An Open Letter to Fannie Mae RE: multiple parcels

[CANative]

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.

The exposure time for a vacant lot may vary widely from an improved lot. Yet Fannie's treatment would suggest otherwise.

 

[Andrei Fin]

in effect, the subject property becomes two subject properties.

This is not the problem you've been asked to solve. The subject is not in effect two properties, it actually IS two properties. Which is a completely different risk profile to the lender.

 

[Eli]

The exposure time for a vacant lot may vary widely from an improved lot. Yet Fannie's treatment would suggest otherwise.

The form is the problem from what I have absorbed. I don't have a problem with "use value" if that is what the client wants. Now, I realize that intended use and users are a dichotomy. For example, lenders want to make loans. Fannie likes that.

 

[Econobot]

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.

"Value in use" is not credible....it's a lender cherry picked departure from HBU analysis so as to encumber assests for high LTV ratios otherwise unheard of in the lending industry, hence the pushback from competent appraisers and mentions of public trust. What is required for your scenario in BOLD font is (2) seperate valuations...SFR and land, period end of story. Because this is not acceptable to secondary market lending I proposed using the HC that the parcels are merged which reflects what is happening anyway (the vacant parcel is not developed due to owner desires) yet retains a HBU above and beyond being additional land as it can be sold off and/or developed. Given the fact that this is not the owner's intentions, IMO, it's acceptable to develop an opinion of MV under the HC that they are one parcel and check the NO box on HBU and explain that this parcel can be built out and obviously would achieve a greater level of productivity as a developed parcel. In doing this the appraiser is complying with HBU analysis, giving lender what they need in terms on 1 appraisal which includes both parcels, and encouraging the owner to actually replat the 2 lots as one, as that's actually what is happening. I've seen this done, house purchased, then adjacent lot purchased and left vacant for privacy. That's fine, it's not the HBU but it's not our job to dictate how people handle their assets. It is our job however to report on the HBU and develop a value opinion based on that.

 

[Eli]

See, if I engage the borrower and they tell me they want the highest price possible to list their property? Totally different different SOW than market value definition. The intended use and users are totally different.

 

[Lee Lansford]

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.

"Dogma" may be defined as "a principle or set of principles laid down by an authority as incontrovertibly true".

I can understand why you would find this troublesome.

"Value" opinions other than Market Value are not linked to the H&BU of the property being appraised [SEE USPAP, see Standards Rule 1-3 (b) ]. Where there are 2 properties--each separate and distinct though they may be under common ownership and adjacent one to the other--each with a H&BU independent of the other, when appraising for MV, we have 2 opinions of value.

If your opinion of value--the definition of, that is--is dependent upon the needs or conditions (imposed upon you) of a single-user of your opinion, you can be certain that the definition of "value" that you are opining to is NOT Market Value. Market Value is Market Value...no matter the user.

If you like to opine a single opinion of value for the two, you may certainly do so. But, use a definition (e.g., Value in Use, Bulk Value) that doesn't have the H&BU requirement.

 

[Econobot]

The form is the problem from what I have absorbed. I don't have a problem with "use value" if that is what the client wants. Now, I realize that intended use and users are a dichotomy. For example, lenders want to make loans. Fannie likes that.

The problem is a clear lack of understanding HBU and how to develop an appraisal of a complex set of property rights. The more I think about using the HC as if both parcels are merged as one, the more I think this actually is "value in use" done the right way by stating it's not the HBU but in the case is considered additional site size as the parcels are used together for one residence (and should be merged because of this). The contributory value of the 2nd lot as additional site size, nothing more nothing less.

 

[Econobot]

"Dogma" may be defined as "a principle or set of principles laid down by an authority as incontrovertibly true".

I can understand why you would find this troublesome.

"Value" opinions other than Market Value are not linked to the H&BU of the property being appraised [SEE USPAP, see Standards Rule 1-3 (b) ]. Where there are 2 properties--each separate and distinct though they may be under common ownership and adjacent one to the other--each with a H&BU independent of the other, when appraising for MV, we have 2 opinions of value.

If your opinion of value--the definition of, that is--is dependent upon the needs or conditions (imposed upon you) of a single-user of your opinion, you can be certain that the definition of "value" that you are opining to is NOT Market Value. Market Value is Market Value...no matter the user.

If you like to opine a single opinion of value for the two, you may certainly do so. But, use a definition (e.g., Value in Use, Bulk Value) that doesn't have the H&BU requirement.

Can you weigh in on my method of using the HC as merged? When in fact this is what is happening, the 2nd lot is kept for privacy and considered a part of the improved lot? Thanks in advance.

 

[CANative]

This is not the problem you've been asked to solve. The subject is not in effect two properties, it actually IS two properties. Which is a completely different risk profile to the lender.

You argue my point by confirming my point. I started out saying the scenario amounts to two subject properties. The AI paper you quoted from concerns undivided excess land. FNMA is referring to two lots that are separate by virtue of a legal description.

 

[Eli]

The problem is a clear lack of understanding HBU and how to develop an appraisal of a complex set of property rights. The more I think about using the HC as if both parcels are merged as one, the more I think this actually is "value in use" done the right way by stating it's not the HBU but in the case is considered additional site size as the parcels are used together for one residence (and should be merged because of this). The contributory value of the 2nd lot as additional site size, nothing more nothing less.

That's cool if you report the definition of value and the source of the value definition. IMO. I am not an expert in USPAP but it would be a strong bench to sit on.