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

[Lee Lansford]

Source?

OK.

You failed.

Your homework assignment is to 'google' with the key words MARKET VALUE HIGHEST & BEST USE. You will find many sources that will assist in what you have missed to this point. You should not continue on appraising until you understand this basic concept.

Please report back here once you understand that the two are necessarily linked. Otherwise, please avoid offering an opinion on the topic.

We aren't conducting an "Introduction to Appraisal Principles" course here and folks who are offering comment should at the least have a grasp of the fundamentals.

 

[George Hatch]

You'd be in trouble if they got a better rate due to LTV, property foreclosed and the bank can't sell it for $540k, because nobody wants to buy the house next door to the construction zone and the bank has to sit on it for a year or fire sale.

I think you're reaching on that one, amigo. Particularly when most lenders won't knowing do a loan on land under any LTV. Besides, value.marketability as of the date isn't value as of a year later - you know that much.

And lastly, a lender who *knowingly* makes a land loan cannot blame the appraiser for not telling them it was land value. They can't rewrite history later and claim that they would never have otherwise made that deal at those terms if the appraiser had made them aware of that part of the value was in the vacant parcel.

 

[Andrei Fin]

OK.

You failed.

Your homework assignment is to 'google' with the key words MARKET VALUE HIGHEST & BEST USE. You will find many sources that will assist in what you have missed to this point. You should not continue on appraising until you understand this basic concept.

Please report back here once you understand that the two are necessarily linked. Otherwise, please avoid offering an opinion on the topic.

We aren't conducting an "Introduction to Appraisal Principles" course here and folks who are offering comment should at the least have a grasp of the fundamentals.

1. "An area of land may be considered to be at its highest and best use when it provides the optimum return to its owner or user, which may be as measured in monetary terms, or in intangible and social values, or a combination of such values." Source: https://www.realestatedefined.com/html/terms_defined/highest_and_best_use.html

 

[George Hatch]

Yeah, but the definition of MV doesn't express value in non-monetary terms

(4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

 

[J Grant]

Who would be in trouble?

The one who did not understand how to apply appraisal principles to an opinion of Market Value, That would be the one who would be in trouble.

BTW, I'm still waiting for JGrant to understand that H&BU is integral to an opinion of MV and that the two cannot be separated. Waiting...

I debated whether to bother...yes I understand it, been appraising over 20 years, highest value property appraised 40 million dollar oceanfront how did I manage all these years....being that I never said HBU is not integral to an opinion of MV, why is it being asked? Are you on this thread to make people crazy, doing a good job of it.

 

[Stone]

Are you on this thread to make people crazy, doing a good job of it.

Really?

 

[J Grant]

https://professional.sauder.ubc.ca/re_creditprogram/course_resources/courses/content/352/R1ARE10_chap12.pdf

good in depth article, below germane to topic from it

Interim Uses The use to which a site or improved property is put until it is ready for its future highest and best use is called an interim use. Thus, interim use is a current highest and best use that is likely to change in a relatively short time, say, five to seven years

one use while improvements are valued based on another, must be considered when properties are devoted to temporary, interim uses. The use value of a site under an interim use may differ substantially from the market value of the same site as though vacant and available for development to its long-term highest and best use. Many outmoded improvements clearly do not resemble the ideal improvement, but they do create increments of value over the value of the vacant land. These improvements may appear to violate the principle of consistent use, but in fact, the market simply acknowledges that during the transition to a new use the value contributed by old improvements make the land and the existing improvements worth more than the vacant land. Land that is held primarily for future sale, with or without an interim use, may be regarded as a speculative investment. 3 The purchaser or owner may believe that the value of the land will increase, but there is a risk that the expected appreciation will not occur while the investor holds the land. Nevertheless, the current value of the land is a function of its future highest and best use, so the appraiser should discuss its potential highest and best use. The appraiser may not be able to predict the exact future highest and best use, but the general type of future use and the timing for the use can be forecast based on its site, legal, locational, and market demand characteristics compared to competitive vacant tracts. The timing for such a use is usually in a range. The range can be broad in areas of long-term growth and tighter in areas with more current development potential.

 

[J Grant]

Really?

did paste good article found from his challenge to search internet- above so credit for that though he has made some exasperated but perhaps I did too.

 

[Andrei Fin]

I think you're reaching on that one, amigo. Particularly when most lenders won't knowing do a loan on land under any LTV. Besides, value.marketability as of the date isn't value as of a year later - you know that much.

And lastly, a lender who *knowingly* makes a land loan cannot blame the appraiser for not telling them it was land value. They can't rewrite history later and claim that they would never have otherwise made that deal at those terms if the appraiser had made them aware of that part of the value was in the vacant parcel.

Regardless of the loan dynamic, you've taken greater liability because you've overvalued our client's "subject property". That's because if the seller were to follow your lead and market both properties separately and simultaneously, the marketability of the improved parcel would suffer greatly from the anticipated construction activity and uncertainty (markets hate uncertainty) associated with the adjoining buildable parcel. You've said that I need to provide like comps to prove that the market is not willing to pay full value for each parcel, but it's really you who needs to provide like comps (adjoining improved and unimproved sales) to prove market reaction.

And just to add another question that Lee will probably refuse to answer: if the HBU is the same as the MV, then why does Fannie Mae (an entity that does not accept hypothetical conditions) have a check box on page 1 of the URAR that says HBU: Yes/No?

 

[Lee Lansford]

I debated whether to bother...yes I understand it, been appraising over 20 years, highest value property appraised 40 million dollar oceanfront how did I manage all these years....being that I never said HBU is not integral to an opinion of MV, why is it being asked? Are you on this thread to make people crazy, doing a good job of it.

Oh, my.

Earlier you po

1. "An area of land may be considered to be at its highest and best use when it provides the optimum return to its owner or user, which may be as measured in monetary terms, or in intangible and social values, or a combination of such values." Source: https://www.realestatedefined.com/html/terms_defined/highest_and_best_use.html

Go on.

You know...that part where H&BU is integral to Market Value.

Don't stop now.