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

[Lee Lansford]

I find yours disturbing since you were formally on the IL board. Good riddance. I am blessed in NC that the level of superiority complex has been reduced to neutral over the past decade or so. I'd be disturbed if such a nonsensical self proclaimed USPAP expert was on the state board. Thank GOD for term limits. Go get the mystery man....

 

[Michigan CG]

......................Where is Stone's offering of how he would approach this appraisal?...............

I am going to guess Stone would have an opinion similar to mine.

I am posting this again for those who might have missed it.

============================================

Mr. XXXXXXXXXXXXX,

The appraisal process requires a Highest and Best Use analysis. By including both parcels as the subject property (hypothetically as one) there is a problem in that the second parcel (unimproved) has a separate Highest and Best Use as it is a buildable parcel. The fourth test of Highest and Best Use is what is the Maximally Productive use of the land and the answer for the second parcel would be for single-family development separate from the first parcel. Naming both parcels as the subject would force the appraiser (if they are doing it correctly) to mark the NO box on the 1004 form.

Marking the YES box for Highest and Best Use would be ignoring the second parcel's Highest and Best Use and appraisers have been sanctioned by states for doing that.

I understand that many appraisers just add the two together, however that is not correct, acceptable appraisal practice.

USPAP has a FAQ on this subject.

FAQ 211: APPRAISING TWO LOTS AS ONE

QUESTION: I have a lender client that wants a market value appraisal completed. The property consists of two separate legal lots. The highest and best use for each of these lots is as a separate one-unit residential site. However, the client want them appraised as though they were one legal lot. The intended use is for mortgage lending purposes.

May this assignment be completed treating these two lots as if they were one legal lot with the highest and best use as one legal lot?

RESPONSE: Yes. However, complying with the lender's request will require the use of a hypothetical condition. If the client is a federally regulated financial institution, the client may also need an "as-is" appraisal.

If the appraisal were based on a hypothetical condition (i.e. market value of the subject as if it were a single lot), and if necessary for credible results, the appraiser would have to develop an opinion of highest and best use of the hypothetical parcel. If this leads to the conclusion that the highest and best use would be subdivision into tow or more lots the appraiser must perform the appraisal recognizing that potential use and may need to perform a subdivision analysis to reach a credible opinion of the highest and best use of the hypothetical parcel.

There are two opinions on how to handle the situation at hand. The first group think is that there has to be two separate appraisals while the second group think is that the value of the second parcel can be included in an addenda of the home appraisal although the value of the second cannot be added to create a final number; this is essentially two reports in one.

It is my opinion that both values can be put in the same report (option #2).

There was a discussion about this topic on the Appraiser's Forum and Denis Desaix MAI, SRA wrote the following:

Reporting two values (two appraisals) in a single report doesn't seem to be an issue as I see it.
The problem is adding the two values together to represent market value of the whole; it assumes there is no bulk discount.

If I am purchasing a house to live in and included in that sale is a separate lot, I'm likely not going to pay retail price for that 2nd lot. I'm going to discount it (especially if my intent is to sell it as soon as the deal closes; I'm going to consider my selling costs of the 2nd lot as well as any holding costs during the period).

For GSE purposes, here is what I think would be a compliant process:
1. Use the majority of the form to identify the improved lot. Report that in the form-box as the value.
2. Include an addendum which values the vacant lot; this will include everything that is necessary to appropriately support and report that value.
3. If they want retail value, they have it in the two separate values.
4. If they want a bulk value, that could be reported as well (in the addendum... not on the form's value indication which, according to my process, would only reflect the improved site). The bulk value would consider what I mentioned as well as other items.


xxxxxxxxxxxxxxxxxxxxxxx, SRA
Certified General Appraiser

 

[ddnma]

SR1-4(e) When analyzing the assemblage of the various estates or component parts of a property, an appraiser
must analyze the effect on value, if any, of the assemblage. An appraiser must refrain from valuing the
whole solely by adding together the individual values of the various estates or component parts.

Comment: Although the value of the whole may be equal to the sum of the separate estates or parts, it also
may be greater than or less than the sum of such estates or parts.

 

[Andrei Fin]

That supports the Fannie Mae instructions and contradicts those who say the two components should be valued as if sold separately.

 

[George Hatch]

It doesn't do either

 

[J Grant]

QUESTION: I have a lender client that wants a market value appraisal completed. The property consists of two separate legal lots. The highest and best use for each of these lots is as a separate one-unit residential site. However, the client want them appraised as though they were one legal lot. The intended use is for mortgage lending purposes.

The above is not the subject appraisal problem - we are not being asked by a client to appraise two lots as if they were one legal lot. We are asked to appraise two parcels , (one with an improvement) and one contiguous lot to be conveyed together for a single market value opinion. ( a single most probable price for both ) They never become one legal lot and there is no HC that they are as if one lot.

Appreciate Mich CG's post, but remember the FAQ answers a different appraisal problem than the one asked -

 

[Carnivore]

There is no "one-size fits all" answer to the problem...but, that is what Fannie's recent advice is to the appraiser. Hence, problem. Therefore, Fannie is working on a "reconsideration" of their recent advice. Stay tuned.

BOOM! Exactly! This is not all that hard for them to come up with a solution on paper(within their selling guide) It is going to be very difficult for them to implement AND get thousands upon thousands of lenders & internally Underwriters to recognize the change and understand that this is outside the normal box they operate within. Then throw in the task of getting 90,000+ appraisers to understand how to report this particular assignment.

Truth is again; Many lenders/UW's/AMC's/Appraisers will not get or might simply not understand the memo at all.

 

[J Grant]

Var/Dual Rate: No List Type: Ex Rt List Off Agency: Broker Only Remarks: Easy to show, text agent for lockbox code. Property has a 3/2 pool home on one lot .31 acres and an adjoining buildable lot on another .31 acres. FO# 00424436060000241Separate address 4694 Wenhart Rd. Tax = $594.39 in 2018Two 20'x12' work sheds with 30 amp service and a compressor with air lines all set up. Tons of room for your RV's , boats or any other toys you have. New roof 2017 Any Broker Advertise:

Design: < 4 Floors Construction: Block; Concrete Unit Desc: Flooring: Wood Floor Furnished: Unfurnished Dining Area: Breakfast Area; Dining/Kitchen Master Bedroom/Bath: Mstr Bdrm - Ground Lot Description: 1/2 to < 1 Acre Private Pool: Child Gate; Inground; Pool Size (W x L): 30x15 Storm Protection: Pet Restrictions: Rooms: Family; Florida; Laundry-Util/Closet; Storage; Workshop View: Garden; Pool Waterfront Details: Cooling: Ceiling Fan Heating: Central Security: Utilities: Public Water; Septic; Well Water Special Info: Terms Considered: Conventional Parking: Driveway; RV/Boat Roof: Comp Shingle Taxes: Homestead Equestrian Features: Equip/Applishwasher; Disposal; Dryer; Range - Electric; Refrigerator; Smoke Detector; Washer; Water Heater - Elec Exterior:Awnings; Fruit Tree(s); Screen Porch Maintenance Fee Incl:

Original List Price: $319,900

Days On Market: 21

Cumulative DOM: 21

Sold Price: $302,000	Sold Price Sqft: $180.08	Under Contract Date: 04/22/2019
Buyer Office: Cooperative Real Estate Team 278013189	Terms of Sale: Conventional	Sold Date: 06/12/2019
Buyer Agent: David D Feigay 3364952

Public Remarksossibilities are endless. Two separate Lots, 3/2 pool home on .31 acres and a adjoining BUILDABLE Lot on .31 acres. Makes a great private corner lot with a total of .62 acres. NO HOA, New roof in 2017, real wood flrs, private fenced in backyard Two 20'x12' work sheds with 30 amp serv and compressor w/ air lines.Lots of room for RV's, boats and any other toys you may haveThe Best Kept Secret is this small quiet neighborhood only has one entrance and is close to shopping and the beach. The Best of both worlds, lots of land and close to the cityCome out and walk the property to see first hand the endless Schools are in walking distance. Diamond View Elementary, Tradewinds Middle and Santalucas HSCome out and walk the property , see it yourself 1st hand the endless possibilities.

above from my MLS on a comp I just used - I confirmed with agent, the house sold with the adjacent build able lot for one price , conventional financing. I am using it as a comp, but if it got financed somebody appraised it.
I drove by it, 8 months after the sale, the adjacent lot still is vacant but has sheds on it, apparently owner likes having land and the sheds rather than selling it. off - I looked up on public records, though they sold together , the vacant lot still has its own address and folio # ( it conveyed with a quit claim deed ) - the two did not become one larger merged lot , they remain two separate parcels owned by one party.

 

[Eli]

Var/Dual Rate: No List Type: Ex Rt List Off Agency: Broker Only Remarks: Easy to show, text agent for lockbox code. Property has a 3/2 pool home on one lot .31 acres and an adjoining buildable lot on another .31 acres. FO# 00424436060000241Separate address 4694 Wenhart Rd. Tax = $594.39 in 2018Two 20'x12' work sheds with 30 amp service and a compressor with air lines all set up. Tons of room for your RV's , boats or any other toys you have. New roof 2017 Any Broker Advertise:

Design: < 4 Floors Construction: Block; Concrete Unit Desc: Flooring: Wood Floor Furnished: Unfurnished Dining Area: Breakfast Area; Dining/Kitchen Master Bedroom/Bath: Mstr Bdrm - Ground Lot Description: 1/2 to < 1 Acre Private Pool: Child Gate; Inground; Pool Size (W x L): 30x15 Storm Protection: Pet Restrictions: Rooms: Family; Florida; Laundry-Util/Closet; Storage; Workshop View: Garden; Pool Waterfront Details: Cooling: Ceiling Fan Heating: Central Security: Utilities: Public Water; Septic; Well Water Special Info: Terms Considered: Conventional Parking: Driveway; RV/Boat Roof: Comp Shingle Taxes: Homestead Equestrian Features: Equip/Applishwasher; Disposal; Dryer; Range - Electric; Refrigerator; Smoke Detector; Washer; Water Heater - Elec Exterior:Awnings; Fruit Tree(s); Screen Porch Maintenance Fee Incl:

Original List Price: $319,900

Days On Market: 21

Cumulative DOM: 21

Sold Price: $302,000	Sold Price Sqft: $180.08	Under Contract Date: 04/22/2019
Buyer Office: Cooperative Real Estate Team 278013189	Terms of Sale: Conventional	Sold Date: 06/12/2019
Buyer Agent: David D Feigay 3364952

Public Remarksossibilities are endless. Two separate Lots, 3/2 pool home on .31 acres and a adjoining BUILDABLE Lot on .31 acres. Makes a great private corner lot with a total of .62 acres. NO HOA, New roof in 2017, real wood flrs, private fenced in backyard Two 20'x12' work sheds with 30 amp serv and compressor w/ air lines.Lots of room for RV's, boats and any other toys you may haveThe Best Kept Secret is this small quiet neighborhood only has one entrance and is close to shopping and the beach. The Best of both worlds, lots of land and close to the cityCome out and walk the property to see first hand the endless Schools are in walking distance. Diamond View Elementary, Tradewinds Middle and Santalucas HSCome out and walk the property , see it yourself 1st hand the endless possibilities.

above from my MLS on a comp I just used - I confirmed with agent, the house sold with the adjacent build able lot for one price , conventional financing. I am using it as a comp, but if it got financed somebody appraised it.
I drove by it, 8 months after the sale, the adjacent lot still is vacant but has sheds on it, apparently owner likes having land and the sheds rather than selling it. off - I looked up on public records, though they sold together , the vacant lot still has its own address and folio # ( it conveyed with a quit claim deed ) - the two did not become one larger merged lot , they remain two separate parcels owned by one party.

Yep, individual assignment. I understand. Your not employing "use value" or "value in use" either. Your sticking with "market value" definition. But, is it possible that site with sheds has a higher H&B use? The answer would be yes in some cases. In some cases it would not. Your pretty much doing a hypothetical condition the way I see it that the two sites are sold together. That's fine imo. The "value" definitions are my problem with the whole thing.

 

[J Grant]

Yep, individual assignment. I understand. Your not employing "use value" or "value in use" either. Your sticking with "market value" definition. But, is it possible that site with sheds has a higher H&B use? The answer would be yes in some cases. In some cases it would not. Your pretty much doing a hypothetical condition the way I see it that the two sites are sold together. That's fine imo.

I did not appraise it, I just used it as a comp,( today ) I disclosed of course that the house sold with adj lot. The lot sizes in this report are all over the place from 14,000 sf to one acre ( my subject lot is 17,000 sf )
There is no HC the 2 are sold together, the two were actually sold together for one price and got conventional financing ( confirmed with agent ) Which means somebody appraised it...and shows that though a small segment of market activity, buyers do purchase these.