Appraising a Complex Horse Property

[cawsax1]

Hi all,

I have a bank that wants me to appraise a property consisting of two parcels. The parcels are contiguous, but only with a 48+/- foot point at where the parcels connect. The bank wishes to encumber both parcels for a portfolio loan. Local land use rules require a 30 foot width for a private road and a 40 foot width for a county built road to be built. There is no road connecting the two parcels currently. Additionally, the two parcels both have legal access via different county roads, so access is good even though there is no road connecting the two.

Parcel 1 is approximately 28 acres and Parcel 2 is approximately 27 acres. Parcel 1 has several buildings and parcel 2 has none is mostly trees. Parcel 1 has an old farmhouse that needs to be remodeled and I am appraising it so it can remodeled according the specifications and budget submitted with the assignment. The home is approximately 2100 sq ft or so. The other buildings include a care taker residence double wide manufactured home affixed to a foundation and professionally installed. A large barn 47' X 71' with a built in finished personal office and 12 horse stalls, cleaning area, and tack area for horses. The same parcel has an additional barn that has a customer reception area, additional stalls for veterinary patients, and a restroom area it is approximately 33' X 63'. There is a also a metal shop with little value on parcel 1.

My concerns are properly appraising the two parcels, determining the contributory value of parcel 2 to overall value, valuing the outbuildings properly, and keeping the appraisal strictly on a residential basis. The bank knows the property includes a Horse Veterinary Business, but this will be a portfolio loan and wants to know what it is worth without the business considerations. I am working with another local appraiser obtaining advice, but I would like to get a brief structure on how many of you would tackle this complex assignment. Step 1, Step 2, etc. Also any advice on protecting myself or common pitfalls appraiser's make on appraisals like this. Any and all advice would be much appreciated! Thanks!!!!!!!!!

 

[Mike Boyd]

As with all assignments, the key is in the comps. If the bank wants the 2 parcels on one report then you would appraise it as 55 acres. However, you might have a highest and best use issue. Unless you have comps with similar amenities, be very conservative with the contributory value of the outbuildings.

 

[hastalavista]

As with all assignments, the key is in the comps. If the bank wants the 2 parcels on one report then you would appraise it as 55 acres. However, you might have a highest and best use issue. Unless you have comps with similar amenities, be very conservative with the contributory value of the outbuildings.

(my bold)

I agree with the HBU issue. From what you describe, this may be an issue where the property is not being appraised to its HBU?

As to the vet business, this is an interesting situation. I've appraised residential properties that have significant equestrian facilities. It wouldn't take much for a vet to set-up shop at some of these, but I don't think the fact that a vet could operate out of the facility means that the facility's best use (or, significant contributory value) is that of a veterinarian use? And, I can see situations where some horse owners would want a portion of the facility set-up so that a traveling vet could visit and service the animals on-site.

I think you have a complex assignment, but not so complex that it moves from residential to non-residential (based on what you describe). Obviously, full disclosure of what exists (vet business) is required. An analysis and comment on the fact that the property (or, at least the one parcel) retains its residential HBU with the on-going business concern is also advisable.

Are you required to complete this on a Fannie/Freddie form (current)? I'd try to talk my client out of this if so.

Good luck!

 

[Caterina Platt]

I have an old sale of a property like that here. The owners are not veternarians, but raise and race quarter horses. He keeps a vet tech/assistant on the property in the guest quarters. It sits on about 80 acres total. There was a lab, kitchen, restroom facilities, etc. in the stallion barn.

This sale took place without the aid of a Realtor. All that needed to happen is mentioning of it's offering in the circle of racing people in the region and it got snapped up. Great for him, pretty stinky when we're trying to locate comp information. :glare: When I've done this house, the lender only wanted the house and 5, which, BTW, was legally divided and included most of the equestrian facilities. I was fortunate in that, as I was able to find much of my data in MLS. 80 acres causes a bit more of a problem. Mine was also very much residential (6000 SF custom with an in ground pool in a residential only area) and H&BU was not a problem.

What does your highest and best use analysis reveal? Edit: I took longer than Denis to reply, so we've all asked this question. I didn't mean to be repetitive. But this is a very important aspect.

For comps, does your MLS have a 'Farm and Ranch' classification? Many times, that section has properties which on the surface appear to be large vacant tracts, but close look at the listing reveals there are some pretty significant improvements. I've seen situations where there was indeed a 2000 SF house mentioned as a sideline. Next, talk with the owner to see if he can recall any of his regional or local horse buddies selling. Believe it or not, you many also end up looking in the back pages of things like 'Western Horseman' past issues. My money would lie on the farm/ranch type Realtor or your property owner, but in a pinch?

Finally, when you go to write this, throw out the Fannie Adjustment and distance guidelines. You obviously will remain as close as practicably possible and maintain good appraisal practice, but don't be shocked or surprised at HUGE adjustment percentages. I remember as much as 80% gross on one or two I've done. It takes an underwriter with a strong constitution to lend on true horse property.

Good luck.

 

[Caterina Platt]

(my bold)

Are you required to complete this on a Fannie/Freddie form (current)? I'd try to talk my client out of this if so.

Excellent idea! It's being portfolioed. No reason to have that on a form which could 'accidentally' be sold off to a secondary investor in the future. No reflection on your client's honesty, just a safety issue. You never know what would happen in several years, or when their financial balance sheet needs changed.

 

[Walter Kirk]

It seems to me that you have two appraisals of two parcels. The fact that the bank wants a blanket mortgage should not influence your methodology or H&BU determination.

 

[Joyce Potts]

It seems to me that you have two appraisals of two parcels. The fact that the bank wants a blanket mortgage should not influence your methodology or H&BU determination.

Walter is absolutely correct.

Nor is this an appraisal that can be done on a form. Believe it or not.

The Form Monkey

 

[Terrel L. Shields]

As one ownership and one operation, I would have no problem appraising it as one property. Tax parcels are not a meaningful way to determine HBU. The proper questions to ask.
Is it being operated as one property?
Is it under one ownership?
Would the property be sold as one property as is?

If so, it is one property. Even if you assume there are 2 parts to the estate, then you appraise the dominate estate (is that the res? or the Vet clinic?) and apportion value to the other. Determine the dominate estate. (this is the old unit rule in appraing) Appraise that. If it is the residential property (say a $1,000,000 home) and the clinic contributes $100,000, then its HBU is residential (complex though it may be). If the clinic is worth $500,000 and the dwelling is worth $200,000, then its a commercial property, howbeit also complex or better described as "mixed-use" either way.

 

[Mike Boyd]

My question on highest and best use involves the 2 separate parcels issue.
If that 2nd parcel is a legal parcel and if zoning permits, it would seem to me that a higher use would be to sell them separately with that 2nd parcel offered as another homesite. Od course, that would depend on the market in the specific area.

 

[cawsax1]

Thank you all for your responses, I have researched and found some reasonable comparables. On the HBU issue, I think the current HBU is still as a remodeled farm house. At inspection the farm house was rougher, but the home is to be substantially remodeled and I am appraising it subject to completion of the remodel. The size of the home will not change, just the amenities and condition will be much improved. Additionally, I have found 2 comparables that were sold with two parcels, one is a horse property and another is a agricultural farm operation with multiple outbuildings, etc. The outbuildings I think I will be very conservative on for contributory value.

Do any of you have a rule of thumb on something like this for contributory value of the outbuildings? A percentage? I just want to logical and be able to support my conclusions. Thanks again, I have found a new place at this forum to discuss appraisal issues with a professional, well qualified group of peers.