Appraiser

[Richard Carlsen]

Otherwise I don't think it's OK because the actual property that is to be the actual collateral of the actual loan is not being appraised.

Greg

I know we've been over this many times in the past but this is one more situation where matching the appraisal to the actual site that is to act as collateral for the loan is not a concern of the appraiser. That is the lenders responsibility. And since we are not part of the lending determination, it really does not concern us.

I'm sorry but I find it hard to think that I must be responsible for the actions of others if they choose to make loans based on hypothetical appraisals.

BTW, where does it say in USPAP that the real estate that is the subject of the appraisal must match to the property that is taken as collateral for a loan? I cannot seem to find it.

 

[CANative]

Please explain the "neccessary" part of using an HC to appraise a portion of a property for lending purposes. How is the lender going to encumber only that portion of the property you have described when there is an actual legal description that indicates something different?

Undoubtedly you are a better businessman than I, but I don't like these types of assignment and I would feel like I'm doing something "naughty." If the client or lender doesn't have a loan program for 20 acre properties why should the appraiser be involved by tweeking an appraisal report to make it appear that the property conforms to the loan program that's not designed for that property?

 

[Richard Carlsen]

Please explain the "necessary" part of using an HC to appraise a portion of a property for lending purposes. How is the lender going to encumber only that portion of the property you have described when there is an actual legal description that indicates something different?

They are not but they do not need to know what the value of the whole is when they only want to loan on what the value of a smaller part would be.

Somewhere, appraisers have developed the idea that the note signed and the mortgage given by the HO must be identical to the site appraised. That is only when there is a requirement such as a secondary market rule or a regulatory rule. A bank may, for a portfolio loan, look at an appraisal based on an HC of the house sitting on 5 acres with an appraised value of $150,000 and say that they will loan 80% on that amount even if the actual parcel is a house sitting on 40 acres were to have an appraised market value of $255,000. That is called lending determination. Banks tend to understand these things even if the appraisers they use don't.

Assuming the Intended Use does not contain any prohibitions against using HC's, the appraiser is under no obligation to ensure that the parcel appraised is exactly the same as that which is loaned on. All the appraiser is required to do is to clearly identify the parcel appraised. If it is an existing parcel, then it is done "as is". If it is part of a larger parcel, then the appraiser must make an HC and identify the parcel appraised. This will be the parcel contained in the assignment from the client.

If the client or lender doesn't have a loan program for 20 acre properties why should the appraiser be involved by tweaking an appraisal report to make it appear that the property conforms to the loan program that's not designed for that property?

And once again, this is a case where it is none of the appraisers business what kind of loan programs the client has. That is their business. Appraising is the appraisers business.

Again, I ask: Where is it written that the parcel appraised must be identical to the parcel that is taken as collateral for a loan?

 

[Mike Boyd]

If your market shows there is no difference in value between a 10 and 28 acre parcel you still must show the subject as having 28 acres but explain there is no value difference and call all land over 10 acres as excess land with no contributory value. Demonstrate the no value difference in a matched pairs analysis on an addendum. (matched, other than parcel size. Include some with larger parcels. Charge accordingly for the extra work.) Otherwise, no, you cannot do it.

 

[Richard Carlsen]

Otherwise, no, you cannot do it.

Forget the "if's" etc.

Please cite chapter and verse, other than supplemental standards or regulatory rules, that says the appraiser cannot do this kind of appraisal.

 

[Mike Boyd]

I was afraid someone would ask that. It is an assumption that certain parts of a property cannot be ignored.

 

[CANative]

Forget the "if's" etc.

Please cite chapter and verse, other than supplemental standards or regulatory rules, that says the appraiser cannot do this kind of appraisal.

Cite the chapter and verse where it says you can't appraise the good condition portions of the house and HC out the bad portions (i.e. pretend the bad portions do not exist as opposed to being repaired).

 

[Richard Carlsen]

I was afraid someone would ask that. It is an assumption that certain parts of a property cannot be ignored.

Why cannot certain parts of a property be ignored. You are doing an HC. Look at the definition of a Hypothetical Condition found in USPAP:

HYPOTHETICAL CONDITION: that which is contrary to what exists but is supposed for the purpose of analysis.

Comment: Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.

Look at that again and note carefully what it says: That which is contrary to what exists but is supposed for the purpose of analysis.

Another way of saying this would be that the house on the 5 acre parcel does not legally exist but it is supposed to exist for the purpose of analysis in order to complete the assignment IAW the requirements of the client.

If appraisers were not allowed to do appraisals based on Hypothetical Conditions, do you not think that a definition of Hypothetical Condition would have been excluded from USPAP. And don't you think that Standards Rule 2-1 would not have said the following:

Each written or oral real property appraisal report must:

(c) clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.


It is abundantly clear that Hypothetical Conditions are a legitimate appraisal practice; that there is a time and place when it is within the prescribed appraisal practices to make a Hypothetical Condition within an appraisal.

So we have established that Hypothetical Conditions are, in fact, a permitted appraisal practice by the very nature of their being recognized and governed by USPAP.

Once again, I return to my original question: Where is it written, other than supplemental standards or regulatory rules, that an appraiser cannot appraise a Hypothetical 5 or 10 acre parcel of a existing 40 acre parcel either because (1) the property appraised must actually exist as appraised or (2) the property appraised must be identical to the property that acts as collateral for a loan?

 

[Mr Rex]

Which 5 or 10?

 

[CANative]

You always leave out the comment to 1-2(g)

A hypothetical condition may be used in an assignment only if:

- use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison.

It does not say the appraiser can use it to help a lender fit a square peg in a round hole.

Also read 1-2(e) (i) and (v). as well as the comments on (i)-(v).

At best, you're tap dancing around these standards.