Appraising a segment of a property

[Fred]

By the way the reason that lenders do this is because they don't want to lend on surplus land.

But if you do this appraisal the way you describe, then you will be causing exactly that to happen. You will cause the lender to collateralize the exact type of property the lender doesn't want to collateralize. It's like saying they don't want to lend against gas stations, so you'll just appraise the land, that way they won't be lending against a gas station.

That is, after we make the assumption that the site includes excess land. It could be that 20 is the minimum lot size which means the other 10 is not excess.

The orignal poster didn't want this transferred to the USPAP-Fannie section of the forum. I think that contributed to the wise-*** responses. It created the impression that he did not want this judged in the context of generally accepted standards. However, since that is now breached

It is a supplemental standard

I would love to hear what government agency published that supplemental standard.

 

[Michael Chu]

???

Comment under USPAP 1-2(e)(v)


I don't think "feelings" cut it.

It comes from psychosomatics- I "feel" confident that I can identify a property by ....

... any combination of a property inspection and documents, such as a physical legal description, address, map reference, copy of a survey or map, property sketch, or photographs, to identify the relevant characteristics of the subject property.

... just like I can identify where the toilets are once I have a sketch of the perimeter. Does it's location have to be accurate to the inch/foot?

It's up to the client to identify the property to be appraised. It's up to the appraiser to identifiy the relevant characteristics of that property.

Isn't it the crux of the problem? - the fact that the client tries to identify the property for the appraiser. We would not create this problem on our own. Yet, it's a problem we have to solve or walk away from.

.

 

[hastalavista]

We would not create this problem on our own. Yet, it's a problem we have to solve or walk away from.

.

In this case the correct action (IMO) would be to walk-away.

If I take measurements of an improvement, use those measurements to draw a sketch of that improvement, and then use that sketch as a basis of my valuation, that is an approximation. But it is an approximation of what is.

If I'm appraising vacant land. And, although the parcel is sufficiently defined on a piece of paper, there are no clear markings on-site (say, open field). I meet the contact on site, and she tells me that it is bounded by the road North, somewhere close to a grove of trees East, about 20' from the seasonal creek South (which, when I get there, is out of season), and more or less by the fence line to the West. I can use this general description (depending on the assignment and its intended use/SOW), to approximate the subject parcel. Again, I am approximating what is.

In Doug's post, the suggestion is one can approximate what isn't, using an EA, and it can be done since the client can impose by virtue of a supplemental standard. There is a lot of misinformation in that suggestion (if I understood it correctly); much of which I use to believe myself; so Doug is not alone here, nor is his belief make him the outlier.

So, I agree with you that an appraiser (hopefully) wouldn't create the type of subject-identification problems on her/his own. But one of the most important "relevant characteristics" (that Greg highlighted in his excerpted comment) regarding a non-existing parcel is that it does not exist. And, if the appraiser properly identifies that it does not exist (is not factually a parcel), then the next step would be to immediately eliminate the option of using an EA, and going straight to the option of using a Hypothetical Condition. When I say, "Going to" the option of an HC, that doesn't mean that option will work either. since it has its own set of requirements ("thresholds", if you will) to insure that the results are not misleading.
For the intended use of a mortgage finance transaction, if being made by a Federally Regulated Institution, or by any lender that sells to the GSEs or Secondary Market, or by any lender that requires those guidelines be adhered to, an HC that the land doesn't exist when it does is not acceptable, because the valuation is not "as is". So, for the mortgage finance transaction, it cannot be done and produce credible results.

 

[Michael Chu]

In this case the correct action (IMO) would be to walk-away.

You mean only if a lending institution is involved, correct?
If the HO wanted the appraisal on 10 of the 20 to make an estate related decision on whether to keep the 10 and his home and let the developer have the rest, it would be OK for the appraiser to appraise a segment?

May I put away my plat and my crayons?

 

[CANative]

I think this is a decision each appraiser has to make. There are many respected appraisers who disagree that "house and 5's" are not an appropriate SoW for lenders. Some of those appraisers think that Santora, Denis, David and I are full of beans when it comes to this issue. They are of the opinion that a lender can have a perfectly legitimate reason for setting an LTV or risk threshold based on a segment of the entire proprerty and that the HC test for "reasonable comparison" is therefore met.



Personally I don't like it. I especially don't like it when the request comes later and there is no client/appraiser communication other than "we don't lend on over 5 acres" or "because we need to close this loan and can't until you change the report."

 

[Farm Gal]

oh fer Pete's sake.

Start at the beginning:

1. Identify intended user and use, if Fannie Mae or other 'conventional' eventual secondary Lender market use, no can do under andy circumstance (see Death of the Five Acre Rule in the General forum FAQ's). Best not to do this on a 1004 URAR, it has substantial potential for mis-use.:glare: If you elect to do so Bold Caps all over it that it is not Fannie Compliant.

2. Sure you can draw up or define the 10 acres... but back to point #1 - first find out _Why?_ If you do chose to elect do-it-yourself subdivision, make sure the appraisal is either subject to the hypothetical condition of the hypothetical lot split, AND verification by a professional surveyor that such is possible _or_ clearly explain the scope and why you done what you done.

3. IF Why? has a reasonable response I'd still make sure you have ingress/egress, appropriate utilities, and that the 'finished site' meets all appropriate county codes addressed or explain why those don't matter for the intended use.

Speaking as someone contemplating the appraisal of a house with septic system 'on the other guys land' which property has a substandard site size to 'cure the problem' on his own dirt.
:Eyecrazy:

 

[Fred]

They are of the opinion that a lender can have a perfectly legitimate reason for setting an LTV or risk threshold based on a segment of the entire proprerty

But is the appraiser speaking to anyone reasonably called the "lender?" Probably not.

The comment that started this tangent was that the lender does not want to lend against the excess land. Well, how does person engaging your services know how much is excess before you do the appraisal?

We could make a distinction between lending against excess land and lending against the value of the excess land - but either way, the hypothetical condition is not necessary.
- A lender could avoid lending against the value of the excess land, if the appraiser supplies a value breakdown. Subject is worth $100 as-is, $10 of which is excess land. The lender could apply the LTV to the $90. However, they would still be lending against the excess land, because it is still part of the collateral. But no hypothetical condition is necessary.
- If they don't want to lend against excess land, than they won't want to accept any excess land properties as collateral. Again, no hypothetical condition is necessary.

 

[The Warrior Monk]

One thing to keep in mind with these hypothetical parcels is that it is Fannie-centric. Just because Fannie doesn't want to buy loans secured by land, or parcels with excess land, doesn't mean that nonFannie lenders won't. I had such a request once in my life, and it was from someone used to doing Fannie loans that was working on a nonFannie loan. I've never had or heard of such a request from a portfolio lender.

 

[CANative]

- A lender could avoid lending against the value of the excess land, if the appraiser supplies a value breakdown. Subject is worth $100 as-is, $10 of which is excess land. The lender could apply the LTV to the $90. However, they would still be lending against the excess land, because it is still part of the collateral. But no hypothetical condition is necessary.

That was my suggested solution, but "the other appraiser" countered that argument with "isn't it easier the other way?"

 

[Fred]

That was my suggested solution, but "the other appraiser" countered that argument with "isn't it easier the other way?"

And you said, no, right?

As-is gets the appraiser out of figuring out which ten acres, possibly making his/her own survey map. It also gets the appraiser out of figuring the 10-acre conversion adjustment. That is, the 10-ac comps are all superior in superior to the hypothetical subject ten, because there is cost and delay involved in dividing subject (assuming division is legal, probable, all that good HBU stuff). Leaving out this conversion adjustment for condition would be the equivalent of comparing a fixer-upper to a sound property with no condition adjustment - even if the equivalence is not obvious to some.

Then again, if you ignore enough reality, I suppose it could get easier.