Need suggestions on how to respond to frivolous non sequitar review questions.

[DWiley]

Why is a small variance from whatever the appraiser chooses to list as predominant ALWAYS attributable to an over/under improvement? If there is a range then the subject must be somewhere in that range.

Are "they" assuming the appraiser "forgot" to mention an under or over improvement? Or intentionally failed to disclose it?

Can you cite the "requirement" to specifically address predominant variances in the GSE or Gov. publications?

Just because I am aware that many lenders have such a requirement should not be construed as any indication that I support such a requirement. I push back on it every time I see it in a list of lender requirements

Still, as practicing appraisers, we are aware (or should be aware) that many have the requirement to comment. So, I just commented, to avoid a revision request later. Th other tactic that many take is just putting the subject's value as the predominant value - every time. That is called the law of unintended consequences

 

[CANative]

That's right. But sales of these properties can be rare as many are transferred between generations of families. No one wants to get rid of a beach house in Malibu. And the requirements of the California Coastal Commission can be oppressive. Building a large house on a lot squeezed between two other lots with small cottages would be very difficult because you would have to build vertically, and one can run into trouble with the commission, not to mention the neighbors, getting approval. Might take years and years and lots of $$$ just to get the project approved.

 

[CANative]

Mom and Dad (Mike Boyd for anyone that remembers) and Aunt Mary at Huntington Beach...just down the road from Malibu.

 

[George Hatch]

Subject is a small 2-bedroom cottage in average condition with sandy beach frontage, naturally the value of the property is more than 10% above the predominant value in the neighborhood due to its highly desirable beach frontage lot as properly noted in the appraisal report explaining why the property is significantly more than the predominant.

The AMC Reviewer requested to have the Appraiser to comment on whether the subject property is over improved in regards to its value being higher than the predominant.

How does one politely respond to a non sequitar question by a Reviewer who has no basic understanding of real estate and appraisal concepts? I am guessing some AMCs are sourcing out their review work to foreign countries such as India or the Philippines.

Not only is this not a frivolous question for the reviewer to ask but it indicates that the original appraisal report failed to adequately convey the point that the beachfront location is the single dominant attribute of the subject property and that it's market segment is limited to other *beachfront* homes in this location and in other nearby beachfront neighborhoods.

It doesn't matter what the homes on the inland side of the street or the rest of the neighborhood are selling for because none of those properties are comparables to the subject. Nor does it matter what the other areas of this neighborhood are selling for because they're even more disconnected from the subject's market segment.

If the structure is old/small for the area then there's a *distinct* possibility that it's an underimprovement for the site and also a possibility that the structure has no contributory value to the site and that it might be marketed for land value. A land sale analysis - using actual land sales data - is definitely in order in this scenario if for no other reason than to address the HBU issue. It is highly likely that some of those land sales will have old/small homes onsite that are an underimprovement for the site and have no contributory value. In fact, if you have similar homes among your comparables some of those listings may include a "value is in the land" or "sold for land value" comment in them.


The overwhelming majority of the new SFR construction appraisals I've performed on beachfront parcels in the last 20 years have had older homes onsite that - physical condition notwithstanding - had no contributory value to the site and were therefore demolished to make way for bigger and better.

So yeah, if a lender is asking whether or not you're signing off on what amounts to a 90% land loan that is not a frivolous question.

 

[jay trotta]

Perhaps;
PREDOMINANT PRICE VERSUS OPINION OF MARKET VALUE - The predominant price on page one is the MEDIAN of the value range for ALL residential properties within the subject neighborhood. By definition 50% of all homes in the subject neighborhood will be priced below the indicated predominant price and 50% of all homes will be priced above the indicated predominant price. The appraiser's opinion of market value is between the high and the low end of the price spectrum for homes in the subject neighborhood. The relationship between the indicated predominant price and the opinion of market value is not a recognized method of determining whether a property is an over improvement for the area. The predominant price is not related in any manner to the MEDIAN sale price for COMPARABLE properties.

I borrowed the above for general purposes; How in todays market does this (QC-Stip) provide assitance in "speeding up" the process, everyone is so concerned about ??

 

[CANative]

Not only is this not a frivolous question for the reviewer to ask but it indicates that the original appraisal report failed to adequately convey the point that the beachfront location is the single dominant attribute of the subject property and that it's market segment is limited to other *beachfront* homes in this location and in other nearby beachfront neighborhoods.

It doesn't matter what the homes on the inland side of the street or the rest of the neighborhood are selling for because none of those properties are comparables to the subject. Nor does it matter what the other areas of this neighborhood are selling for because they're even more disconnected from the subject's market segment.

If the structure is old/small for the area then there's a *distinct* possibility that it's an underimprovement for the site and also a possibility that the structure has no contributory value to the site and that it might be marketed for land value. A land sale analysis - using actual land sales data - is definitely in order in this scenario if for no other reason than to address the HBU issue.


The overwhelming majority of the new SFR construction appraisals I've performed on beachfront parcels in the last 20 years have had older homes onsite that - physical condition notwithstanding - had no contributory value to the site and were therefore demolished to make way for bigger and better.

So yeah, if a lender is asking whether or not you're signing off on what amounts to a 90% land loan that is not a frivolous question.

Exposure time would probably be less than one day and the only hold up would be the time needed to sort out all of the competing offers.

So, even if the value is all in the land, what is the problem from a lenders perspective?

 

[George Hatch]

Because lenders don't knowingly make 90% or 95% land loans at 4%/30 yr SFR terms, and because even beachfront markets can decline in values over a few short years, and because if for some reason the loan goes down at the wrong point of the economic cycle the lender can come back at the appraiser under the guise that they would never have made a 30yr loan on this property had they known the structure was at or past the end of its economic life.

Even if the lender is making that claim in bad faith the appraiser has no defense because they didn't address the situation in their report.

 

[Michigan CG]

I think George summed it up nicely.

 

[Joyce Potts]

You should have used a typical, dare I say, BOILERPLATE comment in your report.

 

[Andrei Fin]

You answered your own question. " naturally the value of the property is more than 10% above the predominant value in the neighborhood due to its highly desirable beach frontage lot " Done!