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

[Andrei Fin]

How is it a failure to develop a SOW when I have *included* everything you did (albeit more competently since I actually looked for house+extra sales) and then *added* the other valuation scenario you never even considered? I did everything you did, and then some.

Your subject's own sales history shows that the previous broker was more savvy about the potential than you are. If I were you I'd give some consideration how that occurred.

That's so awesome of you to do all that extra work for free. And while we're on the topic of nobody is going to pay extra for something they don't want or need, not only are you saying all these people are dumb, but so are the hundreds (thousands?) who saw the listing, including the agents who came through on tour or with their clients. All it would take is ONE smart buyer to realize that the market is stupid, offer a few nickels above asking price, and then turn around the sell both parcels for a massive profit! Yet nobody stepped forward. Twice. And they even had the previous cancelled listing to clue them in. Complete morons. We're so lucky to have smart appraisers like George to tell us that a property is worth so much more than everyone thinks it is. In fact I'm starting to worry about all of the other properties that George has grossly overvalued for his clients, with his belief that he is smarter than the market, and that HBU=MV. I'd probably max out my E+O before the next downturn.

As for the previous listing of the lot at $89,000, if you want us to believe that a young family let go of $18k in cash and $400/mo to sit on a vacant lot for two years, sorry but you don't understand real estate.

 

[Michigan CG]

We have THREE obvious issues with this situation and a few people who will not acknowledge what is acceptable appraisal practice.

FIRST: If one is appraising two parcels, one developed and one not developed AND there is a demand for vacant land that deems the Highest and Best Use of the vacant parcel to be for development then we have a Highest and Best Use issue. If the improvements on the improved parcel contribute value and are deemed to be the Highest and Best Use AND the vacant parcel has a SUPPORTED Highest and Best Use of being improved then what box does the Appraiser check when valuing these two parcels together?

The improved parcel would be in its Highest and Best Use but the vacant parcel would NOT be in its highest and Best Use. What box are the people in the minority on this issue checking?

SECOND: If the appraiser is arguing that the two parcels are acting as one economic unit then we have a different problem. There is an active thread about two 2.5-acre parcels being valued together as one where one parcel is improved and the other is not. The lender (rightfully) is telling the appraiser that they should not include the second unimproved parcel in the appraisal.

We have a value problem here. Taking the 2.5-acre example in my world that 2.5 acres is worth about $40,000, so two of them are worth about $80,000. The five acres, as ONE economic unit is worth $60-$65,000. For the people who are in the minority in this tread do we not have a problem with this as the land value goes down as one economic unit by about $15k-$20k.

Now apply this math to places where land values are significantly higher and there is some real money (not that $20k is not real money).

THIRD: For the minority of the people in this thread you might have a reporting problem. Are you reporting the land value of the five total acres at $60,000 when you are valuing the property OR are you valuing the land at $80,000? The argument is that are acting as one and therefore the value of the one economic unit is $60,000 and not $80,000. It is not even arguable that you can say the land is worth $80k when you are reporting Highest and Best Use as being ONE property with excess or surplus land or whatever you are calling it.

 

[Lee Lansford]

As a fellow NAIFA member (and now fellow ASA'er) once said (paraphrasing here) : "The problem with the Competency Rule in USPAP is that it is the incompetent as well as the competent appraiser who gets to make that decision about him or herself."

 

[George Hatch]

That's so awesome of you to do all that extra work for free. And while we're on the topic of nobody is going to pay extra for something they don't want or need, not only are you saying all these people are dumb, but so are the hundreds (thousands?) who saw the listing, including the agents who came through on tour or with their clients. All it would take is ONE smart buyer to realize that the market is stupid, offer a few nickels above asking price, and then turn around the sell both parcels for a massive profit! Yet nobody stepped forward. Twice. And they even had the previous cancelled listing to clue them in. Complete morons. We're so lucky to have smart appraisers like George to tell us that a property is worth so much more than everyone thinks it is. In fact I'm starting to worry about all of the other properties that George has grossly overvalued for his clients, with his belief that he is smarter than the market, and that HBU=MV. I'd probably max out my E+O before the next downturn.

As for the previous listing of the lot at $89,000, if you want us to believe that a young family let go of $18k in cash and $400/mo to sit on a vacant lot for two years, sorry but you don't understand real estate.

I'm thinking you wouldn't like working for me or someone like me because I don't chase fees. I chase relationships, which means I will work a problem until I'm done with it; not cut it off prematurely on the basis of not getting paid enough.

As for "all these people" inasmuch as you didn't even look that makes it a guess on your part as to what most sellers will do in that situation. If you had several other such examples in that area you'd have a basis for forming that opinion, but you don't. Now for all I know it's possible you're correct, because I haven't looked for those situations, either. But if you are correct it isn't because you actually know what you're talking about with what's typical for this situation. All we can know about the 2016 transaction is that it sold for the asking price of the land + the asking price for the SFR, each as if sold individually.

Answer me this: In that 2016 sale, if you had a comp on a 10,000sf lot, would you really have applied a lot size adjustment of $11.86/sf to equalize the comp to your subject? Because that's what the land value of the extra parcel was listed (and purchased) at: $89,000 / ~7,500sf = $11.86/sf. Do you have SFR sales data in that $400k SFR market to support an $11.86/sf lot size adjustment rate?

Of course you don't. Not even you are stubborn enough to tell a lie just to win an argument. It wouldn't do you any good anyway, because I already know you don't have support for an $11.86/sf adjustment rate between a 7500-15000 sf lot. You know how I know? Because that is a question I could research, so I did.

Tell you what, amigo; if this was an FRT and your reviewer wasn't some $10/hr form monkey you'd have been sent back to drawing board to do some more work for free. If it was me I'd make you support that lot size adjustment, and then you'd be hating life.

 

[J Grant]

So in the example Andrei has given, where I have identified vacant parcel sales data showing that there's another $100k in it for the seller if they sold the vacant lot off separately - in that example would you say the lower price is a reasonable expression of MV for that property in its market segment?

Andrei appraises these parcels at $440k and I appraise them at a total of $540k. Which of us has an unsupportable value conclusion? It ain't me because I have the apples-to-apples comps that support those values.

Too exhausted to follow this particular example and I'd have to do a review of each appraisal lol

BUT , if a seller could get 100k more in the market for selling them separately, why would a well informed seller acting in own best interest take a 100k loss to sell together? Either the market is not there to sell separate, or this is a poorly informed seller /atypical motivation to take such a loss - MV is measured with the model of actions of a well informed seller and buyer.

 

[Terrel L. Shields]

ut the vacant parcel would NOT be in its highest and Best Use.

Wrong. As is the lot is at its HBU. It's future use is a prospective value. HBU relates to whether the property is most valuable as if vacant or as is. They are one and the same in a vacant tract. To put another way. A 1,000 acre ranch can almost always be divided into smaller parcels to sell. But when the assignment is to value 1,000 acres, then creating a false scenario of what COULD BE, does not make sense. I suppose it COULD BE a 4,000 lot subdivision...but it isn't. It COULD BE a 25, 40 acre ranchettes. It COULD BE 100 10 acre mini ranchettes. BUT IT'S NOT. BOTH TRACTS ARE AT THEIR HIGHEST AND BEST USE. Their future HBU may be different. But the HBU relates to here, now, today...what is its highest and best use. Frankly, unless the house is brand new, it not its IDEAL HBU which would almost always be a NEW house. But you don't tear down a 10 year house to erect a new one just because the new house is worth more money. The test is whether the existing improvements contribute to the land, if not, is the vacant lot worth more than as improved.

 

[J Grant]

Wrong. As is the lot is at its HBU. It's future use is a prospective value. HBU relates to whether the property is most valuable as if vacant or as is. They are one and the same in a vacant tract. To put another way. A 1,000 acre ranch can almost always be divided into smaller parcels to sell. But when the assignment is to value 1,000 acres, then creating a false scenario of what COULD BE, does not make sense. I suppose it COULD BE a 4,000 lot subdivision...but it isn't. It COULD BE a 25, 40 acre ranchettes. It COULD BE 100 10 acre mini ranchettes. BUT IT'S NOT. BOTH TRACTS ARE AT THEIR HIGHEST AND BEST USE. Their future HBU may be different. But the HBU relates to here, now, today...what is its highest and best use. Frankly, unless the house is brand new, it not its IDEAL HBU which would almost always be a NEW house. But you don't tear down a 10 year house to erect a new one just because the new house is worth more money.

exactly.... HBU at highest $ productivity is theory,, but the reality is we appraise properties "as is", unless assignments call for otherwise., in other words, make an opinion about 4 tests of HBU as vacant and as improved and reconcile that with the purpose to appraise a property in its existing congratulation.

If we made it a condition to appraise every property to its max value as it 's HBU, then every avg condition dated house would be subject to being remodeled..

HBU as vacant and as improved and then reconcile with the property in its existing form and how market participants see it. If most market participation pay millions of dollars to have large acreage ranches for the beauty, the land preservation and privacy, they are not going to subdivide their ranch into small lots to sell or build, since profiting is not their motivation . They bought the darn ranch to get away from crowds and boring subdivisions of tract houses. There are spec builders who do buy ranches to chop up and sell, but are they the buyer for such a property, and if builders compete against wealthy buyers who pay more to keep the ranch land intact, then the builders are priced out of that market.

Other areas, builders are "winning", and usually in lower priced land ag areas sees farmers/ owners walking away and selling their acreage to subdivide. The market activity tells us, not a textbook rigid "rule"

 

[Andrei Fin]

I'm thinking you wouldn't like working for me or someone like me because I don't chase fees. I chase relationships, which means I will work a problem until I'm done with it; not cut it off prematurely on the basis of not getting paid enough.

As for "all these people" inasmuch as you didn't even look that makes it a guess on your part as to what most sellers will do in that situation. If you had several other such examples in that area you'd have a basis for forming that opinion, but you don't. Now for all I know it's possible you're correct, because I haven't looked for those situations, either. But if you are correct it isn't because you actually know what you're talking about with what's typical for this situation. All we can know about the 2016 transaction is that it sold for the asking price of the land + the asking price for the SFR, each as if sold individually.

Answer me this: In that 2016 sale, if you had a comp on a 10,000sf lot, would you really have applied a lot size adjustment of $11.86/sf to equalize the comp to your subject? Because that's what the land value of the extra parcel was listed (and purchased) at: $89,000 / ~7,500sf = $11.86/sf. Do you have SFR sales data in that $400k SFR market to support an $11.86/sf lot size adjustment rate?

Of course you don't. Not even you are stubborn enough to tell a lie just to win an argument. It wouldn't do you any good anyway, because I already know you don't have support for an $11.86/sf adjustment rate between a 7500-15000 sf lot. You know how I know? Because that is a question I could research, so I did.

Tell you what, amigo; if this was an FRT and your reviewer wasn't some $10/hr form monkey you'd have been sent back to drawing board to do some more work for free. If it was me I'd make you support that lot size adjustment, and then you'd be hating life.

You're refuting your own theory. There is no $11 lot adjustment needed because the house alone was worth about $400k and the extra value in use of the second parcel more like $5-10k. A listing agent does not determine land value, the market does. I am starting to think you don't understand markets.

 

[George Hatch]

Wrong. As is the lot is at its HBU. It's future use is a prospective value. HBU relates to whether the property is most valuable as if vacant or as is. They are one and the same in a vacant tract. To put another way. A 1,000 acre ranch can almost always be divided into smaller parcels to sell. But when the assignment is to value 1,000 acres, then creating a false scenario of what COULD BE, does not make sense. I suppose it COULD BE a 4,000 lot subdivision...but it isn't. It COULD BE a 25, 40 acre ranchettes. It COULD BE 100 10 acre mini ranchettes. BUT IT'S NOT. BOTH TRACTS ARE AT THEIR HIGHEST AND BEST USE. Their future HBU may be different. But the HBU relates to here, now, today...what is its highest and best use. Frankly, unless the house is brand new, it not its IDEAL HBU which would almost always be a NEW house. But you don't tear down a 10 year house to erect a new one just because the new house is worth more money. The test is whether the existing improvements contribute to the land, if not, is the vacant lot worth more than as improved.

Not so fast. The operative term is Highest and Best Use, not Highest and Best Potential.

The lot's "as is" use is as a lawn, and one of the alternatives is as separate buildable site. As for the ag land example, the patterns of transition from one existing use to another - if/when so motivated by the market trends - is well known.

And like I said, it took me less than 5 minutes to identify several recent SFR parcels in proximity to this property - including some sharing a driveway and surrounded by existing SFRs. And I don't even have MLS access for this area. I might already know more about the market for vacant land in that area than Andrei does and I'm not even a local; and the only reason for that is because I took a few minutes to look.

 

[Lee Lansford]

Folks, keep in mind as you read posts in this string that 2 of the posters for certain do not understand how it is that H&BU is integral to an opinion of MV .