An Open Letter to Fannie Mae RE: multiple parcels

[Econobot]

The borrower isn't an intended user, but if they get an appraisal which says the value was $440k even though the property was really worth $540k if sold separately, doesn't that do more to undermine the public trust in the appraisal profession than telling the lender that the real LTV on this loan is at 77% and not 95%?

I mean, from the perspective of an informed borrower and broker, doesn't the obvious lowball by the appraiser in order to rubber stamp the lender's *underwriting* policies contribute to the perception that the appraiser is playing on the lender's team with no intentions of impartiality and objectivity?

I'm an appraiser. I observe and report. I call balls and strikes over the plate as best I can. I don't play 1st base or catcher. I leave that to the lenders.

Wow, if the property is worth what you say then the market should show evidence of this...with a sales contract or better yet, cash buyer. The fact is in most cases these "values" are hypothetical at best and what we're dealing with are agents/owners trying to maximize their return with a borrower who can only afford a 95% LTV... Because this borrower doesn't have the typical down payment to support their endeavor they need an appraiser who can give them the appraisal "their way". Giving value to excess land as though it were a part of the subject beyond additonal site size... It's very obvious to me that by valuing the SFR and 2nd lot individually you could get a greater total value than by considering the 2nd lot as the additional lawn. This is why the "value in use" crap is pitched and only incompetent appraisers (form fillers) will bite on it. The appraiser, valuing the SFR and considering the 2nd lot as merged (one parcel) attributes minimal value (peanuts) to this additional land, and rightly so as it is excess land. The appraiser is playing by appraiser rules, by not adding in the value of the 2nd parcel on top but instead giving it a minimal additional contributory value in terms of added site size. This isn't helping the lender at all, it probably hurts the lender who's trying to fund the loan. Which is why it's better to separate the transaction and do 2 appraisals. I'm assuming this is in large part why Fannie issued this bogus guidance on "value in use". They were getting complaints from lenders regarding "this package is worth way more" "why didn't the appraiser give full value to the 2nd lot?". Those continuing to stick up for "value in use" need to retake some basic appraisal courses and understand HBU and how they value properties. The only rubber stamping, lender advocacy I see is with "value in use" where the 2nd lot gets less value than if sold separate but more value than simple contributory value for additional site size... The entire purpose is to create equity for a borrower who simply doesn't have it.

 

[CANative]

No matter what HBU analysis anyone presents, you will simply tell them they do not understand proper appraisal, they need to take a HBU class etc ....the only "right" answer in your eyes is your answer .

The FNMA scenario is not excess land. It's an additional lot. Might was well be on the other side of town. What several folks are saying on this thread amounts to developing the highest and best use of the contract. Not the property.

 

[Lee Lansford]

The FNMA scenario is not excess land. It's an additional lot. Might was well be on the other side of town. What several folks are saying on this thread amounts to developing the highest and best use of the contract. Not the property.

Yeah, that's the other thing.
So much wrong with what Fannie did. It has to be corrected.

 

[Econobot]

I'd be happy if he called me..( but no need lol ) BTW I do a lot of complex and high end work - and reviews. m.

No matter what HBU analysis anyone presents, you will simply tell them they do not understand proper appraisal, they need to take a HBU class etc ....the only "right" answer in your eyes is your answer .

Broken record...."I do complex work and high end work".... Anyone can fill in forms and take pictures....

 

[Andrei Fin]

It's very obvious to me that by valuing the SFR and 2nd lot individually you could get a greater total value than by considering the 2nd lot as the additional lawn.

The subject property is two adjoining lots under one legal sold together with the same effective date. The definition of value says most probable NOT the most profitable.

Please review.

USPAP:
SCOPE OF WORK: the type and extent of research and analyses in an appraisal or appraisal review assignment.

For each appraisal and appraisal review assignment, an appraiser must:
1. identify the problem to be solved;
2. determine and perform the scope of work necessary to develop credible assignment
results;

In an appraisal assignment, for example,
identification of the problem to be solved requires the appraiser to identify the following assignment
elements:
• client and any other intended users;
• intended use of the appraiser’s opinions and conclusions;
• type and definition of value;
• effective date of the appraiser’s opinions and conclusions;
• subject of the assignment and its relevant characteristics; and
• assignment conditions.
This information provides the appraiser with the basis for determining the type and extent of research
and analyses to include in the development of an appraisal. Similar information is necessary for problem
identification in appraisal review assignments.

 

[Lee Lansford]

The subject property is two adjoining lots under one legal sold together with the same effective date. The definition of value says most probable NOT the most profitable.

Please review.

USPAP:
SCOPE OF WORK: the type and extent of research and analyses in an appraisal or appraisal review assignment.

For each appraisal and appraisal review assignment, an appraiser must:
1. identify the problem to be solved;
2. determine and perform the scope of work necessary to develop credible assignment
results;

In an appraisal assignment, for example,
identification of the problem to be solved requires the appraiser to identify the following assignment
elements:
• client and any other intended users;
• intended use of the appraiser’s opinions and conclusions;
• type and definition of value;
• effective date of the appraiser’s opinions and conclusions;
• subject of the assignment and its relevant characteristics; and
• assignment conditions.
This information provides the appraiser with the basis for determining the type and extent of research
and analyses to include in the development of an appraisal. Similar information is necessary for problem
identification in appraisal review assignments.

...and then again there's that pesky little thing of how H&BU is integral to MV.

 

[Andrei Fin]

...and then again there's that pesky little thing of how H&BU is integral to MV.

HBU is most profitable, MV is most probable. They are often, but not always, the same thing. If you disagree, you should explain in detail instead of just repeating your dogma.

 

[Eli]

HBU is most profitable, MV is most probable. They are often, but not always, the same thing. If you disagree, you should explain in detail instead of just repeating your dogma.

That's true. I have been doing this a long time. From a USPAP standpoint or moral standpoint, the "market value" definition of value is the only definition of value that requires a H&B use analysis.

So to the contrary, "use value" or "value in use" definition of value does not require a H&B use analysis. MV also requires an exposure time estimate.

 

[CANative]

Excess land and separate lots, regardless of the legal description or the contract, should be valued separately.

Read AI's Common Errors and Issues paper.

Excess Land and Surplus Land

Excess land is commonly mishandled in assignments. It is often confused with surplus land. It is too often lumped in with the value of the entire property or ignored altogether. Excess land may be sold off separately from the rest of the property, so in effect, the subject property becomes two subject properties. Excess land may have a different highest and best use than the rest of the site. The excess land should be described in the Description section and it must be addressed in the highest and best use analysis. Further, excess land will have to be treated separately in the valuation process. An entirely different set of comparable data may be required. The value of excess land must be reported separately. Be careful about adding the value of the excess land to the value of the rest of the property, as the sum of the parts may or may not equal the whole.

Surplus land does not have a separate value, as it cannot be sold off separately. It is “extra” land that 13 | Common Errors and Issues may or may not contribute value to the overall property. It does not have an independent highest and best use. It may have the same value per unit of comparison (e.g., value per square foot, value per acre) as the rest of the site, or it may contribute less per unit of comparison.

https://www.appraisalinstitute.org/assets/1/29/Common_Errors_and_Issues.pdf

 

[Eli]

Sorry Andrei, I meant to quote Lee.