ADU Comparable

[J Grant]

An HC is not required for appraising a physical segment. It's not prohibited either. What is required in your report is clarity about which property is being included in the valuation. FAQs 195, 196, and 197 are applicable.

I'd appreciate it if you can paste the FAQ you refer to since I am unable to isolate them for reference. However, USPAP is a minimal set of standards and often does not explicitly address how every appraisal problem is handled.

I did not say an HC is required in USPAP, I said a URAR lending form is either marked subject to completion / repair or made "as is", and that the URAR does not allow any additional HC ( such as excluding a physical segment ) Since most residential appraisals /lending work is reported on a URAR form, recognizing what it does and does not permit is critical to the results.

WRT clarity about which property is being included in the valuation, therein lies the problem. How would one clearly identify which property is being included in the valuation on a URAR?

One can do it at the top of form which identifies the subject property ( s stated as a WHOLE property one legal description, one folio number etc ). So a place to clearly identify only a segment is being valued would be on the top line which identifies the subject. : "Legal description: The identified property excluding the existing ADU" But, I bet almost nobody reports it like that to identify the subject on the URAR form ( because if they did, the client or UW would most likely reject the appraisal )

So, if it is not spelled out upfront on the URAR a portion is excluded, then what other way is there to report with clarity/without being misleading? Make an HC - which fits , since the ADU physically exists, yet we are making a hypothetical condition not to value it/to exclude it. But the URAR form does not allow us to make this HC, which leads back to a client asking for it is an unacceptable assignment condition - of course, an appraiser can do it anyway with no HC but make a disclosure, and keep fingers crossed that nobody on the client/user/review chain flags it. Some clients do not understand the issue of being misleading/what is permitted on the URAR so they accept anything, or they know better but look the other way if it suits their agenda knowing it is the appraiser, not the lender who will take the fall should it ever be challenged.

PS an exception is FHA requiring excess land be excluded from value, the rationale being it is a govt entity requirement as an assignment condition.

 

[TerryRohrer]

No. The property is the bundle of rights. Your appraisal is your supported opinion of the value of the bundle of rights that is the subject of your appraisal. That can be the entire property or a portion of the property. We appraise land. We only appraise improvements because they are permanently attached to the land. We appraise permanent improvements because they are legally considered real property rather than personal property. The street address, legal description, parcel number don't change because you are not including the ADU in the valuation. The annual taxes are a statement of fact... based on how the county assesses the property. With all those items, the appraiser is merely reporting the results of public records research.

What you do is add commentary. Clearly stating that the partially completed ADU has not been included in the bundle of rights you have appraised and explaining why.

What property interest do you report you are appraising, since you are not appraising the whole? Or, conversely, what property rights are included with the ADU by itself? And in either case, does the existence of the excluded ( say, the ADU) encumber the other (say, the remainder excluding the ADU)? And how do these factors impact the assumption (#1 in the URAR) that the subject has a good and merchantable title? Can the subject be sold without the ADU, or vice versa? And does that other "estate" or "interest" impact the value or marketability of the subject in any way? And if so, what is that impact and how is it measured and reported?

 

[ZZGAMAZZ]

I'd appreciate it if you can paste the FAQ you refer to since I am unable to isolate them for reference. However, USPAP is a minimal set of standards and often does not explicitly address how every appraisal problem is handled.

I did not say an HC is required in USPAP, I said a URAR lending form is either marked subject to completion / repair or made "as is", and that the URAR does not allow any additional HC ( such as excluding a physical segment ) Since most residential appraisals /lending work is reported on a URAR form, recognizing what it does and does not permit is critical to the results.

WRT clarity about which property is being included in the valuation, therein lies the problem. How would one clearly identify which property is being included in the valuation on a URAR?

One can do it at the top of form which identifies the subject property ( s stated as a WHOLE property one legal description, one folio number etc ). So a place to clearly identify only a segment is being valued would be on the top line which identifies the subject. : "Legal description: The identified property excluding the existing ADU" But, I bet almost nobody reports it like that to identify the subject on the URAR form ( because if they did, the client or UW would most likely reject the appraisal )

So, if it is not spelled out upfront on the URAR a portion is excluded, then what other way is there to report with clarity/without being misleading? Make an HC - which fits , since the ADU physically exists, yet we are making a hypothetical condition not to value it/to exclude it. But the URAR form does not allow us to make this HC, which leads back to a client asking for it is an unacceptable assignment condition - of course, an appraiser can do it anyway with no HC but make a disclosure, and keep fingers crossed that nobody on the client/user/review chain flags it. Some clients do not understand the issue of being misleading/what is permitted on the URAR so they accept anything, or they know better but look the other way if it suits their agenda knowing it is the appraiser, not the lender who will take the fall should it ever be challenged.

PS an exception is FHA requiring excess land be excluded from value, the rationale being it is a govt entity requirement as an assignment condition.

Regarding the statement:
PS an exception is FHA requiring excess land be excluded from value, the rationale being it is a govt entity requirement as an assignment condition.

Q1) Shouldn't the need to overlook the excess portion of a lot in an FHA assignment require a HC?
Q2) Wouldn't the need to overlook the excess portion of a lot in an FHA assignment be termed a Jurisdictional Exception?

I presume the answer to both question is "no" but I'm bored on a Sat night in So California...

 

[J Grant]

Regarding the statement:
PS an exception is FHA requiring excess land be excluded from value, the rationale being it is a govt entity requirement as an assignment condition.

Q1) Shouldn't the need to overlook the excess portion of a lot in an FHA assignment require a HC?
Q2) Wouldn't the need to overlook the excess portion of a lot in an FHA assignment be termed a Jurisdictional Exception?

I presume the answer to both question is "no" but I'm bored on a Sat night in So California...

I agree with you on this - though I would not comment on it as such in the appraisal, it acts as such ( jurisdictional exception ) in practice

 

[sputnam]

I'd appreciate it if you can paste the FAQ you refer to since I am unable to isolate them for reference. However, USPAP is a minimal set of standards and often does not explicitly address how every appraisal problem is handled.

No. Sorry. I cited 3 FAQs. They are much too long for me to copy and paste in this forum. If you are an appraiser, you have... or danged well should have... a copy of the USPAP publication nearby. If you don't have a paper copy, digital .pdf copies are readily available. If you get a copy, paper or digital, from the Appraisal Foundation, it's not free. However, you can find freebies online.

 

[J Grant]

Getting back to the half finished ADU as an appraisal problem ( all of us will encounter oddballs like this at some point), a case can be made for making it "as is", with no value as a conclusion by an appraiser ( if no clear support is found for a value ) by including DOM/Marketing in the value opinion analysis.

We appraisers tend to overlook that for market value, is not just the numerical dollar amount in a vacuum. The $ amount ALSO has an estimate of market exposure - ( 60-90 days, for example)

While it likely could have or does have a contributory value, it might be quite low. That is because having to pay anything for a part finished ADU vastly reduces the buyer pool ( typically). While the feature of a finished ADU might somewhat reduce a buyer pool, let's assume there is demand for it in the subject area. But how much demand is there for a house with a part finished ADU that might cost a substantial amount to complete? Plus the headache of hiring a contractor, getting the permits and final inspections etc. Call and speak to a bunch of local RE agents to survey it for support.

So the analysis might look like this: " The typical house with a finished ADU sells in 60-90 days market exposure. No sales of homes with a part finished ADU was found. The appraiser surveyed a number of area RE agents and the majority estimated a market exposure estimate of 6-8 months to get contributory value for the part finished ADU in a sale. Thugh the buyer pool is most probably very limited to pay $ for the half finished ADU , if the existing partial structure was not expected to return an additional premium, the market exposure estimate would likely be in the 60-90 day range ."

Therefore, the appraiser did not adjust for the partially finished ADU in order to arrive at a market value opinion of X$ with a market exposure estimate of 60-90 days.

The alternative, if the appraiser finds support for a 15k contributory value but believes that would add months to the DOM, then adjust for it and your value opinion would be X$ with a 6-8 months DOM market exposure estimate (for example)

 

[J Grant]

No. Sorry. I cited 3 FAQs. They are much too long for me to copy and paste in this forum. If you are an appraiser, you have... or danged well should have... a copy of the USPAP publication nearby. If you don't have a paper copy, digital .pdf copies are readily available. If you get a copy, paper or digital, from the Appraisal Foundation, it's not free. However, you can find freebies online.

I looked through the digital version and did not see those particular FAQ but can if spend the weekend looking for them.

However, it doesn't matter because ( read my posts), I never made the argument an HC must be made per USPAP. My argument was about the HC and the URAR form either being subject to or made with an HC of completion/repair ( with no additional HC allowed ).

I did not argue my point that USPAP requires an HC. My point was it would be good appraisal practice to make an HC if valuing a segment/excluding a segment.

 

[sputnam]

I did not argue my point that USPAP requires an HC. My point was it would be good appraisal practice to make an HC if valuing a segment/excluding a segment.

In some cases, that might be true. As I previously stated, USPAP doesn't say you can't use an HC (or EA) to appraisal a physical segment. It says, it's not required.... most of the time.

 

[CGinMN]

It’s doesn’t say it’s not required most of the time.

Here are the referenced FAQs.

 

[J Grant]

In some cases, that might be true. As I previously stated, USPAP doesn't say you can't use an HC (or EA) to appraisal a physical segment. It says, it's not required.... most of the time.

I agree USPAP does not require an HC ! (I never said it did ). Again, the URAR form is in itself a kind of assignment condition , with its own set of requirements about an HC/other development

My argument also involved not being misleading ( which is in USPAP), and my point was, how can an appraiser conform to the assignment condition inherent with a URAR form while trying to meet a contradictory assignment condition from a client.

And continuing wrt the issue about being (even if inadvertently- misleading) I addressed ( using examples ) the issues of DOM/market exposure in my above post # 46.

For example, if the market supported DOM exposure for a house with a finished ADU is 60-90 days, and the support for getting a contributory value of X$ for a part finished ADU is 6-8 months, an appraiser making a market exposure estimate of 60-90 days for a contributory value adjustment would be misleading. This is the area imo appraisers can leave themselves vulnerable for down the road in a review or challenge to their value opinion - they often put in a generic DOM exposure, not realizing if that DOM estimate contradicts reality it can mean their M value opinion was poorly supported or misleading