Can you value as vacant.if its improved?

[fifteen]

A hypothetical condition doesn't exist yet, but the presumption is that it will. If it exists there is no hypothetical. The qualifier is, does it exist.

Land and manufactured homes are valued separately around here, personal property and realty. While the bank has both encumbered under the loan that doesn't negate that they are 2 legally separate entities that can be valued separately. In the OP that was the clients request.

Partial estate supposes that say someone owns 51% of a property. Lender needs to know how much that 51% is worth. That is the SOW. A partial valuation will find that value, now what they do with that value is known only to them. Maybe it's for a buyout of the other partners equity. That doesn't change the legal info and recording data but could lead to a new legal depending on the reasons for the partial valuation. Partial interests, while not always based upon a legal recording still have value through other legal entities, an LLC for instance. We can value realty all or part, as long as it exists, without a HC. If it doesn't exist yet then there's an HC called for.

Basically the client can have any part or portion appraised that they want. It's up to them. $$$ me

Don't ignore the first sentence. That is the definition - The rest elaborates on it. They do that allot.

Hypothetical Condition
That which is contrary to what exists but is supposed for the purpose of analysis.

 

[Carnivore]

I recall that very controversial FAQ. I am in the camp that says it is faulty. It raises the question of why HC is even in the definition section of USPAP.

If the HC statement is incorrect in this situation, then is it misleading to use the HC, and is this in itself a violation of USPAP?

Oh, before I forget, in the words of our old friend Santora,(I am para-phrasing) it is certainly not "AS-IS", but "As-If"

Now a Hyothetical Condition is as synonymous as you will get to 'AS-IF' and about the as far away as you can get from 'AS-IS'.

Proud Student of the Santora School of Logical Thinking.

 

[Carnivore]

Are you telling me that the mortgage only covered the land, and if the lender foreclosed on the property, the borrower retains rights to the building? I'll place a bet that's not what the mortgage stated. It must, otherwise the lender didn't lend on a hypothetical property.

david,

This is an intersting statement. Banks almost everyday foreclose on properties that are not Fee Simple Estates. These banks get a court order to take possession by evicting the occupants.

The rub is that many of these are residential properties in a leasehold estate. They have tenants. The tenants are being evicted illegally by lenders. Many are not because there leasehold post dates the Deed of Trust(Mortgage), but many of leaseholds pre-dated the mortgage.

 

[Carnivore]

In this debate everyone in one camp is focusing on Standard 1 of USPAP and the FAQ 113.

I am only focusing on Standard one and two, and ignoring FAQ 113.

Although there were two questions in the FAQ, there really was only one question. The first question was just a set up for the second question.

In my original response to this OP I said:

Yes you can, just imagine the improvment is not there!

That is a simple but correct answer to the OP question. Since we already have been down this road, I knew thats all I had to say, because the battle line had been drawn by the OP's question.

How do you imagine the improvment is not there? Easy, follow standard one.

The trick is how do you report what you are imagining. Easy follow standard two.

This is where FAQ 113 is flawed. The reason it is flawed is because it does not go far enough. It ignores the requirements of Standard one, Line 532 and it ignores three seperate areas of Standard 2 and disregards that the Defintions section is part of USPAP and it actually defines HC. One other area it ignores and that is the SOW Rule.

Some of us know via heresay why FAQ 113 was issued. The heresay is that it was issued to cover the butte of a CG who forgot to include the HC on an appraisal assignment report.

=================================

So here is my question to the TAF's USPAPIAN Soldier's:

Imagine yourself in a court room on the stand and it is dead silent! Your the appraiser for the defendent and the plaintiffs attorney ask the following question.

What necessitates the use of a Hypothetical Condition?

 

[The Warrior Monk]

They lent based on LAND VALUE AS VACANT .. which is not what existed as of the date of appraisal. Parse all you care to ... I dont care what they took a mortgage on .. I know what was appraised and what the engagement letter asked to be appraised ... the LAND AS THOUGH VACANT AND UNIMPROVED ... that is contrary to what exsited as of the effective date of the appraisal.

Thus the lender has not mortgaged a hypothetical property....which is exactly my point...and thanks for providing more support for that assertation.

Underwriters may use various criteria to decide how much to lend. They still have rules and regulations to abide by.

 

[DWiley]

I clipped his response. So where is there not an HC? Inquiring minds want to know.

The subject property is the underlying land. The underlyng land does exist - so the request is not contrary to anything.

Applying the principle to a personal property situation, consider an assignment involving a chess set. The subject property could either be the entire set, or it could be an individual piece. Appraising one piece of a chess set would not require use of a HC.

Much of the confusion in this area comes from the inconsistent way that the ASB has dealt with "subject property" questions. In the case of the underlying land Q&A they say that the underlying land is just a different subject property. However, in discussing sales history in another Q&A, they say that previous lot sales should be reported even though, using the principles expressed in the underlying land Q&A, the prior sale of the lot does not involve the "subjet property." These Q&As totally conflict with each other at the most fundamental level.

Despite its wide use, the term "subject property" is not well defined. In USPAP it sometimes refers to the real property, it sometimes refers to the real estate, and it sometimes refers to both.

In the end, the discussion is moot if one simply follows the advice I gave earlier. Disclose what you are doing, why you are doing it, and the implications of doing it. If you just do that, then whether or not a HC is involved is irrelevant.

Rememeber, there is no requirement to use the term HC. In fact, I never use it in my reports. Reports are supposed to be meaningful to the intended users. Unless your intended users are USPAP instructors, there is a very good chance they they won't know the technical meaning of the term HC anyway.

 

[Carnivore]

Rememeber, there is no requirement to use the term HC. In fact, I never use it in my reports. Reports are supposed to be meaningful to the intended users. Unless your intended users are USPAP instructors, there is a very good chance they they won't know the technical meaning of the term HC anyway.

Danny I somewhat agree with yout statement. For example in my 1004 cost approach section I use the following statement(deliberatly bolded in the report):

" Site value is: $XX,zzz as if vacant ready for improvement"

On the other hand it might be wise to include the defintion of HC within a report for the less then knowlegable user.

 

[Stone]

When that FAQ came out, I was strongly in the camp that disagreed with it. I've pretty much come around and now agree with it. The important part is to be very clear what is going on and identify both what the subject is (in this case the land) and what is actually there (the whole package including the buildings).

It seems pretty clear that one is not required for valuing part of a property. But, whether an HC is used or not, the appraiser better describe clearly what the existing property is, and what the subject is. It is possible to be misleading either way.

 

[CANative]

Seems this issue is fraught with many issues. So many issues that IMO the OP, at the OP's current experience level (probably similar to mine) should either decline this assignment or reneogotiate the scope of work (agree to a standard 1004C appraisal and let the client decide if they want to use the land value opinion contained in the cost approach).

Here's some other points for discussion:

Std 2-2(b)(ix) states:

State the use of the REAL ESTATE existing as of the date of value and the use of the REAL ESTATE reflected in the appraisal; and, when an opinion of highest and best use was developed by the appraiser, summarize the support and rationale for that opinion.

David's argument (in favor of no HC) seems to revolve more around REAL PROPERTY (rights) which would then require the suspension (for assignment purposes) that what exists at the date of value is actually REAL ESTATE.

Apparently some states use the terms REAL ESTATE and REAL PROPERTY to mean the same thing while other states do not. Assuming USPAP uses the more technically correct usages of these terms (Real Estate is an identified parcel or tract of land, including improvements, if any) then the subject property has to be the whole and an HC must be used to value the land only.

 

[Carnivore]

Greg,

In NC manufactured homes are originally sold with a vehicular title. These units are personal propoerty and are taxed in that manner.

They drag them out to a site and set them on a foundation. It can stay this way forever.

Most Double wide people cancel the title which makes the improvement Real Property and then the site is taxed as real property with an improvement. Once the title is canceled it can never be registered again with the Department of Motor Vehicles.

If you go back to something Danny said earlier you realize how slippery the TAF and former TAF people can be.

Rememeber, there is no requirement to use the term HC. In fact, I never use it in my reports. Reports are supposed to be meaningful to the intended users. Unless your intended users are USPAP instructors, there is a very good chance they they won't know the technical meaning of the term HC anyway.