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

[J Grant]

So which box did you check?

There is only one box to check, the HBU for the property being appraised , ( house on a lot plus adjacent vacant adj lot ) is as is existing residential. The test is does the improvement contribute more than tearing it down would.

Then comment the vacant excess lot could have its own HBU if sold separately, its present HBU is interim use ( hold for investment )

 

[djd09]

oh i understand. the valuing of multi parcels as one has been going on since i been an appraiser 1999. but

for example would you appraise two adjacent parcels owned by the same entity both with a homes built on each parcel as one. i think that answer would be no.

and if the vacant lot is allowed to be built upon, is it at the maximus.

 

[Andrei Fin]

its present HBU is interim use

Bingo, the appraiser's job is to reflect the market (go back and read your definition of value if you don't agree) and the proof is right there in the pudding.

 

[glenn walker]

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.

This is Fannies Guidelines based on what they will or will not purchase and in my opinion they are not Dead-Wrong. What is dead wrong is appraisers not taking into account what the scope of work is and what the assignment is for.

If I receive an-assignment to appraise a single family home that has two separate lots BUT the lender and owner have agreed to combine both parcels into one separate deed that can immediately changes the dynamics of my H & B use analyses because even if I value the separate adjacent lot as VACANT once its combined with the main parcel the value and economic and financial feasibility is usually going to diminish into nothing more than a house with one over-sized lot. IF the separate lot or parcel really had some higher and better use the market and or either the existing owner or new buyer would keep it separate and either sell it or develop it. Very few people give away free money or profit.

The MARKETS determine the H & B use and the appraiser needs to have a hand on the pulse of his/her market and know what is in demand. Most commercial appraisers normally have a better grip on H & B use because they are typically more aware of what market trends are because they engage with developers and builders on a daily basis where most residential appraisers have never developed, built or been trained to conduct a real world feasibility study. These residential appraisers often confuse zoning with feasibility and sadly that's why lenders in the past trained their staff loan appraisers to just check the YES box and be done because many could cause a car wreck in a three car funeral procession : ) LOL

 

[J Grant]

If I receive an-assignment to appraise a single family home that has two separate lots BUT the lender and owner have agreed to combine both parcels into one separate deed that can immediately changes the dynamics of my H & B use analyses because even if I value the separate adjacent lot as VACANT once its combined with the main parcel the value and economic and financial feasibility is usually going to diminish into nothing more than a house with one over-sized lot

I disagree with this. If the adjacent lot remains vacant, and it has a potential own HBU if sold, why would that change just because it is encumbered under one mortgage with the adjacent house and lot ?

I do not see Fannie saying they both have to be on one deed, rather they both have to be encumbered under one mortgage. The owner could still sell the vacant lot as a vacant lot, they would have to get a release from mortgage or payoff at that time..

The fact is today eff date, the current use of that vacant lot is interim value or value in use, since it is not being offered for sale today.

Today there is a house and an adjacent vacant lot. I fail to see how the adjacent lot vacant lot's value diminishes because it will be encumbered under one mortgage - what if the vacant lot were instead owned by partners in a portfolio of other properties? What difference does it make to a buyer ...the buyer is buying one lot and seller will settle their own mortgage/other obligations on sale.

 

[Mike Kennedy]

I have had a couple of these and I've told the AMC to find another appraiser to give you the 2 parcels in one appraisal as I wont be doing it. Both assignments happened to be adjacent and vacant. When I called the listing agents they both said, "well technically yes they probably should be separately developed". To which I said that an appraiser is required to identify this aspect of land, everytime. Moreover saying a legitimate appraiser wouldn't knowingly value them together. The one called me back later and with a snarky tone, said "they were valued together before". I simply said that I'm aware they both previously sold together....14 years ago and that the lender is free to choose another appraiser. I'm always careful to discuss "appraisal theory" and am hesitant to discuss specifics. Whoever wrote this guidance from Fannie is trying to get loans through the system with complete disregard for the role of an appraiser. With that being said an appraiser can complete surplus land scenarios under the hypothetical condition that the parcels are merged (replatted) as one but not when it's excess land. I think we need to remember our job and it's not about getting borrowers secondary market loans....

"ReeLator" : BUT BUT BUT OUR CONTRACT PRICE INCLUDES BOTH PARCELS SO YOU HAVE TO INCLUDE IT IN THE SAME APPRAISAL ......


...........NOPE.

 

[Overimprovement]

Fannie does lend on a house with an adjacent vacant lot , when adj lot is excess land . Fannie is allowed to lend on them, owners are allowed to borrow on them, and buyers allowed to purchase them. There is nothing in the fannie announcement that appraiser is supposed to ignore the HBU if second lot were severed and sold vacant. Nothing in the announcement says to pretend it is surplus land. The adj lot and house are under one lien. That also is allowed. Don't know why that freaks appraisers out.

Fannie states purpose of the excess lot for the appraisal is value in use. Which still means the adj lot would have its own HBU separately. As long as appraiser discloses the fact of the adj lot having its own HBU if sold off, I don't see what the conflict is.

Imo if the vacant lot retains the possibility of being sold, I don't see why it's value is diminished because it is encumbered under one mortgage.

This is how I read the announcement as well. Not asking us to violate any appraisal or USPAP guidelines. If it is surplus, then no problem. IF it is excess, Fannie is simply saying describe it and value it.
Commercial appraisers value buildings with multiple types of contributions to overall market value all day long, even multiple buildings on one parcel. If anything, Fannie is realizing its forms often paint appraisers into corners, and IMHO, is simply creating an exit door for us.

This is a forms issue, not a concept issue. Anyone who has ever done a narrative proposed subdivision appraisal knows full well that each lot can be valued separately (entry lots are different, so are corner lots, so are strangely shaped lots, etc), and then input all those into a DCF model.

The issue is we are only supposed to be appraising ONE property at a time on Fannie's 1004 form. This issue has caused angst, but more because of the form, than the actual appraisal problem to be solved.

 

[Mr Rex]

If the 2nd lot is more valuable separately than the contributory value as combined with the improved lot, the lender is ahead of the game. WTF is the problem? Idiocy IMHO.

 

[djd09]

Why does it matter if the lender is ahead of the game, because even when they lose, they win.

 

[Mr Rex]

Their exposure is limited, even more so than in the single lot scenario.