Advice needed on encroachment issue

[KJR2008]

A for sale transaction, the adjoining property's entire garage and portions of the primary structure are encroaching onto the property that is for sale. Both properties are owned by family members, so the encroachment was never an issue. Agent for the buyer has stated that the he is aware of the encroachment and that he has received assurances from the encroaching property owner that the issue will be resolved. I am being asked to disclose the encroachment of course, and also what affects the encroachment has on value and marketability. The home on the property for sale is being marketed as a tear down. Any advice would be greatly appreciated.

 

[J Grant]

A for sale transaction, the adjoining property's entire garage and portions of the primary structure are encroaching onto the property that is for sale. Both properties are owned by family members, so the encroachment was never an issue. Agent for the buyer has stated that the he is aware of the encroachment and that he has received assurances from the encroaching property owner that the issue will be resolved. I am being asked to disclose the encroachment of course, and also what affects the encroachment has on value and marketability. The home on the property for sale is being marketed as a tear down. Any advice would be greatly appreciated.

If it is marketed as a teardown, any adverse value of the encroachment has been absorbed in the price , I assume. Of course, disclose it, and that agent represented it will be resolved. If lender wants to make it subject to, that is their choice.

What is your HBU for a property marketed as a tear down? How bad is it....

 

[TerryRohrer]

Who is asking for the disclosure and the impact on value and marketability. If I were in your place, and this had not been disclosed to me when I priced the assignment, I would give them a choice. Either I complete the report subject to the encroachment being resolved, or under a hypothetical condition that it does not exist. If neither were acceptable, I would withdraw from the assignment. I would not do the work it would take to answer the questions asked without significant, additional fees, and I would not just wing it and say it won't affect the subject.

 

[KJR2008]

If it is marketed as a teardown, any adverse value of the encroachment has been absorbed in the price , I assume. Of course, disclose it, and that agent represented it will be resolved. If lender wants to make it subject to, that is their choice.

What is your HBU for a property marketed as a tear down? How bad is it....

HBU is as residential, its C6

 

[KJR2008]

Who is asking for the disclosure and the impact on value and marketability. If I were in your place, and this had not been disclosed to me when I priced the assignment, I would give them a choice. Either I complete the report subject to the encroachment being resolved, or under a hypothetical condition that it does not exist. If neither were acceptable, I would withdraw from the assignment. I would not do the work it would take to answer the questions asked without significant, additional fees, and I would not just wing it and say it won't affect the subject.

Nothing was disclosed prior to accepting the assignment, the lender through the AMC is making the request.

 

[George Hatch]

HBU is as residential, its C6

The home on the property for sale is being marketed as a tear down. Any advice would be greatly appreciated.

In other words, the property is being marketed as land value. I.e., the seller allegedly thinks the property is worth more as land value than in the existing SFR usage.

If the property actually is worth more as land value then THAT is the "HBU/as is" and you are engaged in a land appraisal assignment, not an SFR assignment. Your comps will consist of other land parcels, some of which might also have existing structures which are not adding to the value of the whole. The typical buyers of these properties will be contractors and developers, not end users operating off of conventional financing terms.

This is a situation where your analysis really does start at the neighborhood and community level and is in search of redevelopment trends, recent construction (and how the site acquisitions occurred) trends, the supply/demand for land sales and how the other improved properties in "tear down condition" are being marketed, sold and financed.

If the other tear-downs are being purchased to remodel and flip then they indicates those buyers attributed some value to the existing improvements in fair or poor condition. If they're being scraped and redeveloped then that indicates they really were sold for land value.

You're not looking for HBU/as vacant. You're looking specifically for HBU/as is, inclusive of the existing structures.

 

[George Hatch]

As for the encroachment issue, it is as Mr Rorher said. The property can be appraised "as if cured" or "as if didn't exist". A developer for a site could grant an easement, could demand removal of the encroachment or could agree to a lot line adjustment if the local jurisdiction would allow such.

I just appraised a small office building property that had a dining patio encroachment from the bar located next door. That bar owner has already agreed in advance to remove the patio encroachment, so that resolves the encroachment. No effect on value of marketability of my subject.

 

[J Grant]

HBU is as residential, its C6

The zoning is residential

HBU is either the existing use as a SFR or tear down (HBU would then be vacant)

Often, when a home is in such poor condition to merit C6, it is a teardown . That leaves a land value. Call your client and ask if they want to continue because a client might want to cancel the assignment for a C 6 property.

 

[Zoe]

I would just disclose it and explain what you have explained here in report. Many people don't care about a small encroachment. Especially if they are family and going to tear it down anyway.

For example. Say a fence is 1 ft over the set back on zoning. People generally don't care.

Do an assumption it has not impact on your MV appraisal. If it is going to be torn down, you can do it subject to demolition.

 

[George Hatch]

Just concluding to [HBU/as is = land value] might kill the assignment.

HBU analysis is part of the "problem identification" phase of the assignment. It technically occurs prior to forming a SOW decision about what it will actually take to complete the assignment. If the HBU conclusion goes one way, you appraise for a house. If it goes the other way, you appraise for land value. How the lender ordered the appraisal is not an element of HBU analysis. What they initially thought the property was doesn't factor into your conclusion.

That's why the sequence for HBU analysis logically occurs after the site and improvements analyses (including the subject's relationship within the immediate neighborhood), and not solely as an elaboration of the zoning identification.