"As Is" or "Subject to"???

[Ben Vukicevich SRA]

JoAnn

Ha! You know I'm a dazzling suburbanite. I don't get into those rural 36 acre thingees or double wides. That's your job.

Out here they're called minor and major subdivisions. The little guys, up to six I believe, go to the local municipality for approval. The major ones go to the county for approval-they need road/traffic impact studies and other such garbage.

Crazy place Arizona. Sounds like the bozo attorney who drew up a "legal" description for an FHA appraisal I once did. He drew up a deed all by himself and recorded it, giving the house and one acre out of ten to one son, the garage to the nephew and the remainder to the other son. Never bothered to tell the municipality about "his" subdivision. Nor was it legal, but he filed a deed anyway. That ended my faith in "legal" descriptions. Not legal, in my mind, until the municipality approves it and gives it a Block and Lot number or tax ID number.

That kind of crazy stuff belongs in a will or a wish list.

Ben

 

[bradellis]

Ben,

"Subject to" is quite logical, but the lender may not be able to lend on it until the split is done because of the lending "condition". Nothing at all wrong with doing it either way, so long as the lender can do what they want. Let's remember the intended use. If they cannot use it to lend on, then the assignment conditions will not have been fulfilled.

On the other hand, if they can lend on it, "subject to", it may well end up creating more work for the appraiser to recertify the value once the split occurs.

Communication with the client is critical. In most cases, the "subject to" can throw the terms of the loan out of whack. Some look at this like a construction loan. The extraordinary condition will generally suffice. I covers the appraiser's butt- so long as it is clear. it also allows the lender to make two loans- or a blanket loan.

It will al depend upon the requirements of their investors.

Brad

 

[George Hatch]

My opinion on 'subject to' or 'as is' in these situations is to report both values and let the client decide how they want to deal with it. Providing the 'as is' in addition to the 'subject to' also provides some context and demonstrates the effect of the extraordinary assumption on the 'subject to' value. In addition, the appraiser doesn't ever have to be concerned about later being accused of being misleading, uncooperative, or just plain incompetent.

Do it both ways, let the client make their own decisions accordingly.

George Hatch

 

[Ben Vukicevich SRA]

Brad,

I can see your point but I'm from the old school. My "subject to" covers me not the lender. I don't care what they do or what they lend on, but I do make sure they lend on the correct property via the correct legal description-also helps to keep me out of trouble with USPAP. If I have a preliminary subdivision plan, which is not approved, to work from and I develop a value from that plan, I want that plan approved by the municipality. If they can't lend until my condition is met, fine. That's the purpose of my condition. Thus, my "subject to" condition in the report. My legal description matches the municipality's and is what the lender should have in their file and on the mortgage.

I guess different strokes for different sections of the country.

Hey, how's the new job?????

Ben

 

[Ben Vukicevich SRA]

George,

You're a braver man than I. The appraiser's worst nightmare is appraising "as-is" because you better know exactly what you're appraising, highest and best use-wise. In this scenario, the appraiser does not. No "as-is" for me in this situation

I'll take "subject to" everytime. It's never misleading or incompetent. In this case, we have a five acre site with a home and a vacant 5 acre site. I am not a land planner and I do not appraise subdividable, vacant land without a preliminary subdivision plan drawn up by a professional land planner. I don't know nor do I want to know about wetlands, conservation areas, etc. I just want to see marketable building sites drawn up by a land planner. I value those. If they are not fully approved, I condition the appraisal "subject to" approval.

It's simple H&BU analysis and the FHA Excess Land thing in action. You know the lot is subdividable, but into what? I go toward the simplest. The house and a site-show me an approved site. The balance of the site doesn't interest me at all. Providing an "as-is" value on vacant land is scary in my area as it is usually based on the number of building sites obtainable. I a'int guessing at that. In my area 10 acres does not equal 10 acres value-wise. It's based on the number of buildable sites obtainable. Could be ten, 1 acre sites for $300,000+ homes or 40 sites for over 55 housing, once again based on municipal approvals. Appraising a 10 acre vacant site "as-is" can get you into big trouble, not knowing it's true H&BU out here as builders buy/price vacant land by density, not acreage.

I just value what is placed in front of me without thinking too hard. I let the land planners and owners battle the municipality for the subdivisions and approvals.

Yup, one 5 acre site with a home. Here's your value. Provide me with a legal subdivision cause I based my value on that.

Now I'm off to appraising a new home, not in a development, with well and septic. You ought to see the "subject to's" on that sucker. Borrower to provide lender with building permit, well permit and septic system permit. I'm not going to the town hall and doing hearsay research on those items. I'm basing my value on assuming those items will be obtained. If they don't provide them, they don't get the dough......I want to see a legal building site ready to be fully improved with a dwelling-they get the approvals, not me.

Duplex appraisals, same way. I check the zoning but I'll never call the town to find out if it's truly legal. Not my job. I don't waste my time. That's why the "subject to" box was invented. If it conforms to zoning, fine. But every multi-family appraisal in a non-conforming zone is "subject to" the owner providing a letter from the municipality stating that the multi-family use is legal, can continue as such and can be rebuilt if destroyed."

If the use is illegal, they don't get the letter, no one is the wiser and the loan can not close because the condition is not met. If they get the letter, Mr. Appraiser is in the clear. Same with the subdivision appraisal above.

I guess NJ is scary. We just had a land deal hit the papers where the land developer bought a large vacant tract from a couple for $x, played the approval game with the municipality, had it rezoned/approved for over 55 housing, closed with the property owner and then closed again the same day with the builder for a $1,000,000 profit. Now the original property owners are crying foul play. Hmm, I guess they should have paid a professional land planner, huh? Glad I'm not the "as-is" appraiser on that deal.

Ben

 

[jtrotta]

First off I'll agreee with Ben 150%

Secondly, as a wise old attorney told me many years back, his most favorite two words in the entire world are; "SUBJECT TO" - especially when you really don't know, and at this point you really don't know. What this will do is cause a follow up by you, either by inspection or by being provided the all encompassing "Legal Description: as recorded or what is to be recorded.

Also, by applying those two little words, you can delete your CYA- addendum.


8)

 

[Bemis Pownall]

case in point
asked to do a "pre foreclosure"
Its one unit of a 4 plex.
In a big city..things can get spilt/subdivided in short order..
County showed no split(new legal, pin # etc) hours on the phone
Explain to requestor can do "subject to".
"No" say they.

Couple weeeks later they fax old apprasial, THEY did property as if split, attached is a "new" survey. this report was 2+ years old. Still not recorded with city/county. Told um still "subject to".
Canceled, thank you
No THANKYOU!

Appears HO borrowed on the individual unit and borrowed on the 4 plex.
Keep me out of this mixed up thing.

Appraiser beware!
SUBJECT TO! when data is fuzzy~! CYA!

 

[George Hatch]

Ben and JTrotta,

You did notice that I recommended the 'Subject To' as well as the "As Is", right? The whole purpose of requiring an H&B analysis (for both opinions) is to determine the market value of the property to a knowledgeable buyer and seller. Realistically, if an appraiser isn't willing or isn't able to go through the necessary steps to do that, then they shouldn't be appraising that property. That's why I contend that properties that involve land value are generally complex in nature, precisely because the H&B is not always readily apparent. Sure, in appraising a single SFR on an urban lot, the H&B analysis is going to be simple because there aren't many, if any, alternative uses for the site. But looking at a site for zoning and conformance to any general plans, utility availability, topo, access, financial viability, etc., is all hard work. In the end a properly done H&B analysis is going to go through all the steps, disclose what the appraiser has found out and thus support that opinion. At that point, the "As Is" opinion isn't going to represent a long shot or speculation. It is simply based on what the appraiser has found out.

If the buyer subsequently bribes the right public officials and gets more out of the site; if there is some undisclosed lease agreement or other arrangment; or they discover diamonds, oil and the fountain of youth; or any other heretofore unknown feature that makes the property worth more, the appraiser is not responsible for that in the H&B analysis. We are only responsible for following due diligence within the scope of the assignment, not being omniscient. So I would disagree that these types of conditions represent an undue hazard for an appraiser. In fact, the lack of due diligence on one of these properties probably is a lot more hazardous to an appraiser.

Like I said, if an appraiser is not prepared to follow due diligence in their H&B analysis, which is a specific requirement for assignments involving market value, then they shouldn't be doing that appraisal.


George Hatch

 

[Ben Vukicevich SRA]

George,

I did read your post regarding "as-is" and "subject to" and I still say you're a braver man than I for providing an "as-is" value, especially when it's not necessary or required by the client for the typical, non-FRT which this is.

So, to me, in this case, no "as-is" value on the 5 acres or the 10 acres. The appraiser has a preliminary legal description to base the appraised value on and conditions "subject to" the approved subdivision based on the preliminary legal description.

Ben

 

[bradellis]

Ben,

Thought I was from the "old" school too, but maybe not. Anyway, so long as you and your lender are simpatico on the conditins, have at it.

Yes, like my new job. Good company, good people, lots of work, and, of course, I get to see all those wonderful reports with all the boilerplate. Wonder if the guys with the 3 page legal addendums know they are not USPAP compliant?

Anyway, having fun. Re-doing the kitchen, and generally causing as much trouble as I can!

Brad Ellis, IFA, RAA