Appraise House Combined With Extra Lot?

[Timothy Wixted]

Originally posted by Jerry Bone Jr@Oct 22 2004, 12:18 AM
Most of the points that Tim made are right on. But...
The two appraisal on one report would not be FNMA acceptable, therefore not USPAP acceptable (assuming the appraisal is done for a conventional loan).

Hi Jerry-

I cannot speak to whether or not an appraisal report that has two separate parcels is acceptable to Fannie. I get as far as 15%/25% and then my head starts to hurt. :lol: Perhaps someone knowledgeable will weigh in.

But I do know this- There is no Standard in USPAP that requires an appraisal be acceptable to Fannie.


Tim

 

[Joker]

I disagree that the line item adjustment for the land would be $61,000 across the board. The sum of the parts does not necessarily equal the sum of the whole. The value of the combined properties could be more or it could be less than the value of the individual parcels. In my market areas, the combination of the two would be less than the individual values. As someone else mentioned, the HBU of the second lot is as a building site, not as excess land. Therefore, the highest value to be obtained would be to value them as two.

My gut instinct tells me that had you appraised them together, the appraised value would not have been $16,000 higher than the contract price, but much closer to the contract price of $330,000.

 

[Dave Smith]

Doug:

My gut instinct tells me that had you appraised them together, the appraised value would not have been $16,000 higher than the contract price, but much closer to the contract price of $330,000.

Right!

Timothy:

Furthermore, it is NOT, IMSHO, a new assignment (collective gasp)

I don't agree!

I was not remodeling two reports from a week ago. They were out the door, done and go. The two reports of the two individual parcels were finished and delivered last week.

The new report was delivered this AM, with a new invoice, a new inspection date (yesterday), new photos, new legal descriptions, new tax information, new site map, new comps location maps,

you will not need new comps

and even a new comp since the subject property price range had changed. I also took out the 4th comp I had provided in the first report since it was at the low end of the old price range. It was no longer relevant to the new higher value on the new report.

The lender's objective is to lend on the full sale price of $330,000. Whether they can do it the way they want to is up to them.

Stay tuned!

 

[Pamela Crowley (Florida)]

Had one a few years ago that wanted 2 platted 3+/- acre lots combined into one. I tried so hard to explain the fact of life to them, but they just didn't get it. The buyer wasn't yet sure where he was going to build a house on this, in the middle of these 2 parcels or maybe on the edge of the lot lines, or maybe the house on one with setbacks that would be legal and the barn on both..... The lender, that didn't understand, wanted and expected an appraisal of both combined but with the value as if they were separate.

They were worth much more individually than combined. IF I did them together, there was no way the value would be what he was paying for the 2. If I didn't explain the potential repercussion of the various scenarios of where the buildings were eventually placed, my client could have ended up with a mortgage on a combination of 2 sites that were now worth a lot less.

So I finally did a high priced narrative giving them 3 values - each lot was valued separate, then if they were actually combined into one it had a value. They REALLY didn't like the value of them combined, but I did what I believed was correct first by valuing each one individually, then gave them what they asked for.

They were confused for a while, but I kept insisting that they sit down and READ the report. They finally did that and finally understood what I did, why I did it, and that what they were asking for was not the right thing to do.

 

[CANative]

Dave... take my relatively newbie view of this topic for what it's worth.

The house and lot may be worth the $285,000. The separate, buildable lot may be worth $61,000. But would the typical buyer buy both at the same time for the combined value. Probably not, as you're research of the market clearly shows ("no comps of house and extra lot sales.") Why would a person buy an extra lot at market value? What could he do with it? If he had to sell there would be marketing costs and time involved. Meanwhile he's paying monthly payments with interest. Most homebuyers are not builders or developers. In most of the areas I appraise in, the typical buyer would not buy a second lot even if if offered at a substantial discount from it's market value. Who wants the hassle?

If the lender lends on the combined value of the two properties, there may be a paper value but there is a marketability issue.

 

[Dave Smith]

Greg:

Why would a person buy an extra lot at market value? What could he do with it? In most of the areas I appraise in, the typical buyer would not buy a second lot even if if offered at a substantial discount from it's market value. Who wants the hassle?

This is not a typical suburban market. We are dealing with high rollers here. There is so much money here it sometimes seems obscene. (I'll tell you about "The Big House" some day.) In my market about 70% of all properties are owned by second or vacation home property owners. In this case one of the spouses buying the property is the the sibling of a very high ranking Wisconsin governmental official.

Property owners here often do buy the neighboring lot, or lots, at market value (or above), to provide greater privacy for themselves. They often buy the lot next door at full market value but usually do so after they buy the primary property so there aren't usually comps where the primary property and the lot next door were a package. Remember, the lot next door usually does something for the neighbor that it doesn't do for any other owner so neighbors often pay at or above market value for the benefits they perceive. And cost is not the object.

The seller would not sell the vacant lot without the buyer first having a shot at it, below market value. If the buyer didn't want the lot then it would be available to the open market. The seller wanted the two lots to go together, the buyers wanted it to expand their lot and protect their privacy. I have attached an image of the property, with the house located approximately as indicated. The house driveway is at the north or upper end of the house. See what the second lot does for the buyers?

 

[Jerry Bone Jr]

Originally posted by Timothy Wixted@Oct 22 2004, 12:54 AM
But I do know this- There is no Standard in USPAP that requires an appraisal be acceptable to Fannie.

Supplemental Standards Rule ???

 

[Timothy Wixted]

Dave-

How did you explain in your report that your appraisal of the buildable lot was not at it's HBU?

How can a buildable lot be appraised for $61,000 two weeks ago and be appraised for substantially less today?

Suppose the buildable lot was owned by a third party, what would be it's appraised value today?

If the buyer purchases both the improved lot and the buildable lot on Monday and sells the buildable lot on Tuesday- what is the buildable lot worth?

Dave, you have taken two appraisals and communicated them to your client on one report. You have not combined parcels, you have combined appraisals. The sale or disposition of one parcel has nothing to do with the other.

Tim

 

[Dave Smith]

I stated in the report that ...at the specific written request of the client the two lots have been combined into a single parcel for the purposes this report, regardless of any HBU issues...

 

[Timothy Wixted]

Originally posted by Dave Smith@Oct 22 2004, 02:40 PM
I stated in the report that ...at the specific written request of the client the two lots have been combined into a single parcel for the purposes this report, regardless of any HBU issues...

Dave-

You might consider rereading the Departure Rule. You cannot depart from Standard 1-3a ( Highest and Best Use) just because the client requests it.

Tim