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

[George Hatch]

Most land sales priced at $15k are purchased in all-cash transactions - in this region, anyway. Most conventional SFR lenders won't do land loans at all, and those that do usually won't exceed 50% LTVs. I just did a land appraisal on an industrial zoned parcel and the lender didn't want to exceed 25% on it. Which is their prerogative, same as offering the loan at 95% would be. That is, it would be their prerogative if there were any lenders crazy enough to knowingly do a 95% LTV on a land loan.

 

[Overimprovement]

You're referring to the market value of the assemblage under bulk sale conditions. And not using conventional financing terms and rates. Of course, at that point your best comps would consist of other assemblages being purchased by whichever types of buyers would engage in such transactions and pursuant to their motivations.

The irony here is that it's actually easier to do it the right way, and to express separate values for each. That is, it would be for those appraisers (like you, I'm sure) who actually use land sales data in support of your site values in your CA.

I agree with most of this. My point is not so much that I think this is a good idea Fannie is throwing out there, but rather that it is not in violation of an appraisal principles to do so, as some are stating on this thread. I also agree it may be difficult to actually find like sales in the market, though I do see them, especially in my rural areas. I'd be a lot more willing to do this in a rural area with no new homes being built than in a new subdivision with 2 lot sales a month.

 

[George Hatch]

I don't care what underwriting decisions a lender makes - that's their business. My job is to provide them with the info it takes to make an informed decision. The buyer for an individual house may not be the same buyer for a house+lot. Especially if they're completely reliant on the financing to make the deal happen.

That's the point.

 

[Overimprovement]

Why would the value of the vacant lot be 7k and not 15k? The vacant lot is still build-able and can be made avail for sale separately - if and when that happens, why would it be worth less than other similar vacant buildable lots?

For the same reason a home worth $100K and a new $15K outbuilding installed is not worth $115K now, even if the building is easily moved. Not everyone will want the hassle of selling it, having heavy trucks tear up their yard, etc.

Its just not the same thing as buying a house with $15,000 in cash sitting in the fridge crisper. Each scenario will be different, but unless there is some larger building or use in mind, I never see an assemblage sell for more than sum of its parts.

 

[djd09]

This is all a result of client bias. Now you reap what you have sowed.

 

[George Hatch]

Our specs say that appraisers cannot allow a client's requests to undermine our minimums. That's what has been sowed. Fannie doing dumb things in their appraisal policies is nothing new, appraisers have been working around those potholes since before I even started appraising. This is just more of the same.

 

[J Grant]

Most land sales priced at $15k are purchased in all-cash transactions - in this region, anyway. Most conventional SFR lenders won't do land loans at all, and those that do usually won't exceed 50% LTVs. I just did a land appraisal on an industrial zoned parcel and the lender didn't want to exceed 25% on it. Which is their prerogative, same as offering the loan at 95% would be. That is, it would be their prerogative if there were any lenders crazy enough to knowingly do a 95% LTV on a land loan.

That is why for a borrower, ability to purchase a vacant lot and get it financed along with a house is such a great opportunity. Which is why I see them transact in the market. Whether any of us believe fannie should not do it is another matter.

Most land sales are cash, or owner finance ( at lousy terms ) or if lender financed then a high $ down, like 40% down. So would a buyer who wants a vacant want it if they can finance it along with getting a house? Some would, maybe a smaller number. Then there are other buyers who want a house, but it presented with the opportunity to get a vacant adjacent lot and hold it for investment since it can be financed, will go for it.

Except for in hot markets, there are often not that many buyers for vacant res lots...I see them sit empty here for years or with a for sale sign for years. Only in hot areas/maket cycles do they get in demand

 

[George Hatch]

As I say, it makes no mind to me what decisions the lenders make. I just don't want to see the appraisers getting blamed for the outcomes of those decisions. This isn't any different than asking an appraiser to ignore the contributory value of acreage in excess of 5 acres. Which we also know better than to do.

 

[Lee Lansford]

I guess I'll have to advise the 3 former members of the ASB who I am aware of as being distressed--as am I--over this Fannie "advisory" that their

Does the client (Fannie) or purpose (mortgage lending) really define this issue at hand? Would it matter if the borrower simply wanted a non-mortgage related appraisal? Doesn't Fannie get to dictate what they want to lend on?

I understand the angle from which you are coming on this, I really do, but let me try to show my perspective.

If a private owner asked you to do a narrative appraisal on two adjacent vacant lots, both ready to build on, zoned the same, bought separately, but just happen to be owned by the same person today, but they just wanted them both valued together on one report---would you be able to do this? Not asking if you would want to do it, just if you were able?

Now if the answer is no, please explain why.

If the answer is yes, then we at least are in the same hemisphere.

Now, if you answer yes, my contention is that it is certainly possible, and not in violation of any USPAP or general appraisal guidelines. It then simply becomes a problem of fitting a square peg appraisal problem into a round hole 1004 form. Since Fannie created the 1004 form, I think they have a little latitude in telling us how they want it filled out.

Sure, an appraiser can develop 2 opinions of MV and communicate the two in report, but, that is not the issue.

Now, if you want to offer one opinion of value...sure, you could do it...if you ignore H&BU .

 

[Lee Lansford]

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. .

Go back and read the statement form Fannie.

An can't lump two together as one where the vacant parcel has market-derived H&BU separate from the improved parcel.

This really should not be all that difficult to understand.