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

[George Hatch]

And be honest, Andrei. Surely you must have realized when you posted your example that I was going to go look for parcel sales in order to pin a retail value on that extra parcel in order to compare it to the results of that transaction. If not, why not?

 

[Lee Lansford]

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.

A competent appraiser (who is one who understands that H&BU is integral to Market Value) will arrive at a well-reasoned conclusion as to H&BU and, where market value is the purpose of the appraisal, an appraisal (or, appraisals) of the property or properties. The conclusion in a specific instance may, or may not, be consistent with the action of a single buyer & seller combination and how they viewed or understood the parcels.

This has been my assertion from the get-go and why it is that the wording in Fannie's newsletter is inappropriate.

 

[Andrei Fin]

And be honest, Andrei. Surely you must have realized when you posted your example that I was going to go look for parcel sales in order to pin a retail value on that extra parcel. If not, why not?

Yes and I didn't care one bit, because HBU does not equal market value. Payment is made in dollars = weak. "Google it" = you lose.

I am not saying the Fannie instructions are right in every case, but others on this thread have said that they wrong in every case.

Sounds like there is an ABSOLUTE KILLING to be made in buying properties with "undervalued" second lots, you guys should quit your appraising jobs and get after it.

 

[George Hatch]

I'll put it this way - if you and I square off in court over an issue like this I will mop the floor with your atty. And the reason that's going to happen is because I'll take the time in my assignment to actually look at these elements, whereas you are relying on a Fannie policy to CYA in lieu of doing the work.

Fannie is not an appraisal entity, and they're in no position to instruct appraisers on what appraising is/isn't. All they're experts on is what they'll accept. The form monkeys who rely solely on "what Fannie will accept" and who aren't doing their own thinking are sometimes making a mistake. You wouldn't take appraisal instruction from any other type of user, why should you do differently with Fannie?

And for heaven's sake, stop arguing against "HBU= market value". Not only is that a complete non-sequitur it's also an argument that nobody is making. HBU isn't a value of any kind. Rather, what we're saying is that the conclusion of that analysis IS an element of the definition of MV as defined. If you want to make the argument that MV isn't dependent on the conclusions of an HBU analysis then say it that way.

 

[Andrei Fin]

I'll put it this way - if you and I square off in court over an issue like this I will mop the floor with your atty. And the reason that's going to happen is because I'll take the time in my assignment to actually look at these elements, whereas you are relying on a Fannie policy to CYA in lieu of doing the work.

Disagree. The judge and jury are not MAI. If you're saying the property is worth $440+$150 then why did it only sell for $440 with a normal marketing time and multiple buyers? At that point you're implying that the market participants are deplorables, and that's not a good look in court. Also why would the court care about undervaluation vs overvaluation?

 

[George Hatch]

The difference between you and I is that I can connect the dots and explain things to people.

All I have to do is put the seller on the stand and ask them if they understood that selling the 2nd lot would net them an extra $100k. Then put the broker on the stand and ask them if they understood when they listed the property that selling the extra lot separately would have added another $100k (and more money to their commission) ; and if they did realize that then why did they fail to mention or refer to that in their listing.

The answers to those questions will clearly steer indicate that one or both of those individuals were acting inconsistently with how MOST market participants in that situation would proceed when well informed of their alternatives.

Next is I put you on the stand and elicit from you your explanation that you didn't care how much extra the lot added (that'll be a crowd pleaser), and that you proceeded solely on the strength of Fannie's "will accept" policy, which IRL represents a minimum for them. You (obviously) didn't look at site values, you didn't write a cogent HBU analysis (because the form didn't prompt you to do it) and you didn't even know there was a $100k difference until the complaint surfaced.

Of course, all that is academic because by the time I get done with your atty during the deposition they're going to be making a deal. And none of this will be an example of me acting as anyone's hired gun and pushing the boundaries of professional ethics because I don't do that.

 

[Andrei Fin]

Oh but I did connect the dots. What is one year of living directly next door to a construction site (assuming a timely completion) worth to our young family (not even knowing what the house next door will look like) and where is that reflected in your valuation? Or maybe the buyer of the vacant site will throw up a chain link fence and sit on the lot for several years while it becomes built up with garbage and weeds, that will really impress their friends. Maybe if you used a HC that the lots are not adjoining, then you could ignore these scenarios, but you can't.

 

[Lee Lansford]

Disagree. The judge and jury are not MAI. If you're saying the property is worth $440+$150 then why did it only sell for $440 with a normal marketing time and multiple buyers? At that point you're implying that the market participants are deplorables, and that's not a good look in court. Also why would the court care about undervaluation vs overvaluation?

If market evidence were to the contrary of what occurred in this one transaction, might that be good enough?

Or, do you assert that whatever happens in the one specific incident is all that matters as to how you would approach the appraisal problem?

 

[George Hatch]

Oh but I did connect the dots. What is one year of living directly next door to a construction site (assuming a timely completion) worth to our young family (not even knowing what the house next door will look like) and where is that reflected in your valuation? Or maybe the buyer of the vacant site will throw up a chain link fence and sit on the lot for several years while it becomes built up with garbage and weeds, that will really impress their friends. Maybe if you used a HC that the lots are not adjoining, then you could ignore these scenarios, but you can't.

I see you're getting desperate here. I consider that instructive.

Houses sell next to vacant parcels on the regular, so the effect of that externality is readily quantifiable. And you and I both already know how that's going to work out. It's not normally going to amount to $10k in a $400k price range, let alone $100k. If there's any difference at all it will more likely get lost in the noise in the data.

No HC necessary. Well, unless you are hypothesizing that lot WILL get built out during the holding period of that house.

Lookit, if this discussion has raised elements you haven't previously even considered (which obviously it has) then perhaps the next time you see one of these appraisals it might prompt you to ask the appraiser to address the retail value of the additional parcel if sold separately. Even if you're adopting the undisclosed perspective of Mortgage Value instead of Market Value (which is what you're doing when you rely solely on "Fannie will accept"), isn't your lender better served IRL by understanding their actual LTV on this transaction is only 80% and not 95%?

Surely you don't think that's something your users don't need to know.

 

[Andrei Fin]

If market evidence were to the contrary of what occurred in this one transaction, might that be good enough?

Or, do you assert that whatever happens in the one specific incident is all that matters as to how you would approach the appraisal problem?

It's not one specific incident, in fact this incident is so common that Fannie Mae addresses it not just in their Selling Guide but felt compelled to address it again in a newsletter.

There is no market evidence to the contrary in any of my scenarios. If the properties were worth more, a well-informed buyer would have bid higher and snapped them up. Unless you provide comps that sold adjoining and simultaneously you're simply overvaluing the subject property by failing to consider all the factors that constitute best interest.