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

[Lee Lansford]

Really?

Really?

You have to ignore her.

Seriously.

She's all over the place with her comments and doesn't understand that H&BU is central to Market Value.

 

[J Grant]

You have to ignore her.

Seriously.

She's all over the place with her comments and doesn't understand that H&BU is central to Market Value.

Prove that I do not understand HBU is central to market value.
Prove it. Show me in my posts where I said anything to indicate that. Paste it verbatim from a post I made. In the future, if you say something like this about me, back it up with proof , otherwise it is hot air.

 

[George Hatch]

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?

Valuing for MV is not overvaluing the property. Appraising for loan value can be high or low, though. There is no virtue in valuing a $500k property at $400k just because that's the contract price.

And for goodness sake, stop saying HBU is the same thing as value. HBU analysis occurs several steps before concluding to value. The primary purpose of HBU analysis is to identify the basis upon which the property is worth most in the market as a preliminary step to identifying what types of buyers will buy, which approaches to value they'll use in their decision making, which types of properties they'll consider a substitute, and which units of comparison they'll use to value the property. Then the approaches to value are developed and reconciled and THEN we get to the conclusion of MV.

Everywhere in appraising *except* in the use of the Fannie forms the HBU analysis doesn't even occur in the site section and isn't even based solely on the zoning the way the form depicts it. NORMALLY the HBU analysis occurs after the analysis of ALL of the subject's attributes, including the location, site, improvements, and all that. It includes consideration of how the subject fits into its environment and what the local market conditions in general are like - so there's where the elements you keep referring to as being excluded are analyzed.

Really, we don't get to actually analyzing the subject's market segment until after the HBU analysis but before the development of any of the approaches to value - that analysis is NOT limited to the one approach to value. The subject's market analysis may include consideration of the site value trends or the rental trends for such properties, depending on the property type.

Long story short, the appraisal of SFRs is not fundamentally different from the appraisal of all other property types and it isn't a stand-alone discipline. A couple portions of the GSE forms just kinda make it look that way. If SFR appraisers got in the habit of using the AI forms (or their equivalent) for more of their assignments and routinely developing approaches when applicable this would become a lot more obvious to them.

 

[J Grant]

delete

 

[J Grant]

Post #383 is a good reminder of the steps, threads can focus on segments instead of how a segment of the appraisal process fits with the whole.

 

[Carnivore]

I've seen it both ways, too. It will depend somewhat on what the market is like for vacant lots.

What I'll say is this: In this situation - and unless I had direct comps with the same combo - I would have put a value (and exposure time) on each and let the lender make their own underwriting decisions, and any reviewer who actually criticized that work product had better be prepared to demonstrate how either value conclusion was unreasonable or unsupported.

During the whole discussion in this thread their was some parts of it where members were ya ya-ing back and forth about about selling or not selling the extra lot or what ever. Some spoke to the definition of value and blah blah It seemed that they were arguing the motivations or what ever of individual seller & buyers. That's all market data we have to extract and report. I don't care what an individual thinks. I care what a much larger group of buyers and sellers think in that specific market segment.

Yesterday I was going to bring up the "exposure time' as a very important element in this FNMA valuation problem. FNMA is looking at this in several ways. The reason they want the Improved lot and unimproved lot Valued as a whole is in the event of a foreclosure is they intend to dispose of the non-performing asset as a whole in typically under thirty days to sixty days exposure time. This may be or not that Market segment actual exposure time, because the actual market time for that specific market segment may differ. Exposure Time is a mirror of past past Market time. (hope i got that right) Typical 1004 exposure time is market specific.

For that matter marketing time data is a crucial need to know also. They don't want to split these and sell them separate to minimize the loss. Except that if someone came along first and wanted to buy the extra parcel and not buy the Improved lot I think they they would jump all over that. The logic is simple to understand. The improved lot and extra lot together is a white elephant. Its not that common out there in the hinterlands. The Marketing time differential individually is likely to be fairly significant. The marketing time is highly likely much lower on a SFR single lot than with the extra HBU lot. Then Compare that to just a SFR improvement on a singular lot at HBU is the easiest and most desirable securitized mtg loan. That is what the form was designed to do, and in the context of the Mtg Back Securities world it works well enough for the vast majority of SFR Appraisals.

I think that makes sense, logically. Please Feel free to comment positively or negatively. I am a big Boy with thick skin. I have read and re-read the above to make sure I did not get something backwards. If I did, i apologize, but you all hopefully understand my overall point.

Which brings me back to the Topic/valuation problem that's being discussed. Your right when you said the newsletter solution was an expediency. Its just so problematic for the appraiser. It really puts us at risk if not done properly and this is Improper and not allowed by USPAP. In the context of the assignment type and pre-made form We have a conundrum!

I am not one to just criticize, I always try and offer a solution to the problem if I can.

Possible Interim fix is at the bottom of Page two in the reconciliation blank space. Right now all we have is the AS-IS choice.

If we want to take a hardcore stance on this issue as Lee is suggesting. Then here is the only solution. to Quote Nancy Reagan "Just Say No!" This is a clear message that would force the Lending community to solve Post Haste. This won't work! I don't know how many appraisers subscribe to the FNMA newsletter. I think it is safe to say not all and definitely not enough.

 

[J Grant]

Yesterday I was going to bring up the "exposure time' as a very important element in this FNMA valuation problem. FNMA is looking at this in several ways. The reason they want the Improved lot and unimproved lot Valued as a whole is in the event of a foreclosure is they intend to dispose of the non-performing asset as a whole in typically under thirty days to sixty days exposure time

I agree that DOM/exposure time is an important factor in our opinion of MV (on any property).However, how do you "know" Fannie intends to dispose of it as a whole ? There is no edict for them to do so, They can offer it as an either or listing, which is how I often see them listed and sold on MLS

As far as the combo sold together, don't assume it is a white elephant , If your market shows that , it does, but what I see is they often sell as a combo in reasonable marketing time - because since they are usually offered as an either choice menu on MLS, ( example below ) unless the seller is desperate, they won't take a big loss or wait a year to sell together - if a buyer comes along for house, they sell it first and keep the lot to hold or offer it for sale separate. Therefore, when a buyer does want to purchase them together, I often see the two sold in typical marketing time for houses.

Typical MLS lists these when avail as combo under two categories: under land for sale, the lot is listed , with an option to purchase the house next door , and under houses for sale the house is listed along with an option to purchase the lot next door.

Unless the seller is desperate, they would not take a loss on either the house or the lot just to get them sold together. Perhaps a small discount,... And the seller would also not keep them on MLS a very long time simply to get them sold together. Typically, if no buyer comes forward to purchase both, I see the house sold and then the lot remains listed on MLS.

When I do see the lot and house sold together , them sold together. I rarely see a big discount or very long marketing times. That applies my area for MLS listed open market with the house in good condition not demolition bait houses which is a different market.

 

[George Hatch]

Risk is one of the elements of the HBU analysis. There's no risk to leaving a property in its as is condition. In the example of a property where the parcel is already split there's no risk insofar as the process of a lot split would go, and if the market segments for both components is reasonably strong then there's no risk to selling them off separately.

I know you folks have previously seen listings with the comment to the effect of "sale contingent upon the sale of the adjacent property", or "buy both and save". Those are exactly an example of sellers in this situation not treating the property as if its just a house on a single large parcel. In fact, those are the comps for establishing how buyers and sellers react to this situation - that's what you use to develop your adjustment for what happens when your 2-parcel subject sells in the single transaction. And is competently marketed - we can't forget that.

When you start getting into HBU analyses involving actual lot splits or remodels or completion of construction - those types of endeavors don't just involve costs, they also include elements of additional risk of the unknown - which we generally refer to as contingencies. So the discounts will usually include a quantification of those risks, even if the market is so aggressive that they value those risks at $0.

Let's not lose sight of the point that an adjustment of $0 is still a value judgment. If you considered the element and concluded its value was $0 then you have made a value judgment of that element.

 

[George Hatch]

And since I know someone is going to complain that "competent brokerage" isn't explicitly mentioned among the assumptions in the definition of MV, what else would "well informed or well advised" mean, if not a broker or other consultant who actually understands the situation? I mean, in the listing for Andrei's example, how hard would it have been for that broker to add another clause to their disclosure

"A must see to believe. Price includes 2 lots "

and instead say

" A must see to believe. Price includes a second and separate vacant lot - other lots like this are selling at $160k-$200k"

Do you think a marketing blurb like that might have attracted other buyers?

 

[J Grant]

Risk is one of the elements of the HBU analysis. There's no risk to leaving a property in its as is condition. In the example of a property where the parcel is already split there's no risk insofar as the process of a lot split would go, and if the market segments for both components is reasonably strong then there's no risk to selling them off separately.

I know you folks have previously seen listings with the comment to the effect of "sale contingent upon the sale of the adjacent property", or "buy both and save". Those are exactly an example of sellers in this situation not going for the single sale. In fact, those are the comps for establishing how buyers and sellers react to this situation - that's what you use to develop your adjustment for what happens when your 2-parcel subject sells in the single transaction. And is competently marketed - we can't forget that.

Really? I almost never see listings where the sale of one is contingent on the other. IF that is true, then it is , but how many listings cite that vs listings where it does not? You are making a rote decision nationwide for how sellers behave with these properties

Buy both and save I do see that on some listings but the amount "saved: the actual discount is what we need to find. Again, in my market area I do not see large discounts, Of course that can vary with any transaction or market cycle.

Analysis of risk is good, but if an owner can sell separate or together, why would they take a big loss just to sell them together? Far more typical to sell the house first and leave the lot on MLS f no good combo offer is made. The usually they own the lot fee and clear/-in my area, most owners of houses with an adjacent lot are not cash strapped, if they were savvy enough to buy the lot back when they are now not stupid enough to give it away.

But again it is market specific and property specific - a house and lot in a hot area vs boring tract subdivision a few miles apart can see very different conditions and demand