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

[Andrei Fin]

So, tell us...what do you do when the 'mortgage broker' asks for a single opinion of MV for a refinance of two properties? The loan is headed to the secondary market and the lender is (obviously) a regulated lender:

2 parcels.

1 SFR improved, 1 vacant.

The vacant parcel's H&BU is for SFR improvements (as is the SFR improved parcel).

Each of the two is separate and distinct from the other though under common ownership and side-by-side.

The MV of the land--for each parcel--is $350k.

The improved parcel (which, of course, includes the land) has a MV = $650k (and such is common in the neighborhood).

The market tells us that the buyer for one of these properties is not someone who is buying the two together in order to have additional "green" space for the improved property.

So...tell us...are you going to offer one opinion of MV for the two?

This will be interesting.

The problem here is obvious. The problem is appraisers who can't think like a buyer or seller.

"the buyer for one of these properties is not someone who is buying the two together in order to have additional "green" space for the improved property."

1. You said the buyers "for one of these properties" but we are appraising both properties?
2. You left out what the market tells us about the seller?

 

[George Hatch]

Are you trying to imply that market value is always the HBU?

You keep saying "most probable" sometimes isn't the HBU, and yet the standard mentions "market analysis" and HBU in the same breath, and the comment (lines 515-5160 for "develop an opinion of highest and best use" is that the appraiser must analyze these factors to the extent necessary to support the appraiser's opinions and conclusions.

There is no such thing as an HBU conclusion that ignores the market reaction to these attributes. That "Value in Use" can be the most probable value even though its not the HBU is a complete misread of what an HBU analysis includes - you are implying HBU ignores the market reaction. It doesn't.

 

[George Hatch]

The problem here is obvious. The problem is appraisers who can't think like a buyer or seller.

"the buyer for one of these properties is not someone who is buying the two together in order to have additional "green" space for the improved property."

1. You said the buyers "for one of these properties" but we are appraising both properties?
2. You left out what the market tells us about the seller?

We're not supposed to think like "a" buyer or seller, we're supposed to think like "most" buyers and sellers. We're looking for the group behavior, not the behavior of you and your house. That's the difference between the way brokers define value and appraisers define value.

Brokers (one willing buyer+one willing seller)
Appraisers (most probable among many)

This is why I would never even consider trying to train someone who was previously been trained to sell RE; it's usually impossible to break them of trying to think like "a" buyer or seller.

 

[Andrei Fin]

You keep saying "most probable" sometimes isn't the HBU, and yet the standard mentions "market analysis" and HBU in the same breath, and the comment (lines 515-5160 for "develop an opinion of highest and best use" is that the appraiser must analyze these factors to the extent necessary to support the appraiser's opinions and conclusions.

There is no such thing as an HBU conclusion that ignores the market reaction to these attributes. That "Value in Use" can be the most probable value even though its not the HBU is a complete misread of what an HBU analysis includes - you are implying HBU ignores the market reaction. It doesn't.

Someone already posted this but here it is again:
value in use. The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal.
From the Dictionary of Real Estate Appraisal, 6th Edition

 

[George Hatch]

So our intended users change every 2 years? Moving the cheese to keep everyone on their toes...

WTH are you talking about? When has the meaning of intended users ever changed?

 

[Terrel L. Shields]

almost

 

[Andrei Fin]

We're not supposed to think like "a" buyer or seller, we're supposed to think like "most" buyers and sellers. The group, not the one. That's the difference between the way brokers define value and appraisers define value.

Brokers (one willing buyer+one willing seller)
Appraisers (most probable among many)

Bingo! The typical buyer and seller!

What use does the typical buyer have for an extra buildable lot? The typical buyer for a home is usually not a builder/developer. Even if they simply wanted to turn around and flip the lot, wouldn't it need to be discounted enough in the first place to offer a profit after marketing expenses? (You might recall the subject property consists of two lots sold together). What about the typical seller, if the marketing time for a crappy lot is a lot longer than the marketing time for a nice house (which it usually is) do they have that luxury?

 

[George Hatch]

Someone already posted this but here it is again:
value in use. The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal.
From the Dictionary of Real Estate Appraisal, 6th Edition

Fannie can ask for Value in Use, but by definition VIU is not MV.

Fannie isn't allowed to lend on VIU - that limitation having nothing to do with the appraisal profession. Moreover, their form has MV hardwired into it, so the value conclusion on the bottom line is fully intended to reflect MV, not VIU.

Now, hypothetically, Fannie COULD be allowed to lend on VIU and if/when that occurs appraisers would have no problem answering that question instead. But as a practical matter some changes would have to be made on their form in order to enable it.

They'd have to add the definition for VIU and swap out all references to MV. There is no using a different definition of value in an appraisal without clearly identifying what that value is supposed to mean. "If you really loved me you'd know what I meant without me saying it" only applies when people are married to each other. That is not how professional appraisers are supposed to act.

 

[George Hatch]

Bingo! The typical buyer and seller!

What use does the typical buyer have for an extra buildable lot? The typical buyer for a home is usually not a builder/developer. Even if they simply wanted to turn around and flip the lot, wouldn't it need to be discounted enough in the first place to offer a profit after marketing expenses? (You might recall the subject property consists of two lots sold together). What about the typical seller, if the marketing time for a crappy lot is a lot longer than the marketing time for a nice house (which it usually is) do they have that luxury?

That is a question to be researched and answered; not an assumption for an appraiser to make the way you have been doing with the example you posted. I never had a problem with what your conclusion was; my objection was to the manner in which you didn't even attempt to develop it.

 

[Andrei Fin]

That is a question to be researched and answered; not an assumption for an appraiser to make the way you have been doing with the example you posted. I never had a problem with what your conclusion was; my objection was to the manner in which you didn't even attempt to develop it.

Actually no, you tried to argue that the two parcels could fetch their full market value as if sold separately. I challenge you to find a sale anywhere where the owner listed the main home and the adjoining second parcel on the same day and they ended up selling with different buyers at their full price. I'm not saying it's impossible, but it's certainly not typical, and I would be very interested to see it.