joined, it is my personal opinion that you cannot value an improved property as vacant without a hypothetical condition affecting the analysis as the analayis is of something that is contrary to that which exists as of the effective date of appraisal.

I know others have differing opinions including the AF .. which again I believe to be totally in error, however, several USPAP instructors agree with the concept as David and I have presented.

I must ditto....

 

[Webbed Feet]

I have a request form a client on an improved parcel with an affixed manu home. Client wants me to value as vacant land only, with no value given to the improvements. I talked with a few local Certified Appraisers out here to get thet their opinion, and the consensus is yes but disclose. Thoughts? A few suggested hypotheticals and one suggested it was all SOW....which makes sence. Appreciate any feedback. Thanks!

I do have some feedback for you. Are you aware the top two instances appraisers get sued over are GLA errors and land appraisals?

 

[Terrel L. Shields]

Client wants me to value as vacant land only, with no value given to the improvements.

just do it. It is not hypothetical. No E A need apply. It is a partial estate. They are not asking you to give "no value" to the manf. home. They are asking you to appraise only the land. The MH is probably not financed by them. Often land is financed by one party and the MH by another....more like a car loan. If the MH was an RV would you include it? no.

One of the FAQs helped make the issue more confusing

Q & A March 2008 - in fact, it clarifies it very well.

You can adopt the hypothetical condition

again not necessary, in fact, reading the Q & A i would conclude it might even be misleading to provide a HC.

I respectfully disagree with the Duck and PE. There is no need for a hypothetical, no need for extraordinary assumption. Follow the March 2008 Q & A...copy the ^%$# thing and put it in the report if you feel better about it. You merely disclose what part of the property you are appraising.

You do it all the time when appraising a parcel which is being sold off a larger parcel. same principle. Or when grandma's mobile home sits on someone else's property. I cannot understand why so many people want to make a big deal out of it, but at the very least it demonstrates why USPAP has been such a miserable failure. All the blind men are touch an elephant and concluding a different thing about it...this cannot be good for the profession....so much for the "science" part of it. We have degenerated into legalistic arguments over how many angels can dance on the head of a pin.

 

[Webbed Feet]

<.....snip.....> It is a partial estate. <....snip....>

Oh I don't know... I might change my mind. So what is "Partial" about the Estate?

 

[The Warrior Monk]

just do it. It is not hypothetical. No E A need apply. It is a partial estate.

If someone wants me to provide a partial estate, all they need to do is provide me with the legal document spelling out the property rights. No legal document...no partial estate. The fact that it could exist is not relevant, because in reality it doesn't.

IMHO, there is no difference between a building that doesn't exist and property rights that don't exist. In either case, they can't transfer until a certain future event occurs.

I respectfully disagree with the Duck and PE. There is no need for a hypothetical, no need for extraordinary assumption. Follow the March 2008 Q & A

The March Q&A (along with FAQ 114) is narrowing the definition of "hypothetical condition." It's stating that property rights are not a consideration when determining when to use a hypothetical condition.

 

[PropertyEconomics]

Are you telling me that the mortgage only covered the land, and if the lender foreclosed on the property, the borrower retains rights to the building? I'll place a bet that's not what the mortgage stated. It must, otherwise the lender didn't lend on a hypothetical property.

They lent based on LAND VALUE AS VACANT .. which is not what existed as of the date of appraisal. Parse all you care to ... I dont care what they took a mortgage on .. I know what was appraised and what the engagement letter asked to be appraised ... the LAND AS THOUGH VACANT AND UNIMPROVED ... that is contrary to what exsited as of the effective date of the appraisal.

 

[Michigan CG]

I completely disagree with FAQ 113, but then again I am not a USPAP instructor.

Appraising the land only of a property that has improvements and not addressing those improvements, and pretending they do not exist......sounds like a hypothetical condition to me. But hey, call me silly.....

Hypothetical Condition
That which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. A hypothetical condition may be used in an assignment only if:
o Use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison;
o Use of the hypothetical condition results in a credible analysis; and
o The appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions.
(USPAP, 2002 ed.)

Why are appraisers afraid of a simple HC? I use them all the time. Is it the residential UW mindset is not educated or sophisticated enough to understand the simple concept?

If improvements exist and the assignment is to appraise the land as if vacant one cannot ignore the fact they do exist. Is this not the purpose of a Hypothetical Condition?