Bad advice from Fannie--"Multiple Parcels" from Dec. 2019 'Appraiser Update'

[Lee Lansford]

If you have--as you should--have concerns regarding Fannie's words, deliver your concerns to Lyle_E_Radke@fanniemae.com

 

[J Grant]

In your market what is a one-acre parcel worth?
In your market what is a two-acre parcel worth?

I know what you are getting at, but this is not the same thing. This is not combining two one acre parcels into a single two acre lot. This is one acre and an adjacent one acre lot, encumbered under a same mortgage. The adjacent one acre lot can still be sold as a one acre lot. ( it would be released from mortgage at that time).

One assumes in your scenario a 2 acre lot is worth less than two separate one acre build able site lots. But that might mean min 2 acre zoning, or the improvements/configuration of the 2 acre lot does not lend itself to being subdivided even if zoning allows.

 

[Michigan CG]

 

[Michigan CG]

 

[Michigan CG]

 

[Michigan CG]

I do not see why its value diminishes

If you don't see it now then you will never see it.

 

[Lee Lansford]

It is NOT combining the two as though they are one ! It is financing the two together. Since a segment of buyers do purchase a vacant lot in a package with house next door and a number of owners of vacant lots choose to leave them vacant for future appreciation vs sell /build today, there is market activity that supports it.

Who are we to tell buyers what they can and can not do and ditto for lenders or loan programs. Fannie will finance it, FHA won't.

It is NOT combining the two as though they are one ! It is financing the two together. Since a segment of buyers do purchase a vacant lot in a package with house next door and a number of owners of vacant lots choose to leave them vacant for future appreciation vs sell /build today, there is market activity that supports it.

Who are we to tell buyers what they can and can not do and ditto for lenders or loan programs. Fannie will finance it, FHA won't.

Your and my concern in appraising these 2...2...properties is not with a concern how the owner will mortgage the 2...2, not 1...properties. If that be your concern, become a loan officer .

 

[glenn walker]

IE Fannie & Freddie do not typically make loans they "purchase loans" from lenders. When a lender or owner combines both separate parcels into one deed then its considered one property. This is done all the time because the separate parcel is either too small to have any significant difference or in prior years owners included both on in deed and recorded it. NOTE: FANNIE does not purchase land loans and so their guidelines do not apply to a H & B use on a separate parcel ONLY on the property they purchase a loan on, SO if the appraiser believes the Subject property is better suited for another use or a better use that is not an-issue either as long as the Subject property can continue to be used for what it was originally zoned or built as IE Legal non-Conforming. IF THE appraiser is making a separate land or lot appraisal the he/she will determine the parcels H & B use and value it as vacant.

NOTE: One reason traditional lenders are fearful of funding a loan where the Highest & best use is something other than what exists is because many investors and small developers would purchase a property ( House ) getting a high LTV loan when in reality they did not ever intend to use the home except for a short term office or rental while they get there new building plans approved, then 8-12 months later they bull doze down the property and in some cases they didn't even pay the loan off and used secondary financing or cash to build out the new building NOW Fannie or the lender unknown by them hold a land loan or a loan on a commercial property. SO if a properties true current H & B use is something different from what is currently being used the appraiser better be sure that it really does meet the feasibility tests.

Unfortunately for many residential appraisers they confuse ZONING with H & B use and often check the NO BOX when the existing use is the only real use available. In high cost areas like Los Angeles County often a single family home located on a C-Zoned property will rent out at a higher rate and generate more income than a small office building. Does loan availability have anything to due with higher & best use ? Most appraisers say NO BUT in the real world it absolutely does because without readily available financing often the economic feasibility drys up and so the property is never developed or used for anything but its existing use and that's why there are so many small vacant lots because nobody wants to loan on them.

The same is true when appraisers say that lending has no effect on there H & B use on a single family or 2 to 4 unit property, but they do not think about what negative effect happens on both H & B use and overall value if the GSE'S-FHA-VA quit doing loans ? The 5 Unit apartment buildings are a perfect example-Those bad boys are being converted down to 4 units because they are hard to sell and there value actually increases in some cases by 10% to 15%- In theory the additional income a 5 unit has over a 4 unit should way more then compensate for the more costly and limited financing but in some areas traditional income approaches are out of wack.

Gee I think the NEXT time I do a 5 unit maybe I will check the H & B use as NO and explain that after a thorough H & B use analyses the market indicates that due to limited financing and more limited future sale and marketability the market indicates a 4 unit will both enhance future sale and marketability and value . That should give me at least a week of fun trying to convince the banks Chief Appraiser that I go all the way when it comes to H & B use and I don't just check the yes box to make a lender happy

 

[J Grant]

If you don't see it now then you will never see it.

Your examples are not the same thing ( though hard for me to read the mouse type ). they are a single large parcel, of 3 acres or 2 acres etc. None of them look subdividible ( does zoning allow it?)
There are many times when a 3 acre lot is worth less than a 2 acre lot, for many reasons.

But again, this is not the same thing. This is not two one acre parcels combined into a single 2 acre parcel (that might be worth less ). It is, and remains, two adjacent parcels one with a house on it, one a separate and salable as separate one acre vacant parcel. It is not being legally joined to the other parcel in one deed or one zoning restriction to make a non divisible 2 acre parcel. How can you not see that...

 

[Econobot]

Fannie is not asking appraiser to mischaracterize the market value of the vacant parcel...if appraiser does that it is their own lack of competence, not an instruction from fannie.

There is some overlap of buyers for these properties, I have seen it in my area transactions. Buyers will purchase a house along with an adjacent vacant build able site. Why are the two interests mutually exclusive? The borrower gets to live in the house and hold the lot for future appreciation. Or, they can build a house on the vacant lot and move in to it, and sell the older house. Or they can build a spec house on the vacant lot and sell it. (mortgage would be paid off or restructured at that time.

It is a good opportunity for a particular set of buyers. True, it is a limited niche of buyers but then again there are a limited number of properties like this in most markets. .

Telling an appraiser to include a value in use is what? They didn't say market value, they said value in use..... it's so obvious its scary how you're completely missing the point