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

[George Hatch]

Let's try a word problem:


The request is to value 2 parcels, one with a 2000 sf home built in 1990 and the other is vacant. Total lot area between the two is 15,000sf.

Which is the most comparable sale transaction to your subject property attributes?

A - the sale of the 1990yb home of 2000sf on a single parcel of 15,000sf
or
B - the sale of 2 adjacent parcels located next door to Sale A, one of which has a 1990yb home of 2000sf and the other of which is vacant - total lot area between the two is 15000sf.

 

[George Hatch]

Actually no, you tried to argue that the two parcels could fetch their full market value as if sold separately. I challenge you to find a sale anywhere where the owner listed the main home and the adjoining second parcel on the same day and they ended up selling with different buyers at their full price. I'm not saying it's impossible, but it's certainly not typical, and I would be very interested to see it.

I already listed 2 examples and I had found 2 other examples besides that. We already discussed them back when you thought - without looking - that the vacant parcel on one of them was zoned for multiple units. I didn't make that mistake because I looked the zoning up for all of them.

 

[Andrei Fin]

I already listed 2 examples and I had found 2 other examples besides that. I know better than to ask you such a question without already knowing the answer to it. You'd have done a lot better for yourself in this discussion if you had done the same.

You listed an example on Walnut where the lots went to the same buyer. I'm asking for an example where it went to different buyers. Again, if I am a typical buyer, what would motivate me to pay full price for the vacant parcel, wouldn't I be competing with builders and investors?

 

[Andrei Fin]

Fannie can ask for Value in Use, but by definition VIU is not MV.

Fannie isn't allowed to lend on VIU - that limitation having nothing to do with the appraisal profession. Moreover, their form has MV hardwired into it, so the value conclusion on the bottom line is fully intended to reflect MV, not VIU.

Now, hypothetically, Fannie COULD be allowed to lend on VIU and if/when that occurs appraisers would have no problem answering that question instead. But as a practical matter some changes would have to be made on their form in order to enable it.

They'd have to add the definition for VIU and swap out all references to MV. There is no using a different definition of value in an appraisal without clearly identifying what that value is supposed to mean. "If you really loved me you'd know what I meant without me saying it" only applies when people are married to each other. That is not how professional appraisers are supposed to act.

View attachment 43255

Fannie is lending on the market value of the SP which includes the VIU of one component. This does not negate the definition of market value, because it's one transaction not two.

 

[Lee Lansford]

Fannie is lending on the market value of the SP which includes the VIU of one component. This does not negate the definition of market value, because it's one transaction not two.

Here's a clue: That there is one transaction has nothing to do with offering an opinion of Market Value where there are multiple parcels.

Here's a second clue: If there are 2 properties each one having its own Market Value, by the fact alone that the two sell via one contract does not suggest that it is appropriate to "lump" the two together to offer one opinion of MV.

Let me ask--if a rich man wanted his entire family to live in the same neighborhood and he contracted--one contract of sale--to purchase 10 SFR detached, all located on the same block, in order to have his dream, following your reasoning to its illogical end, you'd offer one opinion of "MV" (well, you'd label it as such) for the 10 and communicate this on a Fannie form if you were asked to do so and you'd assert that 9 of the 10 were valued as to their 'contributory value' (or, value in use, if you prefer). Eh?

 

[Andrei Fin]

Here's a clue: That there is one transaction has nothing to do with offering an opinion of Market Value where there are multiple parcels.

Here's a second clue: If there are 2 properties each one having its own Market Value, by the fact alone that the two sell via one contract does not suggest that it is appropriate to "lump" the two together to offer one opinion of MV.

Let me ask--if a rich man wanted his entire family to live in the same neighborhood and he contracted--one contract of sale--to purchase 10 SFR detached, all located on the same block, in order to have his dream, following your reasoning to its illogical end, you'd offer one opinion of "MV" (well, you'd label it as such) for the 10 and communicate this on a Fannie form if you were asked to do so and you'd assert that 9 of the 10 were valued as to their 'contributory value' (or, value in use, if you prefer). Eh?

Your example does not apply because the lots are not under the same ownership. Now if they were- I would ask Fannie Mae if they would accept nine adjoining parcels as the subject property haha.

The scope of work makes them one subject property. One transaction means one value, not two. The one value requested is market value. The value in use is a step along the way to market value, it's the amount that the vacant parcel contributes to the market value.

 

[Lee Lansford]

Your example does not apply because the lots are not under the same ownership. Now if they were- I would ask Fannie Mae if they would accept nine adjoining parcels as the subject property haha.

The scope of work makes them one subject property. One transaction means one value, not two. The one value requested is market value. The value in use is a step along the way to market value, it's the amount that the vacant parcel contributes to the market value.

The rich man will hold the 10 parcels in his name.

Have at it.

 

[George Hatch]

You listed an example on Walnut where the lots went to the same buyer. I'm asking for an example where it went to different buyers. Again, if I am a typical buyer, what would motivate me to pay full price for the vacant parcel, wouldn't I be competing with builders and investors?

LOL

I listed 2 examples. IIRC in one example both parcels sold to the same buyer *in separate transactions and under separate financing", in the other the parcels sold to different buyers. Meaning, neither was consistent with your subject's sale history.

That is more examples than you have posted in support of your conclusions.

As well, one of the examples I didn't post was a lot sale that was sold by the owner of the adjacent house - meaning they had previously been held under the same ownership but the SFR owner sold the lot off.

Who knows what else I would have found if using the local MLS?

I posted a simple word problem for you to answer above in post #711. Don't leave it hanging.

 

[George Hatch]

The rich man will hold the 10 parcels in his name.

Have at it.

Yeah, Andre. What happens when your subject is SFR+10? You still planning on treating them as a lawn based on the point that a lender wants to put a single loan on it?

If I get an assignment consisting of a house on one parcel next door to a 5-unit apartment do you think I'm appraising that as a single 6-unit multi-family?

 

[Andrei Fin]

George- Please remind me of the address where it went to separate buyers.

Lee- I doubt you could provide credible results on the MV of 10 SFR sold from one seller to one buyer, I would turn down the assignment. But with two lots it's quite common, and it makes rational sense as to why it's common.