- Apr 18, 2019
- Professional Status
- Certified Residential Appraiser
Hey all, this is my first post, I hope it comes out coherently!
My assignment: I was engaged to perform an appraisal on a FNMA 1004 form. The subject property is in close proximity to Arizona State University. In the subject's market area, the majority of comparable homes are rented as "shared dormitory housing"(My own term), meaning multiple tenants will rent a house and each tenant has their own lease. Essentially, SFR properties are not being used as SFR's but instead, the owners are leasing out bedrooms to separate tenants and sharing the common area. The highest and best use would be as a rental property for students.
*This transaction is a non-arm's length sale between family members. The three students occupying the home are all grandchildren of the owner and currently not paying any rent.
My issue: After the appraisal inspection and additional neighborhood research, it became apparent that the majority of homes in the area are used as rentals for students and the highest and best use is going to be as an income producing property and not a SFR. I went back to the lender and requested the addition of FNMA 1007 to assist with developing the subject's market rent and ultimately developing the income approach. This was the response I received from the lender (Names and personal information redacted):
"There are three family members living on the property. There is no lease agreement between the ********** Trust (The property is currently owned by a family trust and is being purchased by relatives of the family) nor will there be one. One of the grandkids is leaving to New York in the summer and the other two kids will be going to ASU, but grandpa and grandma ********** will let them live for Free. **** and ****** ********** (The Buyers) will use the property as their 2nd home, and will never lease it out to anyone, including their grandkids. No comparable rent survey needed."
If I, the appraiser, say that I need the comparable rent schedule in order to develop the income approach and avoid creating a misleading report, isn't that my decision to make? The lender should not be trying to dictate which approaches to value I use, right? The sales comparison approach would most likely end up being less than the income approach as there is high rental demand in the subject's market area. That alone makes me feel like the results would be misleading. I mean, that if I only develop the sales comparison approach, the value conclusion would be misleading. Wouldn't this be a USPAP violation?
If the lender offered this assignment saying that they only want me to develop one approach to value(It does not matter which one), I would consider that an unacceptable assignment condition and would not have accepted the assignment. How would you handle this and WHY? The why is what I would like to hear, I am trying to understand how far I can/should take this.
I appreciate any and all advice, but please keep it well thought out and on point. Have a great night!