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

[George Hatch]

The discussion is not about what Fannie will loan on. Nobody cares what they will/won't loan on or how they make those decisions. We just want them to refrain from writing appraisal methodology on the fly because that's not in their realm of expertise or purview.

 

[J Grant]

The discussion is not about what Fannie will loan on. Nobody cares what they will/won't loan on or how they make those decisions. We just want them to refrain from writing appraisal methodology on the fly because that's not in their realm of expertise or purview.

Agree, but some, like Glenn appear mis informed what they will loan on ( his comment it is not a fannie type property)

I dont' think Fannie advice means appraise on the fly, or skip HBU analysis etc. As in any assignment advice may be applicable or not and this is a complex assignment no matter how one resolves it.

The thread is interesting but all the concern is ironic wrt methodology for a sliver of assignments ( most appraisers will never do one,)-

 

[glenn walker]

You are way behind on this one.. . nobody is confused about surplus vs excess, the point is fannie does lend on a house being sold along with a lot of excess land as long as the build able lot of excess land is contiguous . Which makes it a "Fannie type of property" ( one they will accept ) Fannie has lent on these for years, the thread because fannie released a perspective how to appraise it ....

The GSE'S are in business to purchase loans, and to protect their portfolio. The only thing that has changed is appraisers just woke up to what Fannie allows. We could probably go through a Fannie Handbook and find numerous appraisal guidelines that may require the appraiser to do things that are not correct methodology or USPAP Compliant. Who creates the Fannie Certifications ? Is Cert#4- really a good certification or does it help create more lazy appraisers who don't go the extra step ? My impression is appraising the properties " as in use " just gives Fannie better collateral security and so the more free or cheap land they get the better it is for the corporation and it makes the residential appraisers H & B use analyses a lot easier : )

 

[djd09]

cert 4 says what it says. this is not asking it is telling. point given.

 

[George Hatch]

Cert 4 says what any appraiser would say if they were certifying how they appraised an existing SFR, the same as Cert #7 and most of the others. These are not expectations that Fannie is establishing - they're simply repeating them.

 

[George Hatch]

Correct but Fannie makes it clear that for appraisal and lending guidelines its being treated as Surplus land and "Valued As in Use" which essentially makes it's Highest & Best use it's existing use. This is done so the appraiser does not overinflated the value based on a future use, which may never happen. This is also why they want the parcels valued as a whole and all teh weight is being placed on the SC Approach. In Private or Non-Fannie type transactions the cleint may engage the appraiser to do them seperately or as a package and at that point the appraiser is doing two appraisals and a much more extensive H & B use analyses. There are situations where teh Subject even with a house on it may be worth less than a larger adjacent parcel. This is more common in Los Angeles County where a small older bungalow is sitting on a 7,000 Sq.Ft. Lot and the same owner has another contigues or adjacent 12,000 Sq.Ft Lot. The Subject by itself is worth $600,000 and the separate-vacant- 12,000 Sq.Ft. lot is worth $700,000. Many Asian buyers buy both and then Build a 5,000 square foot custom home next door to the 1935 Bungalow , or they purchase both and Bulldoze the house down and build two Mc Mansions. On those assignments the appraiser is not dealing with a Fannie situation and the client will order both a home and land appraisal and not a Value In Use.

Value is use is to a specific user or perhaps a specific type of user and possibly in direct conflict with the property's HBU. As I understand it, Fannie is not even allowed to accept appraisals based solely on the definition of VIU, they are required to obtain MV appraisals.

By definition, an appraiser who has rendered a competent appraisal per the definition of MV has not overvalued the property. Please stop suggesting otherwise.

As well, the value of a vacant parcel is not a forecast of "the value based on a future use". The value of a vacant parcel reflects it's current value in the market based on it's "as is" condition. Meaning, if I have similar lots selling for $150k then that's the direction in value for my subject's vacant lot, not the potential $500k a finished home on that parcel may or may not occur in the future.

 

[glenn walker]

Agree, but some, like Glenn appear mis informed what they will loan on ( his comment it is not a fannie type property)

I dont' think fannie advice means appraise on the fly, or skip HBU analysis etc. As in any assignment advice may be applicable or not and this is a complex assignment no matter how one resolves it.

Convey in their entirety.• Be contiguous (unless divided by a road, and the parcel without a residence is Non-Build able) Have the same zoning.• Contain only one dwelling unit- Be covered by a valid first lien. So whats so difficult ? How often does an-appraiser ever have a Non-Buildable Lot where he/she would have a difficult time doing an-easy Highest & Best use analyses ? YES it happens but almost immediately the appraiser knows he/she cannot appraise it as "Value In Use" because that would be misleading and the appraiser would be delivering both a misleading and unsupported opinion of market value. I guess I just don't understand what all the hoopla is about

 

[George Hatch]

An adjacent but non buildable lot will normally have very few alternative uses other than as the lawn or privacy buffer or appurtenant use to the SFR.

 

[Lee Lansford]

Cert-4 Is kinda like a Minimum where the appraiser is certifying that he/she has enough Comparable Sale's and market data to develop a reliable and credible Sales comparison approach. It does not prevent the appraiser-from developing the Cost or Income approach- if he/she believes its required or relevant. Since Fannie-Freddie and lenders guidelines, require the $$-value based on the SC approach to be the only approach used to fund a loan. As "CAN" stated Fannie knows the Cost & Income approaches on residential properties are not based on market reaction and are easy to manipulate. In general most Fannie type properties will have Surplus Land: This is when the lot is larger in size and the extra land (or surplus) (cannot be sold off separately) This means the “Surplus” doesn't have a separate Highest and Best use-and is treated more like a Premium Lot Size on a residential property.

In my opinion some may have confused Surplus land "V" Excess Land: being larger in size and the extra land (or excess) "CAN" be sold separately from the existing lot. In other words, a portion of the lot can be broken off from the rest, sold separately, and have a different highest and best use from the rest of the lot, then " it's not a Fannie type of property " and the appraiser at this juncture needs to advise his/her client to see how they want to proceed ?

A HUGE part of

Convey in their entirety.• Be contiguous (unless divided by a road, and the parcel without a residence is Non-Build able) Have the same zoning.• Contain only one dwelling unit- Be covered by a valid first lien. So whats so difficult ? How often does an-appraiser ever have a Non-Buildable Lot where he/she would have a difficult time doing an-easy Highest & Best use analyses ? YES it happens but almost immediately the appraiser knows he/she cannot appraise it as "Value In Use" because that would be misleading and the appraiser would be delivering both a misleading and unsupported opinion of market value. I guess I just don't understand what all the hoopla is about

Quoting from the Selling Guide? I believe YES. Good. The Selling Guide gets it right.

HOWEVER, the advice in the recent Fannie pronouncement gets it wrong. Hence, why it is that Fannie will (as I have been told by a person who has a link to a person at Fannie) issue a "clarification" on this matter.

 

[glenn walker]

Value is use is to a specific user or perhaps a specific type of user and possibly in direct conflict with the property's HBU. As I understand it, Fannie is not even allowed to accept appraisals based solely on the definition of VIU, they are required to obtain MV appraisals.

By definition, an appraiser who has rendered a competent appraisal per the definition of MV has not overvalued the property. Please stop suggesting otherwise.

As well, the value of a vacant parcel is not a forecast of "the value based on a future use". The value of a vacant parcel reflects it's current value in the market based on it's "as is" condition. Meaning, if I have similar lots selling for $150k then that's the direction in value for my subject's vacant lot, not the potential $500k a finished home on that parcel may or may not occur in the future.

An adjacent but non buildable lot will normally have very few alternative uses other than as the lawn or privacy buffer or appurtenant use to the SFR.

BINGO--The only problem is Fannie had to lay this out very specifically for residential appraisers because at least 50% of them confuse a higher and better use as a future event. Some will even go into the cost or income approach and develop a value based on say building a second Duplex or house being constructed on the adjacent parcel. Fannie is normally not dealing with Commercial Appraisers who are trained to take all three approaches seriously, and thats why #Cert-4 is in their pre-printed -unchangeable certification. You have been around long enough to know how banks and S & Ls tranied appraisers to just ignore the cost approach because nobody cared and even today we rarely find a cost or income approach in reviews that is done correctly. In fact many even stand on Cert-4 and say why do you care no lender will fund on anything but the SC anyway