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

[J Grant]

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?

Sure they can market like that. Though often bargains from a marketing tactic are not so much...

But what I see on MLS in my area iss not typically aggressive low price lingo for the lot, more like it is an opportunity to create a mini estate /similar language.,

If would be poor advice for a broker to suggest a fire sale price to an owner to get a lot sold along with the house, unless the owner wants a quick sale/needs cash badly.

 

[George Hatch]

Sure, all RE is local. That's all the more reason to start with "what's possible" first and then work our way back to "what's actually happening among these sales". Gotta work from the outside to the inside. Not assume that the examples from the inside will be universally applicable everywhere else.

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I normally include the broker comments from each of the listings in my SFR appraisals. Here are a couple sentences from the listing comments in 2 of the sales I used in appraising a proposed construction deal that I worked on last week:

"NOW INCLUDED IS THE ADJACENT LOT OF 25,000 SQ FT! WITH A TREE BARRIER PLANTED FOR PRIVACY. PERFECT FOR POOL, GUEST
HOUSE, ADDITIONAL GARAGES,TENNIS COURT OR EXTRA PRIVACY AND VIEW PROTECTION"

"Adjacent .5 acre lot is included in the price to for privacy but has plans for another luxury home."

Those are direct quotes out out those MLS listings. And can you guess what happened with their respective sale prices when I deducted the *retail value* of the additional lots in my analyses? Their adjusted value indicators ended up right back in range with the other sales. I didn't even have to discount the value of the 2nd lot like I had initially thought. If I had discounted the individual values of those parcels it would have screwed the results of the analysis up.

This is a neighborhood comprised entirely of individually built homes with an age range going back to the 1960s, and sizes between 1100-3900sf. In that appraisal I started off with an unadjusted spread of 20.7% between the comparable sales, and by the time I got done with them I got it down to just under 4%. Another quirk of that particular market segment is that the adjustment factors for age and condition were extremely light when compared to other market segments in the region. I didn't understand that to be the case when I started, but that's where the data led me by the time I ended up.

 

[J Grant]

Sure, all RE is local. That's all the more reason to start with "what's possible" first and then work our way back to "what's actually happening among these sales". Gotta work from the outside to the inside. Not assume that the examples from the inside will be universally applicable everywhere else.

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I normally include the broker comments from each of the listings in my SFR appraisals. Here are a couple sentences from a couple comments from a proposed construction deal I worked on last week:

"NOW INCLUDED IS THE ADJACENT LOT OF 25,000 SQ FT! WITH A TREE BARRIER PLANTED FOR PRIVACY. PERFECT FOR POOL, GUEST
HOUSE, ADDITIONAL GARAGES,TENNIS COURT OR EXTRA PRIVACY AND VIEW PROTECTION"

"Adjacent .5 acre lot is included in the price to for privacy but has plans for another luxury home."

Those are direct quotes out out those MLS listings. And can you guess what happened with their respective sale prices when I deducted the *retail value* of the additional lots in my analyses? Their adjusted value indicators ended up right back in range with the other sales. I didn't even have to discount the value of the 2nd lot like I had initially thought. If I had discounted the individual values of those parcels it would have screwed the results of the analysis up.

This is a neighborhood comprised entirely of individually built homes with an age range going back to the 1960s, and sizes between 1100-3900sf. In that appraisal I started off with an unadjusted spread of 20.7% between the comparable sales, and by the time I got done with them I got it down to just under 4%.

Yes indeed.

So you see actual sales for no discount or a small discount , which is not a "bulk value" like some claim. I also do not see fire sale so called bulk value on these transactions (in my area ) not in this good market, maybe in a down cycle - if see it here is a sale not at MV terms or with exposure to MLS /open market

 

[George Hatch]

If you're referring to the 2 comparable sales with the additional lots, there was no discount to either component - the total sale prices for the transaction amounted to the aggregate of the retail prices of each component. I had initially *expected* to discount the components for the conditions of the bulk (or aggregated) sale - which is where you would make that particular adjustment - but the data in that situation didn't support any discounting. So I didn't. You could say that in that particular example that I valued the discount at $0.

 

[J Grant]

If you're referring to the 2 comparable sales with the additional lots, there was no discount to either component - the total sale prices for the transaction amounted to the aggregate of the retail prices of each component. I had initially *expected* to discount the components for the conditions of the bulk (or aggregated) sale - which is where you would make that particular adjustment - but the data in that situation didn't support any discounting. So I didn't. You could say that in that particular example that I valued the discount at $0.

Good you listened to the market instead of people blowing hot air about how these can not sell for MV or only sell for bulk value...

 

[George Hatch]

The answer to most of these types of questions won't be 'always' or 'never'. I've seen it go both ways, deducting discounts in some cases and adding a premium in others. That's why these are opinions to be developed, not assumptions to start off with. I said early on in this thread that I know of some property types where adding parcels to create the larger assemblage results in a value that greatly exceeds the aggregate of the retail of all the components.

As in, 1/2 ac industrial lot sells for $8/sf, vs the 10ac site that sells for $11/sf because the market for the huge distribution centers is red-hot. I've seen examples of that

Or,

25x100 lot on a steep hillside sells for $20k but adding 3 of them together sells for $100k because you can do the terrace AND get a 40ft wide footprint in the lot. Or narrow little beachfront parcels being combined to accommodate the monster house.

We see all sorts of examples in this region. And once you get exposed to many iterations of these various types of examples it's hard to ignore them just because today I'm looking at a home in a subdivision.

 

[Andrei Fin]

Besides the real world example I gave you where I was in contract (and NO the sale would not have been affected by different marketing statements) I have seen two other deals in QC over the past few months where the home was sold with an extra lot. And sit down for this one Lee - one of them had TWO extra adjoining buildable lots. Both included by the appraiser as the "subject property" and assigned value in use, oh the horror! And the other had an extra SIX ACRES with a sweet view included "at no additional cost" (verbiage taken directly from contract). And the reason I am not going to post the addresses (one was in Placerville and the other in Woodland Hills) is because the second (and third) lots WERE NOT EVEN MENTIONED AT ALL in the listings. Which you will say points to the fact that all of the market participants are not well informed or typically motivated (sure the brokers and agents and buyers and sellers on each side were complete morons, yet for some reason a clever buyer who understood the true HBU of the property never came along to outbid them, that's strange) but it actually points to the fact that you are egregiously missing something when it comes to reflecting the market.

 

[J Grant]

each market and property can vary of course, but I rarely see the kind of desparate sale tacitcs or long marketing times for combo properites that i see for vacant land.

The listings of vacant land are often deppg aet

The answer to most of these types of questions won't be 'always' or 'never'. That's why these are opinions to be developed, not assumptions to start off with. I said early on in this thread that I know of some property types where adding parcels to create the larger assemblage results in a value that greatly exceeds the aggregate of the retail of all the components.

As in, 1/2 ac industrial lot sells for $8/sf, vs the 10ac site that sells for $11/sf because the market for the huge distribution centers is red-hot. I've seen examples of that

Or,

25x100 lot on a steep hillside sells for $20k but adding 3 of them together sells for $100k because you can do the terrace AND get a 40ft wide footprint in the lot. Or narrow little beachfront parcels being combined to accommodate the monster house.

We see all sorts of examples in this region. And once you get exposed to many iterations of these various types of examples it's hard to ignore them just because today I'm looking at a home in a subdivision.

I said that from post one on this topic, and Lee, Mich CG and Ebot trashed me for it, all of them taking pre assumed positions that these assignments could not be done for one value or could not be MV or can only be a discounted bulk value etc.

. What is disturbing about is they will not admit if when shown their assumptions are off, instead they go into a tirade trashing me/others they see as easy targets . Like all true bullies they will not do it to anyone they perceive as stronger. They would rather see people here get false information than admit they were not "right". .

Nobody is "right" all the time , including the most experienced. The best professionals are able to admit that, every top flight pro says they are always learning and the field work can trip us up any time. These threads need not turn into a blood sport with a beaten loser and a gloating winner - It should be exchanging different points of view and learning.

 

[George Hatch]

Besides the real world example I gave you where I was in contract (and NO the sale would not have been affected by different marketing statements) I have seen two other deals in QC over the past few months where the home was sold with an extra lot. And sit down for this one Lee - one of them had TWO extra adjoining buildable lots. Both included by the appraiser as the "subject property" and assigned value in use, oh the horror! And the other had an extra SIX ACRES with a sweet view included "at no additional cost" (verbiage taken directly from contract). And the reason I am not going to post the addresses (one was in Placerville and the other in Woodland Hills) is because the second (and third) lots WERE NOT EVEN MENTIONED AT ALL in the listings. Which you will say points to the fact that all of the market participants are not well informed or typically motivated (sure the brokers and agents and buyers and sellers on each side were complete morons, yet for some reason a clever buyer who understood the true HBU of the property never came along to outbid them, that's strange) but it actually points to the fact that you are egregiously missing something when it comes to reflecting the market.

So what? Some market segments operate differently and some sales are not that well informed and some appraisers aren't using their heads. We toss obvious outliers in most of the appraisals we perform. The exception doesn't prove a rule.

Here's the thing: There is a world of difference between

This is what I did because Fannie will accept it (which I consider to be a toxic approach to appraising in general)

vs

This is what I did because it's what I think the market is doing it, and it's my job to explain my solution and sell its credibility to my readers (including Fannie).

Even if the number at the end turns out to be the same, the process and reasoning for getting there makes it a different result.

 

[J Grant]

Agree with above. I never took the position I did became Fannie said so, I took it because I've seen it in the market numerous times.