Here is an e-mail sent to a Chief Appraiser 18 months ago about this very issue.
Mr. XXXXXXXXXXX,
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.
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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.
