Can Enclosed Garage be counted Living Area

[GENTEEL]

There is "permitted", and then there is "permissible", the former being a subset of the latter. HBU analysis refers to the latter, but the different lenders have varying interpretations; some of those only include the former.

Besides that, the fact that an addition may not be "permissible" doesn't mean it doesn't have value in the market.

If I understood you correctly, in other words, are you implying that what is "permissible" may not necessarily carry a permit yet given a value?

More and more, we're getting to the point wherein what a lender will accept in terms of valuation methodology and criteria may sometimes not entirely mesh with the definition of "Market Value" upon which these appraisals are allegedly based. Market Value is defined by the actions of buyers and sellers, not those of underwriters and reviewers.

I believe that the "actions of buyers and sellers" may be grotesquely misunderstood (as in selfish genes) and may considerably impact the "market value", don't you think? Isn't this why we have underwriters and reveiwers? Just curious to better understand myself.

 

[GENTEEL]

Allow me to present another factual case. Although I do not recall every detail in ditto, I shall appropriate as conveyed to the best of my recollection.

A few years ago, there was an SFR in Bay Area where after measuring the home, the GLA came to be far less than what the records stated. My mentor at that time found out that the sf of garage was also included as a “conversion” (additional room) and the actual GLA (without the garage) was also slightly over.

The garage had two small fixed storm windows structured into the garage door and a medium sized gas heater installed along with a twin bed lying in the corner, some furniture and space for 1 car. The owner was apparently working out of his semi-garage probably part time and had refinanced his home within that last 5 years prior to the effective date of our appraisal which included the sf of garage and that his property was now on sale. My mentor did not include the garage and made reverse adjustments while explaining the conditions as such in the addendum.

I was later told that the appraisal was rejected by the broker and redone by someone else who included the garage’s sf back again and bought the price up to the then market value. My mentor had called the lender up and explained the entire situation, at which I believe, the broker, owner and the appraiser were penalized. It so happened, the home was somehow sold later on with the total GLA inclusive of garage, perhaps by another broker and lender. What would your comments be on such a scenario and what would you have done in this case if any different? Was my mentor wrong about his decisions in any way?

 

[George Hatch]

With respect to "permissible", it is my understanding that Fannie's own guidelines don't require permits, per se; they just refer to what's acceptable within the market in terms of quality and workmanship. I'm not very well versed in Fannie so my understanding on that may be in error.

Regardless, we probably run into unpermitted patio covers, fences and such on a regular basis; that doesn't mean that they all fit into a cost2cure scenario. Depending on the jurisdiction a property owner can often come clean with a local building department after the fact if quality and workmanship are reasonable.

Putting permissiblity aside and as I said before, the fact that an unpermitted addition isn't supposed to be there doesn't always mean the market participants will turn a blind eye to it. The contributory value may not and usually doesn't match what it would be if everything was permitted; but there's still value and if we're trying to emulate the reasoning of the typical buyer and seller we shouldn't be ignoring that outright.

As for the situation you just described, it appears to me that you and your supervisor were 100% right and everyone else was 100% wrong. By most any reasonable measure the fact that some cooperative appraiser came along later and played the game didn't turn that garage area into usable living area.

 

[GENTEEL]

Okay, thanks George. I guess some things are just meant to be and I shall keep that in mind. What I do find often tantalizing, and perhaps many do, is analyzing and choosing correct comparables, making appropriate adjustments and Cost Approach. Although, correct if I'm wrong, Fannie does not require Cost Approach, my mentor does it nonetheless and makes comparable adjustments out of experience (30+ years, almost retired and still couting), which throws me off-guard completely without proper calculations or using formulae.

 

[George Hatch]

... my mentor does it nonetheless and makes comparable adjustments out of experience (30+ years, almost retired and still couting), which throws me off-guard completely without proper calculations or using formulae.

You could say his experience is a large part of his database. His opinion is influenced not only by the data at hand, but all the other data he's ever run across.

I would hope that his experience isn't the only factor to his adjustments, though, 'cause from an outsider's viewpoint it's too easy to mistake that for simply pulling adjustments from air.

The whole dollar adjustment routine we use on these appraisal forms is kind of an anachronism. It works okay when the houses we're looking at are all very similar to each other except for one or two items of variance. It doesn't work so well when there more more than a couple of those variances.

Buyers and sellers don't actually make those types of adjustments to sales data; they usually look at a bunch of properties, comparing them to each other as they go, and then they rank their subject within the context provided by the range.

"This one is better overall than the house on Elm Street, worse than that beauty over on Maple, and about equal to the homes on Oak and Pine. Let's offer what they paid for the house on Oak Street last month."

We rarely get all the data we need in any given assignment to support every single adjustment in that appraisal. However we can often relate our comps as being better or worse than each other and attribute their price variances to those differences.

That's what I do. I compare the relationships between my comps to each other and try to figure out how those buyers are reacting to their differences. I do that before I start making adjustments to the dataset to reflect their relationships to my subject. It's harder to do than simply applying adjustments from "the list" to those comps and moving on, but I like how the data usually comes together a little more easily.

Really, I try to pick the most similar comps I can find so I won't have to make any adjustments; and failing that I shoot for making as few adjustments as possible. I prefer to rank my subject within the range even if that range isn't adjusted down to the last 1%.

 

[Mike Kennedy]

404.01: Zoning
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The appraiser is responsible for reporting the specific zoning classification for the subject property. The appraiser must include a general statement to describe what the zoning permits -- "one-family," "two-family," etc. -- when he or she indicates a specific zoning such as R-1, R-2, etc. The appraiser must also include a specific statement indicating whether the improvements represent a legal use; a legal, but nonconforming (grandfathered) use; or an illegal use under the zoning regulations; or whether there is no local zoning.


We generally will not purchase or securitize a mortgage on a property if the improvements do not constitute a legally permissible use of the land. We do make certain exceptions to this policy, as long as the property is appraised and underwritten in accordance with the special requirements we impose as a condition to agreeing to make the exception:

(NOTE* i.e. the following exceptions - not a garage enclosure without a bp/c.o. ) [ edit : IF zoning / code exists ]


•We will purchase or securitize a mortgage that is secured by a one- to four-family property or a unit in a PUD project if the property represents a legal, but nonconforming, use of the land -- as long as the appraiser's analysis reflects any adverse effect that the nonconforming use has on the value and marketability of the property.


•We will purchase or securitize a condominium unit mortgage or a cooperative share loan from a project that represents a legal, but nonconforming, use of the land only if the improvements can be rebuilt to current density in the event of their partial or full destruction. (In such cases, the mortgage file must include a copy of the applicable zoning regulations or a letter from the local zoning authority that authorizes reconstruction to current density.)


•We will purchase or securitize a mortgage secured by a one-family property that includes an illegal additional unit or accessory apartment (which may be referred to as a mother-in-law, mother-daughter, or granny unit) as long as the illegal use conforms to the subject neighborhood and to the market. The property must be appraised in conformity with its legal use, that of a one-family property (and the borrower must qualify for the mortgage without considering any rental income from the illegal unit). The appraiser must report that the improvements represent an illegal use and demonstrate that the improvements are typical for the market through an analysis of at least three comparable properties that have the same illegal use. The lender must also make sure that the existence of the illegal additional unit will not jeopardize any future hazard insurance claim that might need to be filed for the property. We will not purchase or securitize a mortgage secured by a two- to four-family property that includes an illegal accessory apartment.


•We will not purchase or securitize a mortgage secured by a property that is subject to certain land-use regulations (such as coastal tideland or wetland laws) that create setback lines or other provisions that prevent the reconstruction (or maintenance) of the property improvements if they are damaged or destroyed. (The intent of these types of land-use regulations is to remove existing land uses and to stop land development -- including the maintenance or construction of seawalls -- within specific setback lines

 

[Joyce Potts]

Hey Mikey,

What's the source of your cut and paste citation? FNMA, FIRREA, USPAP, Hudson Valley National Bank or the Mike Kennedy Encyclopedia of "Appraising As It Should Be Regardless Of What The Market Suggests"?

 

[Mike Kennedy]

http://www.georgiaappraiser.com/db/FNMA/


FNMA ( see Appraisal Review - Site ) 404.02: Highest and Best Use
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The highest and best use of a site is the reasonable and probable use that supports the highest present value on the effective date of the appraisal. For improvements to represent the highest and best use of a site, they must be legally permitted, financially feasible, and physically possible, and must provide more profit than any other use of the site would generate. All of these criteria must be met if the improvements are to be considered as the highest and best use of a site.:icon_idea:


and........because you asked......Joycieeee >>

USPAP
SR 1-2e) identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, 10 including:

(i)
its location and physical, LEGAL, :icon_idea:


and economic attributes;

(iv) any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature; :icon_idea:

 

[Joyce Potts]

Georgia Appraiser?

I didn't realize Jeff Foxworthy was moonlighting.

 

[Mike Kennedy]

Someone was kind enough to post that link - works better and faster than Allregs.