Appraisal Multiple Lots

[ragmail]

I am appraising a property that is being sold with an additional lot. One lot is improved with a single-family residence and the other lot is vacant. The vacant lot is adjacent to the improved lot. It is on it's own deed with its own unique tax identification number, and can be sold off separately. It has it's own highest and best use. My conclusion is that this is 2 appraisals. I have come across this situation before, last week in fact, and after researching I did not feel comfortable rebutting the lenders 'guidance' so I declined the previous assignment. Now here it is again. It seems to me this is clearly 2 appraisals, yet what are my reporting options when it comes to Fannie Mae? In the previous assignment the lender indicated they wanted me to report both appraisals on one FNMA 1004 form. They wanted both tax ID numbers and identifying characteristics in the improvements section. They wanted me to fill out the site section of the grid excluding the additional lot, then 'complete a separate appraisal on additional lot', as if it were sold separately, include the supporting documentation for the value in the addendum of the report, and add the value of the additional lot as an additional line item in the grid. The resulting opinion of market value on the FNMA 1004 form would then be the MV of the vacant lot added to the MV of the improved lot. This did not seem right to me so I declined, yet I was not able to find any documentation to show this was incorrect, and propose another 'correct' method. Now another has come across my desk. Is this simply two separate appraisals, one FNMA 1004, and one separate land only appraisal? Is there more than one way to handle this situation? Thanks in advance!

 

[hastalavista]

Reporting two values (two appraisals) in a single report doesn't seem to be an issue as I see it.
The problem is adding the two values together to represent market value of the whole; it assumes there is no bulk discount.

If I am purchasing a house to live in and included in that sale is a separate lot, I'm likely not going to pay retail price for that 2nd lot. I'm going to discount it (especially if my intent is to sell it as soon as the deal closes; I'm going to consider my selling costs of the 2nd lot as well as any holding costs during the period).

For GSE purposes, here is what I think would be a compliant process:
1. Use the majority of the form to identify the improved lot. Report that in the form-box as the value.
2. Include an addendum which values the vacant lot; this will include everything that is necessary to appropriately support and report that value.
3. If they want retail value, they have it in the two separate values.
4. If they want a bulk value, that could be reported as well (in the addendum... not on the form's value indication which, according to my process, would only reflect the improved site). The bulk value would consider what I mentioned as well as other items.

 

[Lee Lansford]

I am appraising a property that is being sold with an additional lot. One lot is improved with a single-family residence and the other lot is vacant. The vacant lot is adjacent to the improved lot. It is on it's own deed with its own unique tax identification number, and can be sold off separately. It has it's own highest and best use. My conclusion is that this is 2 appraisals. I have come across this situation before, last week in fact, and after researching I did not feel comfortable rebutting the lenders 'guidance' so I declined the previous assignment. Now here it is again. It seems to me this is clearly 2 appraisals, yet what are my reporting options when it comes to Fannie Mae? In the previous assignment the lender indicated they wanted me to report both appraisals on one FNMA 1004 form. They wanted both tax ID numbers and identifying characteristics in the improvements section. They wanted me to fill out the site section of the grid excluding the additional lot, then 'complete a separate appraisal on additional lot', as if it were sold separately, include the supporting documentation for the value in the addendum of the report, and add the value of the additional lot as an additional line item in the grid. The resulting opinion of market value on the FNMA 1004 form would then be the MV of the vacant lot added to the MV of the improved lot. This did not seem right to me so I declined, yet I was not able to find any documentation to show this was incorrect, and propose another 'correct' method. Now another has come across my desk. Is this simply two separate appraisals, one FNMA 1004, and one separate land only appraisal? Is there more than one way to handle this situation? Thanks in advance!

The folks at the lender who are making these requests of you--they are clueless.

 

[Webbed Feet]

<.....snip.....> They wanted me to fill out the site section of the grid excluding the additional lot, then 'complete a separate appraisal on additional lot', as if it were sold separately, include the supporting documentation for the value in the addendum of the report, and add the value of the additional lot as an additional line item in the grid. The resulting opinion of market value on the FNMA 1004 form would then be the MV of the vacant lot added to the MV of the improved lot. This did not seem right to me so I declined, yet I was not able to find any documentation to show this was incorrect, and propose another 'correct' method. Now another has come across my desk. Is this simply two separate appraisals, one FNMA 1004, and one separate land only appraisal? Is there more than one way to handle this situation? Thanks in advance!

Those are incorrect "suggested" instructions, you were correct. The sale becomes a "bulk" sale of two properties. Any Sales Comparison Approach grid line adjustment cannot be based upon any assumption that the separate Market Value of the vacant lot, as if sold independently, equals a market adjustment for a sale including both parcels.

 

[Value Ninja]

I am appraising a property that is being sold with an additional lot. One lot is improved with a single-family residence and the other lot is vacant. The vacant lot is adjacent to the improved lot. It is on it's own deed with its own unique tax identification number, and can be sold off separately. It has it's own highest and best use. My conclusion is that this is 2 appraisals. I have come across this situation before, last week in fact, and after researching I did not feel comfortable rebutting the lenders 'guidance' so I declined the previous assignment. Now here it is again. It seems to me this is clearly 2 appraisals, yet what are my reporting options when it comes to Fannie Mae? In the previous assignment the lender indicated they wanted me to report both appraisals on one FNMA 1004 form. They wanted both tax ID numbers and identifying characteristics in the improvements section. They wanted me to fill out the site section of the grid excluding the additional lot, then 'complete a separate appraisal on additional lot', as if it were sold separately, include the supporting documentation for the value in the addendum of the report, and add the value of the additional lot as an additional line item in the grid. The resulting opinion of market value on the FNMA 1004 form would then be the MV of the vacant lot added to the MV of the improved lot. This did not seem right to me so I declined, yet I was not able to find any documentation to show this was incorrect, and propose another 'correct' method. Now another has come across my desk. Is this simply two separate appraisals, one FNMA 1004, and one separate land only appraisal? Is there more than one way to handle this situation? Thanks in advance!

The contributory value of the 2nd lot will most likely be discounted, with the discount to be determined by analyzing other sales with extra lots. So getting to the number is not that difficult, but communicating that result on a FNMA report is a challenge . Denis's approach of addressing in an addendum gives the lender all the needed information (value of main property, value of lot, discounted contributory value of the lot), but has a practical problem for lender as the appraised value field does not include the extra lot value(which is what they are looking for). Denis- I am interested in how lenders respond for a conventional/FNMA sale (for instance), where the appraised value field on the main form is below the sales price because the value of the 2nd lot is not included. I realize this is a lender issue not an appraisal one, but their issues become ours at the end of the day. My entire conversation is within the context of a conforming/FNMA report (which I assume is the OP's situation).

Another option would be to add the discounted value of the extra lot as a line adjustment. This gets the correct number in the appraised value field, but opens up a troublesome question on what to do with the HBU box on the main form. The 2nd lot has a separate HBU, so that analysis needs to be done somewhere in the appraisal, but I am just talking about the 'is present use the highest and best use' box on Page 1. Related..... Does the answer to the HBU box question change if the extra lot is/is not identified as the subject property on page 1 (legal, parcel#)?

I am also looking for thoughts/guidance on this issue, and have handled it differently over the years.

 

[Howard Klahr]

the appraised value field does not include the extra lot value(which is what they are looking for).

Why would the appraised value not include the "second lot"?

 

[Value Ninja]

Why would the appraised value not include the "second lot"?

This was discussing the approach suggested by Denis (see #1 in his response above). He is talking about appraising the primary property, then dealing with the 2nd lot on an addendum. An element of this discussion is how to best report the results for a FNMA type appraisal in a way that meets the needs of both the appraiser and client.

 

[Howard Klahr]

An element of this discussion is how to best report the results for a FNMA type appraisal in a way that meets the needs of both the appraiser and client

Hence the question, why would the appraised value not include the "second lot"?

 

[J Grant]

I am appraising a property that is being sold with an additional lot. One lot is improved with a single-family residence and the other lot is vacant. The vacant lot is adjacent to the improved lot. It is on it's own deed with its own unique tax identification number, and can be sold off separately. It has it's own highest and best use. My conclusion is that this is 2 appraisals. I have come across this situation before, last week in fact, and after researching I did not feel comfortable rebutting the lenders 'guidance' so I declined the previous assignment. Now here it is again. It seems to me this is clearly 2 appraisals, yet what are my reporting options when it comes to Fannie Mae? In the previous assignment the lender indicated they wanted me to report both appraisals on one FNMA 1004 form. They wanted both tax ID numbers and identifying characteristics in the improvements section. They wanted me to fill out the site section of the grid excluding the additional lot, then 'complete a separate appraisal on additional lot', as if it were sold separately, include the supporting documentation for the value in the addendum of the report, and add the value of the additional lot as an additional line item in the grid. The resulting opinion of market value on the FNMA 1004 form would then be the MV of the vacant lot added to the MV of the improved lot. This did not seem right to me so I declined, yet I was not able to find any documentation to show this was incorrect, and propose another 'correct' method. Now another has come across my desk. Is this simply two separate appraisals, one FNMA 1004, and one separate land only appraisal? Is there more than one way to handle this situation? Thanks in advance!

https://www.fanniemae.com/content/guide/selling/b2/3/04.html

Fannie allows excess land/adjoining lot to be included with dwelling on its own lot for MV purpose ,e. The problem above is the lender telling you "how" to value the house and lot sale as one economic unit.

Client is asking for two appraisals within one report- the first appraisal of MV for dwelling including adjoining lot as one sale. Fine , you can do two values and two appraisals within one report ( just charge enough ).I would paste in a land sales grid.

But the part I find objectionable is that after you do the excess land appraisal , they are instructing you to add the value to the dwelling for the combined total MV of the sale. That might be the indicated value, or not....the appraiser is supposed to decide from market evidence if the lot being sold with the dwelling is added in $ for $ price of lot, or as contributory value. I'd make that clear to the client, you can fulfill the assignment, but they can not tell you how to arrive at the MV opinion...

Disclose that the excess land second lot has its own parcel # etc and can be sold separately. The one mortgage lien will cover both properties and FAnnie accepts that but disclose it anway

Coming up with sale comps of houses sold with an excess lot....good luck with that, may or may not happen, lots of interviews with RE agents imo,,,,

 

[J Grant]

Concentrating on the MV for dwelling and adjacent lot sold as one package...that is the hard part, easy for lender to instruct you add in $ for $ the "MV" of the lot to the "MV " of dwelling without the lot How nice of them to solve the appraisal problem for you ( sarcasm). I assume if you reject their instruction they will 1) take it from you and try to find another to oblige., or they will let you proceed with assignment and arrive at MV for dwelling and adjacent lot as your opinion ...which might come out to dollar for dollar, but it could also be contributory value....the lot could contribute less to the sale than lot is worth alone, or lot could contribute more to the total value than lot is worth alone.

One thing to keep in mind is the advantage to buyer of being able to include a vacant lot with house purchase is they can finance the lot, otherwise typically buyers have to pay cash for a lot . The fact that most vacant lot sales are cash ( or short term seller financing) makes in some areas lot sales tough and unless an area is hot for development, vacant lots can sit on market a long time.

The subject contract and listing history and interview with agent can give you insight...is the buyer paying more for, equal to, or less than price of lot alone in the bulk sale price? How long was the lot on the market before this buyer came along? Then the tricky question of course is how many typically motivated buyers would want to pay more to have an adjacent lot when they purchase? Did the agent just get lucky or are a lot of buyers looking for this? Does present buyer plan to hold the lot for future investment or expand subject or build a tennis court/enjoy the land...likely the former but agent can tell you, not that this one buyer drives the market but can give insight into motivation