Bad advice from Fannie--"Multiple Parcels" from Dec. 2019 'Appraiser Update'

[Lee Lansford]

fanniemae.com/content/news/current-appraiser-newsletter.pdf

I am much surprised that savvy and competent appraisers (you know who you are) haven't weighed-in on the bad (i.e., contrary to their Selling Guide; contrary to appraisal principles and standards of practice) advice from Fannie in the brief "Multiple Parcels" article in the above-noted newsletter.

Referencing a vacant parcel that is adjacent ("adjacent" to the improved parcel; also, not necessary to support the improvements on the improved parcel) to the parcel with the improvements--and aware that the vacant parcel has its own H&BU separate and distinct from the improved parcel--Fannie's advice is to consider this vacant parcel as "...'value in use' for the purpose of the appraisal, so that the land should be described and it contributory value [my side-note: Got that?] included in the grid?"

Really Fannie? Really?

 

[Terrel L. Shields]

I do not follow the logic of a "value in use" statement? The value is what the value is...and they are implying the value is zero (in use) but you need to value it at market. Again, as stated however, you do include the value in the grid and you are not doing 2 appraisals although you certainly need to support the value of the second lot with sales or extraction preferably.

 

[Andrei Fin]

There is actually another recent thread that discussed this. Maybe people don't think it's a big deal because there is not much risk involved, worst case the owner sells off the second parcel and the loan is paid off. Best case they develop the parcel and upon foreclosure the lender makes a profit.

 

[andrew81]

while i can definitely see this being an issue in areas with active new construction and there is demand for vacant sites, this not the case in all markets

around here platted city lots sell for $0 to $6000 to adjacent owners after prior improvements have been razed or otherwise destroyed and remain vacant. it is very rare that an additional adjacent parcel has a highest and best use other than continue vacant until market conditions change. in rural areas there is no county zoning, sites of 1 acre to 40 acres with multiple parcels are common, and there is no demand for subdivision, so its not an issue there either

 

[Lee Lansford]

View attachment 42854I do not follow the logic of a "value in use" statement? The value is what the value is...and they are implying the value is zero (in use) but you need to value it at market. Again, as stated however, you do include the value in the grid and you are not doing 2 appraisals although you certainly need to support the value of the second lot with sales or extraction preferably.

2 separate properties--each with its own H&BU as vacant--can't be lumped together as though one to arrive at an opinion of market value.

 

[Lee Lansford]

while i can definitely see this being an issue in areas with active new construction and there is demand for vacant sites, this not the case in all markets

around here platted city lots sell for $0 to $6000 to adjacent owners after prior improvements have been razed or otherwise destroyed and remain vacant. it is very rare that an additional adjacent parcel has a highest and best use other than continue vacant until market conditions change. in rural areas there is no county zoning, sites of 1 acre to 40 acres with multiple parcels are common, and there is no demand for subdivision, so its not an issue there either

You're missing the point. Where the vacant parcel has an actual market derived H&BU separate and distinct from an adjacent improved parcel (or, another vacant parcel for that matter), we can't lump the two together as though one. If an appraiser were to arrive at the such a conclusion, I sure would like to see their H&BU analysis (and see which box they X'd on page 1 of the Fannie form RE: H&BU. Fannie has this one dead-wrong.

 

[Lee Lansford]

while i can definitely see this being an issue in areas with active new construction and there is demand for vacant sites, this not the case in all markets

around here platted city lots sell for $0 to $6000 to adjacent owners after prior improvements have been razed or otherwise destroyed and remain vacant. it is very rare that an additional adjacent parcel has a highest and best use other than continue vacant until market conditions change. in rural areas there is no county zoning, sites of 1 acre to 40 acres with multiple parcels are common, and there is no demand for subdivision, so its not an issue there either

Re-read the article. The vacant parcel is identified as having its own H&BU separate from the improved parcel. THAT is why this is a problem.

 

[andrew81]

Re-read the article. The vacant parcel is identified as having its own H&BU separate from the improved parcel. THAT is why this is a problem.

having its own H&BU separate from the improved parcel.

i have to admit that since it is not an issue in my market, i didnt read past the title of the article

 

[andrew81]

in support of your opinion

The Appraisal of Real Estate; Value in Use – The value the real estate contributes to the enterprise of which it is a part.

the value of an additional parcel with its own H&BU selling with an improved parcel is different than the market value if sold separately

 

[Lee Lansford]

in support of your opinion

The Appraisal of Real Estate; Value in Use – The value the real estate contributes to the enterprise of which it is a part.

the value of an additional parcel with its own H&BU selling with an improved parcel is different than the market value if sold separately

Yep. That's one problem.