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

[djd09]

So that makes the taxpayers the client and not fannie/lender.

 

[Mr Rex]

How is this any different than any other Fannie, Freddie, USDA, VA, or FHA loan? In this scenario, at least the tax payers have a little extra cushion that they otherwise wouldn't have. Why is that a bad thing?

 

[Carnivore]

I have an issue with some of the attitudes that miss a key point. Property rights include the ability to mortgage the property. The whole property. So I own 2 adjacent lots with potential H&BU of the second lot being build-able yada, yada. It's my property and it is worth $X. Why should I not be able to get a mortgage on the whole thing? What is the downside? Should I be forced to sell the 2nd lot because it has H&BU as a separate lot? Should I be forced to get a separate mortgage on the lot or should I be forced to build a garage or similar on the second lot? Should I engage an appraiser to see how big of a garage I need to build so the H&BU tests fail as a separate lot due to the garages contributory value and/or cost to remove? Silly rule with little relation to common sense IMHO.

I have not read past your post. I agree with your premise. If the owner wants to encumber both sites and FNMA will securitize that Loan then the lender can do this for the borrower. Why NOT! Once both parcels are under the same mtg thats it! They can't sever the vacant site without paying off the 1st improved site or refinance the Improved site and if the Value is sufficient to cover the mortgage refinance then they could sever the other lot.

There is noting wrong with what FNMA said in the Newsletter. Whats important is to recognize the excess land is just that excess land. The difficult part is determining its contributory value contribution to the whole.

I don't understand why everyone else, it seems is getting all worked up into a lather over this.

 

[Lee Lansford]

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

No.

I'd like to the see the H&BU analysis on two side-by-side parcels; one improved and fully supporting the SFR improvements; the 2nd parcel, vacant, same SFR zoning as the improved parcel; individually, the land value is $350k. The market views the two as two separate entities and does not combine the two as though they are one. I'd like to see your H&BU analysis--and how you'd respond to "Is the H&BU as improved the current use? (shortened from what is on page 1 of the Fannie forms). You'd mark YES? If you did, you'd be wrong.

.

 

[Lee Lansford]

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.
[/QUOT

I'd like to see the H&BU analysis that you propose for 2 properties--adjacent, same owner--where one parcel is SFR improved (conforming; the parcel supports the improvements) and the 2nd parcel is vacant with its own H&BU. Both parcels of land...land...have a market value of $350k and the vacant parcel would be quickly developed. The market does not combine the two as one--though you are proposing that you would...really?

 

[J Grant]

No.

I'd like to the see the H&BU analysis on two side-by-side parcels; one improved and fully supporting the SFR improvements; the 2nd parcel, vacant, same SFR zoning as the improved parcel; individually, the land value is $350k. The market views the two as two separate entities and does not combine the two as though they are one. I'd like to see your H&BU analysis--and how you'd respond to "Is the H&BU as improved the current use? (shortened from what is on page 1 of the Fannie forms). You'd mark YES? If you did, you'd be wrong.

.

It is NOT combining the two as though they are one ! It is financing the two together. Since a segment of buyers do purchase a vacant lot in a package with house next door and a number of owners of vacant lots choose to leave them vacant for future appreciation vs sell /build today, there is market activity that supports it.

Who are we to tell buyers what they can and can not do and ditto for lenders or loan programs. Fannie will finance it, FHA won't.

 

[Lee Lansford]

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.

Oh, my. Flat-out...NO.

You would lump-together these 2 properties and appraise as a single-whole for mortgage lending?:

Two parcels, side-by-side, one owner. The market value of the LAND for EACH parcel is $350K.

One parcel is SFR improved and is conforming in all important respects. The vacant site is ready for development. The market does NOT combine the two as though one. QUESTION: For a mortgage refinance, you would combine the two as though one and offer a single opinion of market value? If YES, you would have to "X" the NO box to the question on page 1 of the Fannie report form that asks (paraphrasing here) "Is the H&BU as improved the current use?"

 

[Lee Lansford]

It is NOT combining the two as though they are one ! It is financing the two together. Since a segment of buyers do purchase a vacant lot and /or hold it for future appreciation vs sell it /build on it today, there is market activity that supports it. Who are we to tell buyers what they can and can not do and ditto for lenders or loan programs. Fannie will finance it FHA won't, in both case their choice.

You're missing the point.

Please read the examples that I've given to a few others in this string regarding 2 parcels and appraising.

This is specifically NOT about how properties may be financed. Please, go back and read the original because you have overlooked the gist of the matter.

 

[J Grant]

The market does NOT combine the two as though one.

Since there are some transactions where a buyer will purchase a house together with a vacant adjacent excess land lot, the market will combine the two as one in some cases.

It is a limited product and therefore a niche market - how many houses have an adjacent vacant lot avail for sale at same time as the house, or both or owned by one owner who is willing to sell them together? In most areas, not many, but they seem to find willing buyers in my area when they are available.

 

[Lee Lansford]

The market does NOT combine the two as though one.

Since there are some transactions where a buyer will purchase a house together with a vacant adjacent excess land lot, the market will combine the two as one in some cases.

It is a limited product and therefore a niche market - how many houses have an adjacent vacant lot avail for sale at same time as the house, or both or owned by one owner who is willing to sell them together? In most areas, not many, but they seem to find willing buyers in my area when they are available.

We're talking about appraisal principles, H&BU analysis, and proper methodology...and you're going off on a tangent .