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Appraising Property With Septic On Separate Lot

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bmoses121

Freshman Member
Joined
Jun 7, 2016
Professional Status
Appraiser Trainee
State
Massachusetts
Looking for some guidance, I am performing an appraisal on a single family purchase where the septic system is on a separate lot and separate deed, both having separate lot #'s. The purchase is for both lots, so once the purchase occurs the two lots will be recorded onto the same deed. I did the appraisal "Subject To" the combining of both lots as the subject lot needs the additional lot in order to utilize the septic system. The lender is now requesting that I "use an extraordinary assumption or hypothetical condition that the two lots will be combined once the purchase occurs". I am not comfortable doing that, has anyone run into this situation before? Any ideas about potential future issues? TIA.
 

Mr Rex

Elite Member
Joined
Jan 12, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
You are right, lender is wrong.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
I did the appraisal "Subject To" the combining of both lots as the subject lot needs the additional lot in order to utilize the septic system. The lender is now requesting that I "use an extraordinary assumption or hypothetical condition that the two lots will be combined once the purchase occurs".
First tell me who the report is for....in house bank? secondary market?
You can use an extraordinary assumption that the lots will be combined. After all, it is what it is going to be, so read what a EA is. It is not contrary to what exists...so it is not a HC.

The property you are appraising is TWO Lots...not ONE. Both are required for the dwelling to function as a single family residence. No septic, no SFR.

So for a BANK, you just appraise it as two lots combined into one property. For FANNIE MAE or FHA, VA, you might have to use the EA, it is "subject to" nothing except an event that will happen if sold...1 deed or 10. I just finished a report which 13 different deeds in one report. (note below that in your case the two lots are not divisible as a practical matter -HBU)

FHA
if the subject of an appraisal contains two or more legally conforming platted lots
under one legal description
and ownership, and the second vacant lot is capable of
being divided
and/or developed as a separate parcel where such a division will not
result in a non-conformity in zoning regulations for the remaining improved lot, the
second vacant lot is Excess Land
. The value of the second lot must be excluded from
the final value conclusion of the appraisal and the Appraiser must provide a value of
only the principal site and improvements under a hypothetical condition.
 
Last edited:

reviewbe

Sophomore Member
Joined
Oct 4, 2016
Professional Status
Certified General Appraiser
State
California
Although some will disagree (and therefore be wrong), 'subject to' is actually either a hypothetical condition or an extraordinary assumption, because you are not appraising the property 'as-is'.

With respect to the question, you kind of have to define 'lot'. Here in California, many people (including appraisers) seem to believe that a separate assessor tax parcel is a separate legal lot, when nothing could be further from the truth. In the state WA, on the other hand, I'm told that an assessor tax parcel is considered a separate legal parcel.

Curious how the division (or combination) came about in your case. The residence had an outhouse, perhaps, and then when indoor plumbing came along there was no room on site for septic and the lot adjacent had to be used? I don't understand why two lots, two deeds, etc. And I'd be hesitant as the appraiser to simply say that the two lots will be combined, at least not without some investigation of the process to do so. I doubt that it is as simple as the property owner recording a new deed with both lots on it, but I could be wrong and MA may allow parcels to be created, or combined, with a simple recorded deed.
 

Michigan CG

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Nov 1, 2006
Professional Status
Certified General Appraiser
State
Michigan
First of all a deed is only a piece of paper that gives property rights.

There is no reason for you to require the parcels to be combined.

Since both parcels need the other the Highest and Best Use is for the two to be considered one property, two tax parcels or not.

You cannot use an Extraordinary Assumption is an EA is something you believe to be true but are unsure of. In this case you know they are not combined as one so you cannot use an EA.
 

Howard Klahr

Senior Member
Joined
Oct 4, 2004
Professional Status
Certified General Appraiser
State
Florida
Is there a reason such as the "subject" lot is of insufficient size to support a septic tank and drain field within the confines of the single lot?

Regardless, the issue has nothing to do with combining the lots. Rather it has to do with a recorded access and maintenance and use agreement. Is the "Second" lot of sufficient size to support any type of permitted development? That would include expansion of the the existing or installation of new septic service on the "second" lot.
 

Mark K

Elite Member
Joined
Jan 27, 2004
Professional Status
Certified Residential Appraiser
State
Indiana
If the buyer will own both lots I see no reason for any appraisal requirement to combine the two lots. Mention it and move on; this isn't your call to make. If the septic is on a lot owned by another person, that's a different story but a 'septic system easement' can cure that problem. If both lots have common ownership, there's no need for even an easement.

Conveying both lots on one deed means very little, in this area. They remain two individual lots in the eyes of the assessor, treasurer, auditor, etc. until or unless you go thru a re-platting process like you mention. This can be time and money consuming. I can convey two or two hundred lots on one deed; they're still two or two hundred separate lots.

Selling two lots at one time might cause a HBU issue that you may need to address if both are buildable.
 
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jay trotta

Elite Member
Joined
Feb 8, 2004
Professional Status
Certified Residential Appraiser
State
Connecticut
Looking for some guidance, I am performing an appraisal on a single family purchase where the septic system is on a separate lot and separate deed, both having separate lot #'s. The purchase is for both lots, so once the purchase occurs the two lots will be recorded onto the same deed. I did the appraisal "Subject To" the combining of both lots as the subject lot needs the additional lot in order to utilize the septic system. The lender is now requesting that I "use an extraordinary assumption or hypothetical condition that the two lots will be combined once the purchase occurs". I am not comfortable doing that, has anyone run into this situation before? Any ideas about potential future issues? TIA.

My Bold, the Subject To, in reference to the Deed combining both lots appears to be correct (Not familiar with your area or Zoning), BUT, because the Deed will reference both lots on 1 Deed, does not mean they are one. The question would be; will zoning & building agree to the (1) lot scenario ? Also, if agreed, will they (B&Z) allow an, In Law or Rental unit now that the site will be greater or is it a Grandfathered parcel to begin with ?
Good Luck
 
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