Bed and Breakfast: Highest and Best Use Residential or Commercial?

[The Warrior Monk]

Interestingly enough, I was just reading about valuing B&B's today in Valuation Magazines First Quarter 2013 issue while waiting to pick up my daughter. Many of the B&Bs I've seen have a HBU that is single-family residential. However, if it's not, it can be a complicated mess if you don't have experience with appraising these properties. As always, the problem is determining what the HBU is, and if you don't know how to value B&Bs, they it's problematic arriving at a credible HBU conclusion.

 

[J Grant]

Hello, I am currently working on a 1004 for a large bed and breakfast in the Wasilla-Palmer area in Alaska

The fact that you describe this as a 1004 assignment means the lender assigned it as a residential SF property (which it may or may not be). Owners of mixed use or dual use properties want the lower interest rates of a residential loan, so they apply for, and hope to get, a res loan by passing their property off as a house for personal use with the commercial use more like a hobby..

Whether or not they get the loan is not your problem, but it shows why it was assigned by the lender as a res property, they also want to push the loan through as such.

Next question then is HBU...either you, as a res appraiser are familiar enough with the area and can make some form of study to find a supportable opinion, or you can't.

Do a quick sales comparison, if the data is there...what are B B's selling for, compared to similar size SFR? What is the marketing times of each? If the land were vacant, which type of buyer would most want that location? This property would need $ to convert it back to res use, is the location or land so desirable that it still would appeal to a res buyer?

If sounds extensively improved for B and B use, with a commercial kitchen, bedroom configuration for large groups, and lighted ski trails. The typical B and B is more or less a charming house with some changes made with bedroom egress to accommodate guests. This subject sounds almost more like a hotel or lodge ...is the owner might be trying to pass it off as a B and B to qualify for a res loan ?

 

[sputnam]

The fact that you describe this as a 1004 assignment means the lender assigned it as a residential SF property (which it may or may not be).

That's right. If the H&BU as improved isn't single family residential, then you can't report this appraisal on the 1004.

 

[J Grant]

Interesting things happen when owners of income property decide they want a residential loan...

The commercial boarding stable with 20 lesson horses suddenly becomes a hobby farm. The doctor's office with a bedroom in back suddenly becomes a house with a little home office. The lodge with group accommodations and lighted skier trails morphs into a homey B and B with a few guest rooms.

 

[Kim Whiting]

every situation is different.
doing a 2 unit building in a small resort town. excellent condition, totally remodeled. illegal use in the r-2 district. legally allowable....no. physically possible?....already is. maximally profitable.....if a variance was allowed (and you never know) the use as a 2 unit for seasonal renters would be so profitable bill gates would buy it.
crazy how different things are in different areas.

 

[Terrel L. Shields]

Owners of mixed use or dual use properties want the lower interest rates of a residential loan, so they apply for, and hope to get, a res loan by passing their property off as a house ...

exactly and the Mortgage lender is happy to oblige if he /she can get that pesky appraiser to just look the other way.

On a technical level I have no issue with considering most of these as "complex" residential properties, but OTOH, it isn't appraisal science I have to be wary of, it is the state board.

I have a cousin in CO with a lodge high in the mountains. As a (now retired) outfitter, it was the launching place for his hunting business and his lodge held up to 6 guests. Off season it was his home...and after retirement, it became a large SFR... I don't want to be standing before a board inquiring why a CR was appraising "commercial" property. That's the issue. It has very little to do with competence and everything to do with differences of OPINION between appraisers over the HBU.

 

[CANative]

From Wikipedia

A bed and breakfast (or B&B) is a small lodging establishment that offers overnight accommodation and breakfast, but usually does not offer other meals. Since the 1980s, the meaning of the term has also extended to include accommodations that are also known as "self-catering" establishments. Typically, bed and breakfasts are private homes with fewer than 10 bedrooms available for commercial use.

 

[J Grant]

A bed and breakfast (or B&B) is a small lodging establishment that offers overnight accommodation and breakfast

Wow, I have been running a B& B all this time and didn't even know it!!

 

[VolcanoLvr]

There is nothing written anywhere that says an appraiser must accept any/every assignment that floats by, or that some other entity tries to jam down the appraiser's throat.

There is also nothing written that says a Certified Res Appraiser can't or shouldn't determine the H&BU. That's a primary element in every appraisal. And as the other poster said, the 1004 Form is ONLY for residential assignments. (By the way....how many of you actually DESCRIBE your reasoning for checking the box 'Yes' on the form? Just checking the box is not fully compliant w/ USPAP.)

For this existing assignment, probably the safe bet is to agree that this is a commercial operation ... because it is functioning as an income property much like a small lodge.

Thus, the Cert. Res appraiser should gracefully back out of the assignment ... and especially if the appraiser has no competency doing such properties.

By the way, unless I'm mistaken, a Cert. Res CAN appraise a commercial property, but the value has to be $250K or less. Likely as not, this B&B will be worth far more than that.

 

[Terrel L. Shields]

overnight accommodation and breakfast

I think a bunch of us appraisers should pile in to your place about breakfast time some day and then we'll post our review of your culinary skills