Appraising a segment of a property

[George Hatch]

If a subject property really did consist of a physical or legal segment, an appraiser would identify that segment as their subject property all the way through the report, starting at the address line. For some reason, our "house-n-five advocates" never get around to addressing the "partial interest" until they get to the Sales Comparison grid.

Even if "as is" meant something other than what it means, these house-n-5 appraisers would still have a reporting problem. The property (and all of its attributes) that they have identified all through their report is not the property they end up appraising.

 

[Edward OConor]

I have seen this type of request from lenders before. In my area of coverage this would almost never apply.

That being said and assuming that there is a dwelling involved, I think that I clearly indicate that the subject is on what ever acreage there is. I would note any adverse or positives about the entire parcel. Then I clearly would indicate that at the lenders request no adjustments were made for the excess land over 10 acres. If the comparables had 8 acers I would adjust to 10 acers. If the comparables had 10 or more acers there would be no adjustment and a comment as to why there was no adjustment.

 

[Fred]

If a subject property really did consist of a physical or legal segment, an appraiser would identify that segment as their subject property all the way through the report, starting at the address line.

George,
In your first setnence, you get close to the key element of whether these are physical segements AND legal segments, or whether they are physical, but not legal, segments (no legal description). If it is the latter, then these segments cannot trade in the market place at the effective date of the appraisal. That is a "relevant characteristic" if the subject property is supposed to be collateral on that date.

I clearly indicate that the subject is on what ever acreage there

I think you are missing something. The subject is not ON acreage. The subject IS the acreage. Real estate is land, land and what is attached to it. The legal description of real property begins with a description of the land boundaries.

 

[hastalavista]

I have seen this type of request from lenders before. In my area of coverage this would almost never apply.

That being said and assuming that there is a dwelling involved, I think that I clearly indicate that the subject is on what ever acreage there is. I would note any adverse or positives about the entire parcel. Then I clearly would indicate that at the lenders request no adjustments were made for the excess land over 10 acres. If the comparables had 8 aces I would adjust to 10 aces. If the comparables had 10 or more aces there would be no adjustment and a comment as to why there was no adjustment.

Would you accept the lender telling you that you must use GLA adjustments of no more than $50/sf because anything else exceeds their guidelines, and they don't want to loan on "excess house"?

Edward-

My post, although a little sarcastic, is made so to emphasize this point:
An as-is value is an as-is value. An as-is value is dependent on (among other things):
A. What exists.
B. How the market reacts to what exits.

The purpose of the appraisal report is to accurately describe "what is" and then appraise it "as is", or as something other than "as is".
In the case where 15 acres exists, but only 10 acres are being considered, that is appraising something as it isn't. You can report that it exists, but that doesn't solve the development (valuation) issue of not appraising it as it exists.

In the case where something is being repaired, one appraises it "as-is, subject to this repair being made". Once the repair is made, the Extraordinary Assumption (that it was going to be repaired) is met, and the "as is" value = the "as is" condition.

In the case where something is being built, one appraises it under the Hypothetical Condition that it is already built. This is not an "as is" appraisal. The appraisal is worthless until the the house is built. Then, the as-is value = the as-is condition (on an HC, it is a little more complicated than that because of the difference in timing between appraisal and completion dates. But this is is the gist).

In the case of the 15 acres being appraised as 10, it is not "as is". There is no mechanism to make the 15 acres into 10.
So, the "as is" value is not based on "what is", but based on "what isn't".
Do you see how this conflict is irreconcilable?

 

[Timothy Fierek]

Hypothetical Appraisal??

I called the Fannie Mae field office in Chicago on this issue several times in the last year. They do not allow this practice (only partial lot included in appraisal), so if it is done it should not be done on the Fannie Mae forms.
So here is a good one.
Just received desk review for appraisal done on new Fannie Mae 1004.
Top of report above Uniform Residential Appraisal Report the header reads "Hypothetical Appraisal."
The subject contains 11.8 acres as indicated on the appraisal. Legal description and parcel number include 11.8 acres. All 11.8 acres are included on the Sales Comparison Grid. It also appears that it was all included on the Cost Approach, but that is speculation as there is no explanation.
Appraisal is checked "As Is' with explanation following "This is a 'hypothetical appraisal' with subject being appraised as 5 acres of the 10.8 acres of land."

Seems like a few errors were made on this one.

 

[Timothy Fierek]

Almost forgot

So how many of you appraise properties in this manner and only include a portion of the subject lot?
Just curious, as we used to do it before the new forms came out. We would do it based on the hypothetical condition that the subject was appraised on only a portion of the lot and assume that it would have the proper setbacks, access, utilities, meet zoning requirements, etc. And we would always mark the appraisal subject to the hypothetical condition. We would explain everything at great length and in detail in the report so there was no question as to what was being done.
After the form changes and advisement from the Fannie Mae field office we stopped. What I was seeing and hearing back customers was that they were getting ripped off because the appraised value did not include all of their acreage, yet the mortgage collateral included the whole ball of wax.

 

[George Hatch]

What I was seeing and hearing back customers was that they were getting ripped off because the appraised value did not include all of their acreage, yet the mortgage collateral included the whole ball of wax.

That's one of the main reasons why appraisers should decline to do this. The decision on how much to lend is a lending decision, not an appraisal decision. The H-n-5 appraisers are allowing themselves to be used as scapegoats so that the lenders won't have to take responsibility for their own decisions.

 

[The Warrior Monk]

That being said and assuming that there is a dwelling involved, I think that I clearly indicate that the subject is on what ever acreage there is. I would note any adverse or positives about the entire parcel. Then I clearly would indicate that at the lenders request no adjustments were made for the excess land over 10 acres. If the comparables had 8 acers I would adjust to 10 acers. If the comparables had 10 or more acers there would be no adjustment and a comment as to why there was no adjustment.

If no consideration for differences was made when the market dictates otherwise, the value being determined is something other than market value.