Must appraisal GLA be based on city records GLA?

[Flygirl 152]

if the market has a positive reaction to unpermitted or even illegal improvements but the client tells the appraiser to "not give value" while still asking for Market Value then that conflict represents an unacceptable assignment condition.

There's no contrary argument to this.

If the municipality requires the non permitted addition to be torn down, how would you argue to the entity that is suing you that it has market value when it was never allowable to be there in the first place?

 

[KD247]

If the municipality requires the non permitted addition to be torn down, how would you argue to the entity that is suing you that it has market value when it was never allowable to be there in the first place?

If the addition was built in an area that didn't require permits at the time, how would you argue to the borrower that the addition has no market value because it doesn't have permits?

That's why appraisers are supposed to have local expertise. Because the market reaction to, and legality/enforcement of, unpermitted additions varies from area to area. And, there is a distinct difference between a property with an illegal addition and a property that represents an illegal land use. In single family zoning, a single family home with a setback violation is not an illegal land use.

 

[Flygirl 152]

If the addition was built in an area that didn't require permits at the time, how would you argue to the borrower that the addition has no market value because it doesn't have permits?

That's why appraisers are supposed to have local expertise. Because the market reaction to, and legality/enforcement of, unpermitted additions varies from area to area. And, there is a distinct difference between a property with an illegal addition and a property that represents an illegal land use. In single family zoning, a single family home with a setback violation is not an illegal land use.

This did not answer the question.

 

[23Degrees]

If the addition was built in an area that didn't require permits at the time, how would you argue to the borrower that the addition has no market value because it doesn't have permits?

That's why appraisers are supposed to have local expertise. Because the market reaction to, and legality/enforcement of, unpermitted additions varies from area to area. And, there is a distinct difference between a property with an illegal addition and a property that represents an illegal land use. In single family zoning, a single family home with a setback violation is not an illegal land use.

Permissible use is covered as part of the next question - HBU. Illegal or non permissible land use is fully covered by that question. They are not asking the same question twice. Regardless of Fannie's intent the specific question asked and that appraisers are responsible for on the form (rightly or wrongly) is Zoning Compliance. Once statement 1 is gone there are many players that have the ability to rely on their interpretation of that with potential agreement from those given authority to arbitrate.

And if a JA that was lax on enforcement on the effective date suddenly becomes strict the day after and demands demolition of the addition that was opined to add $zzz,zzz of market value it will truly be the appraiser that is SOL if their dubious argument that the authorities were known to look the other way does not work in court.

But I do agree that despite the conundrum, the appraiser that proceeds "as is" must properly account for the market value contribution of the unpermitted area and gains responsibility (hopefully with the benefit of E and O) for all of the potential pitfalls that come with the various calls involved with doing so.

 

[Mike Kennedy]

there is a distinct difference between a property with an illegal addition and a property that represents an illegal land use. In single family zoning, a single family home with a setback violation is not an illegal land use.

Kindly post a local ordinance (your market) supporting the opinion above?

 

[KD247]

If the municipality requires the non permitted addition to be torn down, how would you argue to the entity that is suing you that it has market value when it was never allowable to be there in the first place?

I'm just saying that there's a lot of grey area in between the two extremes. An example of one extreme case would be where a property is being sold and it's common knowledge that the addition must be brought into code compliance before occupancy will be allowed. The market would value the addition based on the expected future benefit minus the costs/risks/hassle involved. The market value of the addition would sometimes be zero, but not always.

Another extreme would be in the refinance of an older property with an older addition, both of high quality and in good condition, with no apparent health/safety concerns. Let's say that in this example the municipality has established a precedent regarding their policy towards non-permitted additions, which is often the case. Let's also say that even though their are no records regarding the addition, the most knowledgeable market participants are certain that there is absolutely no chance that the locality will require any action regarding the addition. As before, the value of the addition would be determined by the market and it would be misleading to categorically declare it to have no value.

Failing to give value (as if we had that power) to an addition doesn't remove liability and doesn't relieve us of our duties as an appraiser. There's a long history of discussions regarding the appraiser's role in terms of analyzing and reporting code compliance issues but misleading the reader is never a viable option.

Attempts to reduce our to dogmatic algorithms (like "No Permits = No Value") are unsuccessful because they can't account for every exception to the rule. We're all trying to do the right thing while also limiting our exposure to liability risk, so this is a great conversation to be having.

 

[gavin]

Regarding "must appraisal be based on GLA?" - new appraisal 78% higher valuation

All,
So I started a new refi-process, because the appraisal mentioned here stopped that attempt.
The new appraisal, by a qualified & competent appraiser, arrived at valuation of $1,350,000 (vs. $758,000 valuation of previous appraisal).
The appraiser's comment on the status of the house area that was improved without permits is as follows:
"For appraisal purposes, the lower level will be considered as gross living area as it has been constructed in a workmanlike manner, is typical for the neighborhood, and has good market appeal."
That is basically in line with the majority of responses from this forum ("measure what is there," "what is the market reaction to the additions.").
Thank you all for your responses and consideration of the question.
gavin

 

[Mike Kennedy]

Gavin was the second appraisal report's OMV "as-is" or based on either an Extraordinary Assumption or Hypothetical Condition?

 

[Tim Hicks (Texas)]

All,
So I started a new refi-process, because the appraisal mentioned here stopped that attempt.
The new appraisal, by a qualified & competent appraiser, arrived at valuation of $1,350,000 (vs. $758,000 valuation of previous appraisal).
The appraiser's comment on the status of the house area that was improved without permits is as follows:
"For appraisal purposes, the lower level will be considered as gross living area as it has been constructed in a workmanlike manner, is typical for the neighborhood, and has good market appeal."
That is basically in line with the majority of responses from this forum ("measure what is there," "what is the market reaction to the additions.").
Thank you all for your responses and consideration of the question.
gavin

Gavin,

I would be wary of this new appraisal too and hopefully you realize this could be an issue in the future if you decide to sell. I am not from San Francisco, but I can tell you a final value does not assure competence. I, personally, would have a problem calling any below grade area GLA. I could still value the area equally, but I would separate it for clarity so as not to mislead any future readers of my appraisal report. It may seem like a matter of semantics to you and to some appraisers, but by definition below grade areas are not GLA. As far permits go, it is far different here in TX where permits are not required in many areas and it depends on market acceptance, not permits.

 

[gavin]

Mike: appraisal stated "as is" in the report.
Tim: I am not at all wary, this valuation is in line with sales of similar sized SFH in the neighborhood. The lower floor is not below grade, in fact there's a basement underneath the lower floor. There have been 4 appraisals of this property since I purchased, not one has mentioned "below grade."

This appraisal was based on facts and "reality," if I may use that term.
When using sales of similar sized comperable homes in the neighborhood (~2,164 sq-ft), the data leads to a valuation in this range ($1,350,000; $624/sq-ft). The six comps listed (4 sold, 2 pending) sold for $600-$833 /sq-ft. I would estimate the price is correct to +/- 5% (for whatever my opinion is worth).

If one bases their valuation, as Tosh & Associates did previously, on a 1,045 sq-ft house, and allocates for differences in size at $61/sq-ft on average, one ends up with a valuation which is not based on market reality ($758,000; $350/sq-ft)

I understand ones tendency to give the benefit of the doubt to an appraiser determining value, as opposed to a home owner, but everything points to Tosh & Associates doing an inept job, in this case. Dan Tosh previously mentioned "regression," "market research," etc., in an attempt to add credence to his product, but could not back up anything.

I understand & appreciate the reforms that have gone on in the last few years to insulate this industry from external pressure, to make their product more trustworthy. But there is a problem when garbage can be produced with impunity.

Thanks again to all who contributed to this discussion.
gavin