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

[Lee Lansford]

Back to what brought us all here: It may be a couple of weeks before an update is released, but, "clarification" from Fannie on this matter is coming.

Be patient. A "clarification" from a large organization is somewhat similar to making a u-turn with the 'Queen Mary': That is, something not done either quickly or tightly.

 

[Econobot]

Back to what brought us all here: It may be a couple of weeks before an update is released, but, "clarification" from Fannie on this matter is coming.

Be patient. A "clarification" from a large organization is somewhat similar to making a u-turn with the 'Queen Mary': That is, something not done either quickly or tightly.

Does this mean that you might be one of the first to know? Please share if you do

 

[Lee Lansford]

Does this mean that you might be one of the first to know? Please share if you do

What's been passed on to me via "a guy who knows a guy" at Fannie, is that this matter is to be "clarified".

There will be further effort (not by me) during the upcoming week to push things along.

It is possible that I and others may...may...become aware shortly in advance of Fannie's "clarification" that it is coming, but, that's just my best guess.

We shall see.

 

[Lee Lansford]

Does this mean that you might be one of the first to know? Please share if you do

I remain optimistic that Fannie will soon bring clarity to this matter.

 

[RCA]

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. .

Both parcels must have the same zoning. But, it could be mixed use, i.e. commercial and residential. Fannie Mae allows loans on mixed use properties. - Just imagine the main parcel the buyer is interested in has a large house with a barn and storefront for selling produce alongside some road and the other parcel is on a corner that would be perfect for a motel. (The buyer has a big farm somewhere around.) The buyer has no interest in motels, he just wants the so-called extra parcel around to make his primary parcel more appealing. Naturally, and as a sidenote, he doesn't want it to have a high valuation, - if property taxes are involved, which they probably are. He wants that extra parcel to be valued at its in-use value to him. It is excess land by the way, it could be developed separately. The HBU is most likely to develop both parcels separately - unless you can prove the motel would be detrimental to the market value of the primary parcel improvements/use.

The core of the problem is the god awful Scope of Work in USPAP, which states that, essentially, Fannie Mae requirements come under "assignment conditions". The SOW is, itself, a knotted contradiction, it encompasses a whole group of contradictions. It allows other goodies in USPAP to be thrown to the side, all in the name of "assignment conditions".

So, this specific assignment condition says "We don't want HBU and Market Value." SOW is the loophole to the rest of USPAP.

Or in other words, it's all a big farce.

 

[George Hatch]

You are underinformed.

Appraisal standards (including but not limited to USPAP) don't create the fundamentals of appraising; they reflect them. HBU isn't some optional add-on to the appraisal process; it's a crucial and integral part of the process for an appraisal being performed under this definition of MV. Assignment conditions - including lender guidelines and policies - can always ADD to the fundamental process but they can never UNDERMINE that process to the point that the result doesn't reflect the value being asserted. MV itself is based on the actions of the market participants, not the preferences of the lenders for expediency.

Besides, with only a couple exceptions, each of the requirements of USPAP reflect what a conscientious appraiser would choose to do in an assignment if they knew what they were doing and why they were doing it. The fact that there are a lot of conscientious appraisers who have little or no experience (i.e., competence) with performing an HBU analysis doesn't change any of the reasons why it's required in the assignments being performed under this definition of MV. The fact that it's possible to make the assumption about a property's HBU instead of actively considering it doesn't change any of the reasons why it's required in the assignments being performed under this definition of MV.

If the MV of the extra parcel is higher when sold off separately than if used as additional lot area for the improved parcel it becomes an untruth to say otherwise. Whether that untruth occurs due to a violation of the COMPETENCY RULE (the appraiser didn't understand the HBU issue) or a violation of the ETHICS RULE (the appraiser knew better but did it anyway) it's still unprofessional conduct. No edict Fannie can issue can alter that untruth. They can ignore that untruth on their end in the name of expediency if they want, but they can't instruct the appraiser to ignore it.

 

[J Grant]

If the MV of the extra parcel is higher when sold off separately than if used as additional lot area for the improved parcel

That would be true, however, fannie is not asking appraisers to claim the extra parcel be used as additional lot area for the improved parcel. The extra parcel retains its status as an additional lot which can be built on, for duration of it being held under same mortgage -

Fannie does instruct to describe the extra lot use as " value in use " but imo a better term for it would be interim use - I personally woulds state that in the appraisal and I would disclose that if it were to be sold separate, the extra lot could have value of X $, which may or may not reflect its contributory value when sold together with improvement. No lies and nothing is ignored.

 

[Carnivore]

Well said George!!

We all know including the GSE's what the actual problem IS. The FNMA Reporting forms are whats causing the problem. That's the way I see it! They simply do not want to separate thetwo Market Value conclusions. In other words they want the two added together somehow so they and Lenders can process the loan. I am convinced that this is the problem. The bottom of Page two 1004 is whats causing this issue. Its a loan paperwork Processing Problem Everything is automated though the Credit Underwriting system.

BUT

Here is what I know and can say about an Extra Lot. IT DEPENDS! In some markets(mostly Rural, I would guess), That extra Lot with a separate HBU might take forever to sell, in effect it becomes Surplus. The opposite of that might be a lot/site in an Urban/Suburban area where a Vacant Ready for improvement HBU SFR would sell in a reasonable period of time similar to an improved Site. So sometimes there is a readily available Buyer for that Excess Lot. Example would be a market segment that is going through Gentrification. I have several Market Segments where indeed that is happening and an Owner would be foolish to sell his improved site+Excess site as a package. Thats a lot of money being left on the table. Not saying there are not people willing to do that... Just saying its pretty DUMB!

So others might want to argue with me or you or many others here. OK, but the only valid argument is you can demonstrate the two combined are the best way to market a property.

I spoke with a Hard Money Lender recently about this very topic. In a Nutshell here was his response to me: "We trust your Judgment and Expertise. We donot have any issue at all if you provide us Two Separate Reports or Combine two into one." because that's what the market is telling you.

 

[RCA]

You are underinformed.

Appraisal standards (including but not limited to USPAP) don't create the fundamentals of appraising; they reflect them. HBU isn't some optional add-on to the appraisal process; it's a crucial and integral part of the process for an appraisal being performed under this definition of MV. Assignment conditions - including lender guidelines and policies - can always ADD to the fundamental process but they can never UNDERMINE that process to the point that the result doesn't reflect the value being asserted. MV itself is based on the actions of the market participants, not the preferences of the lenders for expediency.

Besides, with only a couple exceptions, each of the requirements of USPAP reflect what a conscientious appraiser would choose to do in an assignment if they knew what they were doing and why they were doing it. The fact that there are a lot of conscientious appraisers who have little or no experience (i.e., competence) with performing an HBU analysis doesn't change any of the reasons why it's required in the assignments being performed under this definition of MV. The fact that it's possible to make the assumption about a property's HBU instead of actively considering it doesn't change any of the reasons why it's required in the assignments being performed under this definition of MV.

If the MV of the extra parcel is higher when sold off separately than if used as additional lot area for the improved parcel it becomes an untruth to say otherwise. Whether that untruth occurs due to a violation of the COMPETENCY RULE (the appraiser didn't understand the HBU issue) or a violation of the ETHICS RULE (the appraiser knew better but did it anyway) it's still unprofessional conduct. No edict Fannie can issue can alter that untruth. They can ignore that untruth on their end in the name of expediency if they want, but they can't instruct the appraiser to ignore it.

Well, you have one side of the issue here. And, BTW, I agree that HBU isn't optional. But there are interpretations, that give effectively give more weight to the SOW. You just need to google.

And this gets back to the more fundamental issue. USPAP is POORLY written. It really doesn't know how to deal with these kinds of issues in a consistent and non-contradictory way. They get these different components into the USPAP, which are quite capable of contradicting each other - but don't handle the possible eruption of contradictions. What if? What if the assignment conditions ask for the HBU to be sidestepped with respect to certain issues, e.g. an excess parcel with a different HBU than the main parcel? A simple statement that the SOW can't do this or that would be fine, - provided it is general enough to encompass all situations.

 

[andrew81]

What if? What if the assignment conditions ask for the HBU to be sidestepped with respect to certain issues, e.g. an excess parcel with a different HBU than the main parcel?

there is nothing wrong with that, using a non-market value definition