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

[Andrei Fin]

No. Nonsense.

If THAT is what you believe, you fail Principles 101.

In an earlier statement you said that you are not an appraiser. Good.

EDIT to add: Not to comprehend the inherent conflict of entangling a 'value in use' definition of a 2nd property in with the legitimate definition (and valuation) of the other subject property for its MV is (almost) amazing.

We're not looking for the MV of the other property, we're looking for the MV of both when sold as one. So close, but yet so far...

 

[glenn walker]

No. Nonsense.

If THAT is what you believe, you fail Principles 101.

In an earlier statement you said that you are not an appraiser. Good.

EDIT to add: Not to comprehend the inherent conflict of entangling a 'value in use' definition of a 2nd property in with the legitimate definition (and valuation) of the other subject property for its MV is (almost) amazing.

Fannie had almost the same guidelines 25 years ago in their 200 page hard copy handbook. Nothing has changed except some appraisers finally read it because it was posted on the internet. The one basic difference was-back in those days before we had USPAP- The lender would instruct the appraiser to give no value to the additional lot or land and even Crazier was in some cases the Underwriters or Chief Appraisers would instruct the appraiser to basically pretend the additional-lot or acreage wasn't even there. Just make sure to check the H & B Use Box ( YES ) and don't waste our time explaining your H & B use analyses because we don't care, and if you mark the NO box you will be removed from the lenders approved list.

After USPAP I assume the Brass over at Fannie figured out that the appraiser doesn't make value and that it was not proper methodology to pretend something doesn't exist. At that juncture residential loan production appraisers finally discovered the difference between Excess and Surplus land and Fannie probably figured that since appraisers are so hard headed and confused they decided to clarify it so the "dunderheads " could get a grip on what it means to appraise " As Value In Use "

 

[CANative]

Ultimately, the only real difference is that excess land has the potential to be subdivided and sold, while surplus land does not. OK that's easy I just describe the excess land may have a potential higher or better use.

"It's" not even excess land in the sense that it is additional land not needed to support the highest and best use of the improved portion. It is simply an additional, separate lot.

Fannie (or any client or intended user) can tell us what they want but they can't tell us how to appraise it.

 

[Andrei Fin]

Getting back to the analysis of the subject's prior sale, I'm a big advocate of comparing a prior sale to its respective comps to see how the market previously reacted to those attributes. If we're using sales of SFRs on smaller lots in our current SCA, then how did the subject previously compare to such SFRs on smaller lots that sold in the same time frame?

You may recall I posted some sales involving two datasets - homes with larger lot sizes and homes with smaller lot sizes. The purpose of that (unqualified/un-analyzed) data dump was to see what the effects were, generally, of the additional lot area in that market segment at that time:

View attachment 43259

Now you are critical of my use of sales with a narrow size and age range in that market, and maybe you're right. I normally start by looking for "most similar" and stop when I find enough comparables to make my case, the idea being that the fewer variables I have to account for the less room there is to screw the value conclusion up.


The top group is obviously smaller in number and consists of the "A" sales we were discussing earlier. I didn't go into each sale to see if there were multiple parcels involved, so just looking at them will require assuming they're all single lot sales. I don't have access to the local MLS so I have no way of finding any house+extra assemblages selling to the same buyer other than the one I stumbled across on Maple (I only found that one because I was looking at lot sales).

Anyhow, the smaller "A" group above includes homes built in that narrow age and size range on the larger lots. One having a larger lot, one having a somewhat smaller lot and the middle two with 15,000sf lots. I assume that expanding the geographic radius would turn up more of these sales, and same for expanding the size or age ranges. Sales with disparate ages are generally a no-go for me unless I am coming up short WRT "more similar". It's something I do when I'm desperate, not as a default.

The larger and more proximate group in the 2nd dataset involves similar size/age homes as the subject but on smaller lots (relative to the subject's 15,000sf 2-parcel assemblage). We can call them the "C" group because they're neither an assemblage nor do they have the comparable lot sizes. The other wrinkly with the C group is that homes built on the smaller lots will often be of inferior design/quality so that's a variable we'd have to suss out when using them in an appraisal.


These are small datasets, so when it comes to comparing them that's a problem. Needs more cowbells

But the two things that jump out in looking at both these datasets is that the median price for the smaller group of "A" homes above is actually smaller than the median for the similar sized homes on smaller lots. Probably because the one $235k sale screws up the range. Tossing that 1 outlier sale and just using the remaining 3 cuts down on the pricing spread.

Median for A (@3sales) = $325,000
Average for A (@ 3 sales) = $323,333

Median for C = $326,000
Average for C = $322,863

The A group is tough to take seriously because the dataset is too small. Regardless, a comparo of these two datasets - which differ primarily in lot size - doesn't support ANY adjustment for lot area. I wouldn't have expected to find that, but my expectation didn't stop that from happening.

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The other thing that's interesting from looking at both datasets is that all of these sales were 2016 sales, and not one of them - even among the A group - comes close to supporting the subject's 2016 transaction price. OTOH both the medians and averages of both groups DO line up pretty closely with the list price for the SFR itself on its 7500sf lot - which we can plainly see it ended up selling for - when it was listed in 2016.

These are the kinds of things I look for when I analyze a prior sale for the market's reaction to a variable.

I don't really get your point here, but just for fun, I dug up the actual appraisal that I wasted $485 on back in 2018. If you are bored you can take a look at this guy's comps.
3304 McCowan
4496 Edison
6040 Grant
6000 Van Alstine
5012 Kenneth (listing)
3346 Walnut (listing)

Of these properties, the only one we looked at was Kenneth but it was a trashier section of the neighborhood and the floorplan was awkward.

 

[George Hatch]

I never questioned whether or not the house+extra was worth at least $440k in 2018. My question is if it might have been worth more.


It looks like the appraiser went with the Plan A, and didn't include any Plan B sales. But, they also didn't include any small lots with big lot size adjustments, either.

#1, #3 and #4 are of comparable age; the others are a lot older. Why would an appraiser use a 1953yb and a 1946yb home for comparison to a 1992yb home? Is that normal in NorCal?

There were apparently a couple other sales similar to the newer homes that didn't make the cut. I don't know if i would have included any of them in an appraisal report but I would have looked at all of them to one extent or another. These homes are similar in age.

 

[George Hatch]

Same search, but with the smaller parcels for the SFR on its own lot. And closer in proximity

 

[CANative]

Why would an appraiser use a 1953yb and a 1946yb home for comparison to a 1992yb home? Is that normal in NorCal?

If that's all there is to work with, that's all there is to work with.

 

[George Hatch]

Easy there, Brohim; I'm referring to a suburb community in Sacramento, not a rural neighborhood in Hopland.

 

[Andrei Fin]

It's because we're getting old lol... a 1990s home is 20-30 years old, it's short lived building components are already needing replacement. So if a home is recently updated, you compare it to other recently updated homes, and vice versa, regardless of what year the structure was built. It's like a car past 100 miles or 10 years, most of the depreciation is already behind it.

 

[George Hatch]

Designs are different, floorplans vary, etc. The core of the older building is still 40 years older regardless of the finishes.

The point remains - why use less similar when more similar is readily available? The cert refers to "most similar"