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

[J Grant]

The assemblage to which we are referring consists of two different property types. Not just one property type.

Normally (and everywhere outside of FannieWorld) when there's a mixed use or an assemblage of disparate uses onsite the first step is to put a retail value on each component in order to have a conclusion against which to apply the discount. I see a whole bunch of commentary here that seems to imply a methodology that either skips that "value each component first" or which uses a third property type (SFR on an oversized lot) which doesn't directly compare to either of the existing components.

When we're valuing an assemblage we usually start with the retail of each, then develop the discount for the terms of sale (meaning the bulk sale). And we usually don't discount the one component - they will usually all contribute less - especially when they consist of disparate uses; so we discount the retail of each component prior to adding them together.

That is in fact how I would do it ,( I posted I would develop a separate MVO for the adjacent lot, ) I;d develop a value for each , and then consider the value of the two sold together.

However -shouldn't the market determine if there is a discount, rather than a rote preconceived idea wrt to an assemblage will always result in a discount? Isnt' each case different, and should be appraised on its own merits?

 

[J Grant]

If the excess land (additional lot) has a value of 100,000 and the improved lot (model match) has a value of 100,000 would the typical market participant pay 200,000, less than 200,000 or more than 200,000 if vacant and ready for development?

Economies of Scale says the two lots combined would bring less than the two lots separated. If so, is a combined lot the H&BU?

What am I misunderstanding?

They are NOT two lots combined !!!!! And a sale does not make them combined into one lot.

They are 2 lots, an adjacent vacant lot, sold together with a house on its own lot/site.

 

[J Grant]

If a buyer purchases two cars together, it does not make them into one giant combined car!!

Maybe the market will see a discount for selling them both at same time to one buyer, but maybe not. What if favorable financing offset that, or rarity of one of the cars?

A buyer able to finance a vacant lot into the sale of a house is a good deal. Now some of you do n't like the fact that fannie is doing that, but we are supposed to keep our personal views out of appraising.

 

[BRCJR]

They are NOT two lots combined !!!!! And a sale does not make them combined into one lot.

They are 2 lots, an adjacent vacant lot, sold together with a house on its own lot/site.

I understand that. For the purpose of valuation the way I have read commentary in this thread they are being "combined" and valued as a whole.

 

[BRCJR]

If a buyer purchases two cars together, it does not make them into one giant combined car!!

Maybe the market will see a discount for selling them both at same time to one buyer, but maybe not. What if favorable financing offset that, or rarity of one of the cars?

A buyer able to finance a vacant lot into the sale of a house is a good deal. Now some of you do n't like the fact that fannie is doing that, but we are supposed to keep our personal views out of appraising.

I was not doing the "what if's' as that changes the scenario being discussed.

 

[J Grant]

I understand that. For the purpose of valuation the way I have read commentary in this thread they are being "combined" and valued as a whole.

They are being sold together but not "combined" into one lot - they are both encumbered under one mortgage. There is one valuation though for the two as sold together...

 

[BRCJR]

They are being sold together but not "combined" into one lot - they are both encumbered under one mortgage. There is one valuation though for the two as sold together...

I understand that. Then, as vacant, they both have their own separate H&BU.........

 

[George Hatch]

Here's an example and the reasoning behind the manner in which we develop discount factors for mixed use properties.

If i know that the value of the SFR parcel if sold individually is $200k and the value of the adjacent vacant parcel is $50k then in an assemblage they both get discounted, not just the vacant lot. That's because *from an investor-buyer's* perspective the short term profit motive to which we normally attribute to a profit-driven investor lies in flipping both parcels, not just the one.

Long story short, unless you actually have direct comparables with the same unit mix (1 SFR + 1 Vacant) you have to get to the retail of each first before you can develop a discount for the assemblage.

And if you have to go to the effort of doing a land sale value anyway, then that makes the "discounted" value an extra and arguably unnecessary step. For most mortgage lenders, anyway. IRL, if you give a portfolio lender the retail on each, they're usually going to do a single LTV on the improved property and either do no loan at all on the land or else simply take it as an abundance of caution.

As for having to do two reports, I don't see that. Nobody squawks about it when you do a proposed construction appraisal and actually use site sales to develop your opinion of site value - and then proceed to use that land value indication as your opinion of the "as is" value of that proposed construction. Moreover, outside of FannieWorld we do multiple values in appraisal reports all the time without it being a problem.

"The subject" does not always consist of a single parcel or economic unit. "The Subject" of a 400-unit residential subdivision appraisal can consist of 400 separate parcels, each with their own MV when sold to an owner-user.

Now these lenders and the GSEs might have to kick these appraisal reports into manual review because their machine isn't set up to handle an auto-review of this type of appraisal problem, but they should still be able to use that report without going into meltdown mode.

 

[BRCJR]

Here's an example and the reasoning behind the manner in which we develop discount factors for mixed use properties.

If i know that the value of the SFR parcel if sold individually is $200k and the value of the adjacent vacant parcel is $50k then in an assemblage they both get discounted, not just the vacant lot. That's because *from an investor-buyer's* perspective the short term profit motive to which we normally attribute to a profit-driven investor lies in flipping both parcels, not just the one.

Long story short, unless you actually have direct comparables with the same unit mix (1 SFR + 1 Vacant) you have to get to the retail of each first before you can develop a discount for the assemblage.

And if you have to go to the effort of doing a land sale value anyway, then that makes the "discounted" value an extra and arguably unnecessary step. For most mortgage lenders, anyway. IRL, if you give a portfolio lender the retail on each, they're usually going to do a single LTV on the improved property and either do no loan at all on the land or else simply take it as an abundance of caution.

As for having to do two reports, I don't see that. Nobody squawks about it when you do a proposed construction appraisal and actually use site sales to develop your opinion of site value - and then proceed to use that land value indication as your opinion of the "as is" value of that proposed construction. Moreover, outside of FannieWorld we do multiple values in appraisal reports all the time without it being a problem.

"The subject" does not always consist of a single parcel or economic unit. "The Subject" of a 400-unit residential subdivision appraisal can consist of 400 separate parcels, each with their own MV when sold to an owner-user.

Now these lenders and the GSEs might have to kick these appraisal reports into manual review because their machine isn't set up to handle an auto-review of this type of appraisal problem, but they should still be able to use that report without going into meltdown mode.

What if both lots have the same value as vacant? Sell separate (discounted) or as a whole? H&BU?

 

[George Hatch]

If and when I am tasked with developing an opinion of MV for a set of properties under bulk sale conditions, I always express the retail of each first, then I express the value of the group as if sold together to a single buyer. Let the reader decide what makes sense to them. I never skip the step of valuing each component separately. I wouldn't skip that step even if they asked me to skip it because I want to make it clear what the effects are of the bulk sale condition on the value conclusion and the best way to do that is to show my work.