Appraise on five acres

[Tim Hicks (Texas)]

I actually read the Appraisal Buzz, today. It regarded appraising properties on large tracts of land with the hypothetical "only use five acres". I understand the concept and can see its redeeming qualities. However, the lenders never see the same redeeming qualities. Thye usually expect the same value with five acres as they would with 40 acres. When you do put a "subject to" on the appraisal they go ballistic. However, how are we supposed to know if the house three barns, stock tank and workshop can all fit on five acres? If you do put a "subject to" they expect you to change you aprpaisal to "as is" two months later when they produce a survey that has most of the improvements on it. I really think that this "hypothetical" appraisal is going to be manipulated down the road. What do you think?

 

[Richard Carlsen]

Tim;

Funny you mention 5 acres. I just finished sending a report not 30 minutes ago that fell into this category. Owner said he thought his little rancher with garage on 10 acres was worth $100,000. Lender says to consider only 5 acres. OK. Guess what? The owner was right and my value came in at $93,000. Loan amount is $93,000. If I had been able to use all of the acreage, I see about $102-104,000. You know what will happen. Tomorrow someone will call and say, why didn't you stop and notify us when the appraisal didn't come up to the owner’s expectations. I'll tell them it did but those arbitrary UW guidelines reduced the value. Then the lender will suddenly find an out-clause and I'll be requested to redo the appraisal and include all 10 acres.

Now for the interesting part. What kind of fee should I charge to change the report (or should I say, generate a new report) considering new comps and new adjustments in the sales grid in addition to all of the verbiage changes necessary? I have already produced a report IAW their order and delivered it. They have the finished product. I think that when I am requested to do additional work, I am entitled to an appropriate fee. What makes me feel bad is that poor owner is going to be socked for my additional fee because of some UW guideline. I have to go through this about once a month.

As far as the value of 5 acres goes on say a 40-acre parcel, I did one about 3 years ago and just considered the 5 acres when there was a 40. The lender made the loan and took a mortgage on all 40. The folks are in foreclosure and will loose the house and 40 acres. The lender will make out like a bandit because when it sells, there will be about $60,000 extra over the mortgage payoff. This tends to grind me.

 

[Tim Hicks (Texas)]

That is the typical scenario here, too. I personally think that if the appraisal is for only five acres then the the loan and survey should be for only five acres. Gee, that would give them the other 35 acres free and clear though. USPAP thinks they are helping, but I beilieve they have opened another can of worms that will lead to more fraud and more foreclosures. They always want the property to be worth the same on five acres as it is on the total acreage. When you explain that is not possible they start looking for an appraiser that will deliver what they want. We have a recurring problem here with mortgage companies and loan officers thinking that they can do the loan on a certain amount of acres and then finding out they can't. Just last week I appraised a older home sale on 33 acres. I explained to the loan officer that I could do it (it is easier to do the full acreage in these type areas), but the land to value ratio would be high and many lenders will not lend on over five acres. "Oh, I've got a lender who will loan on the full amount. hey, but if you can get the sales price on less acreage, do that and I will survey it out". Well, I had five comps on 30-35 acres, I had a contract that stated 33 acres, so I appraised it. I came out $10,000 higher, but very few acres could be taken out to hit the sales price dead on. Well, what do you know, his lender declined the loan and they want me to do the appraisal on five acres, but they need it as close to the original sales price as possible. That is an appraisal update and $200. They are mad and somehow all this is my fault.

Last month, I had a FNMA owned property on 40 acres that sold for $200,000. I appraised it for $270,000. Loan declined becasue of acreage. "We need the $200,000 on five acres". "Can't do it. I can use new comps and 10 acres and get close to $200,000". $200 fee. Go do it. A week later,we need it in on five acres. $200 fee. Why? Because I need new comps again! Every time I have to re-do a report the characteristics change and the original report is usually the cleanest report.

On that loan, the underwriter was demainding another comp within 5 miles. I said I didn't have it. He said, "Time does not matter, go back two years if you want." "I can go back five years if you want, but I don't have another sale of a 3,000 SF home on five acres within five miles. I have two others on 30-40 acres like the original subject property". " No that will not do." We pulled one off of our data base, use xxxx FM 916 in sold for $225,000 last January. " "Yeah, that was a 112 acre land sale. How would you like it adjusted". Oh, the joys of dealing with underwriters.


The month before, house on 10 acres. My usual warning. We can do it on 10 acres. Guess what. We need the house and five acres two weeks later.

It is to the point that I may start turning down ranch style properties because of land size. Why? Because it strains the relationship between me and the loan officer/mortgage company. Because I am difficult and will not make it work the way they ask. It is not easy money either. Sometimes the smaller acreage sales are hard to find or too far away.


sorry about the ranting.

 

[bradellis]

Folks,

Barry Shea is quite right in his approach; HOWEVER, there is one important factor to consider:

Fannie DOES NOT require that ONLY the home on 5 acres be appraised. This is all an old concept that, I am told by "old-timers" at Fannie, had to do with Fannie's intrepretation of their charter which does, or at least used to, prohibit "land only" loans.

Today Fannie WILL buy the loan on multi-acreage IF you use comps with similar acreage.

Call Fannie and they will tell you. This was persented to us at an NAIFA chapter meeting some years ago in Chicago by a Fannie rep.

If your client refuses to find this out from Fannie- or if they are trying to sell the loan elsewhere, and you cannot do it properly- refuse the assignment.

Brad Ellis, IFA,RAA

 

[Anonymous]

Had two like that last 2 weeks. I warned owner that the mtg
company only wanted hse and 5 acres, and you have to leave
the pond, barn , $30K in hi tensile fencing and 75 acres off.

The mtg company calls and wants me to re do it. I told them to
educate the consumer about WHy you only want 5 acres. I tell the
owner that the mtg company wants the mortgage to conform so they can bundle the loan and pass it on.

I tell them, you want a loan that emcompasses all the land? Then go to farm credit or a local bank, especially the local banks that keep the paper in-house.

end of story and never get a further request to re do.
(I don't work for farm credit, and the AMC still gives me business)

 

[Restrain]

Any time I get a request with significant acreage or a request in a high $ land area, before I begin I get a clarification as to how much land to include. In one job I'm currently doing, I have a problem with a 3.8 acre tract because of the Land/Value ratio (75%) and we've been trying to get an answer for two weeks (LO called after closing last night - maybe an answer). At least I can get some kind of direction before writing the report. I would rather write it once than twice or three times.