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

[Lee Lansford]

OK--scenario. Lot 1 with home is valued at $100,000 (eastern KY here, not SoCal ) Lot 2, adjacent, IF sold by itself, perhaps valued at $15,000.

The way I read it, Fannie is NOT asking the appraiser to value them both at $115,000, and report that. They are asking the appraiser to value the home, and what the typical market participant would value the vacant lot next door IF it came with lot 1--a package deal. Maybe most would value it simply as surplus land. Doubtful most would, in their minds, ascribe to it its full nominal market value of $15,000.

So lets say the value in place (to use their verbiage) for the vacant lot as determined by the appraiser is $7,000, and the total market value is then $107,000, with a clear description of how this was obtained. Where is the real issue in doing this?

So...when you do as you suggest, are you prepared to "X" the NO box to the question (paraphrasing) "Is the H&BU as improved the current use?"

You can't ignore H&BU and call the resulting value MV.

 

[Lee Lansford]

The reason I don't like their solution is because if Fannie is willing to do a 95% loan on a vacant parcel then they should just exercise their discretion and do that; not ask the appraiser to mischaracterize the market value of that parcel to the typical buyer for that parcel. If they want to take the additional parcel (without any appraisal at all) as an abundance off caution then they should do that. Underwriting and lending decisions are their call. Appraisers are just supposed to observe/report.

There is zero overlap between the buyers of an existing SFR and a vacant parcel. They're completely different market segments, they (usually) have completely different supply/demand situations and they're normally subject to very different financing terms.

Appraiser submits a single value for both, borrower sells the vacant parcel for the value that's attributed to it and finds out later that wasn't actually the MV of that parcel. That is not a good plan.

I figured that there would be few here who would correctly assess and comment on this matter. Yes, you are one of the folks whom I expected would understand. You join with 3 (3 that I am aware of) former members of the ASB who have concern with what Fannie has offered. Let's be hopeful of a coming "Strike that!" from Fannie.

 

[Michigan CG]

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.

If you want to count them both on the 1004 the solution is easy, just check the NO box for Highest and Best Use. Very simple.

 

[Michigan CG]

OK--scenario. Lot 1 with home is valued at $100,000 (eastern KY here, not SoCal ) Lot 2, adjacent, IF sold by itself, perhaps valued at $15,000.

The way I read it, Fannie is NOT asking the appraiser to value them both at $115,000, and report that. They are asking the appraiser to value the home, and what the typical market participant would value the vacant lot next door IF it came with lot 1--a package deal. Maybe most would value it simply as surplus land. Doubtful most would, in their minds, ascribe to it its full nominal market value of $15,000.

So lets say the value in place (to use their verbiage) for the vacant lot as determined by the appraiser is $7,000, and the total market value is then $107,000, with a clear description of how this was obtained. Where is the real issue in doing this?

You have answered your own question. The value as separate is $115k and the value as together is $107k. One of the premises of Highest and Best Use is maximum productivity.

 

[Michigan CG]

Most land sales are cash, or owner finance ( at lousy terms ) or if lender financed then a high $ down, like 40% down.

Completely not true.

 

[andrew81]

an opinion of market value requires an analysis of highest and best use, summary of the highest and best use, and valuation based on the opinion of highest and best use.

assuming residential is the only legal, physical, feasible, and productive use, who is the likely buyer at the highest price.

if it is financially feasible to build on the lot to gain the highest value, then, a vacant lot remaining vacant is not the highest and best use.

when the H&BU of an adjacent vacant parcel is separate from the improved parcel, then checking the box on the form that the H&BU is as improved is misleading.

it is misleading because a portion of the property is not being valued based on its highest and best use

 

[Michigan CG]

when the H&BU of an adjacent vacant parcel is separate from the improved parcel, then checking the box on the form that the H&BU as improved is misleading.

Another person that gets it.

 

[George Hatch]

I keep forgetting "the checkbox" issue on those forms.

The issue takes on more significance when we consider how many of these reports are read by the machine, not by any human reviewers.

 

[Lee Lansford]

an opinion of market value requires an analysis of highest and best use, summary of the highest and best use, and valuation based on the opinion of highest and best use.

assuming residential is the only legal, physical, feasible, and productive use, who is the likely buyer at the highest price.

if it is financially feasible to build on the lot to gain the highest value, then, a vacant lot remaining vacant is not the highest and best use.

when the H&BU of an adjacent vacant parcel is separate from the improved parcel, then checking the box on the form that the H&BU is as improved is misleading.

it is misleading because a portion of the property is not being valued based on its highest and best use

Good.

Good to see you and others who "get it".

Send a message to the person at Fannie who is the person who can (should) correct this great error: Lyle_E_Radke@fannie.com

His position is Director of Collateral Policy.

 

[andrew81]

i said essentially the same thing yesterday but from the perspective of when its not an issue, 65 posts ago lol

while i can definitely see this being an issue in areas with active new construction and there is demand for vacant sites, this not the case in all markets

around here platted city lots sell for $0 to $6000 to adjacent owners after prior improvements have been razed or otherwise destroyed and remain vacant. it is very rare that an additional adjacent parcel has a highest and best use other than continue vacant until market conditions change. in rural areas there is no county zoning, sites of 1 acre to 40 acres with multiple parcels are common, and there is no demand for subdivision, so its not an issue there either