Can you value as vacant.if its improved?

[PamelaCelilo]

I have a request form a client on an improved parcel with an affixed manu home. Client wants me to value as vacant land only, with no value given to the improvements. I talked with a few local Certified Appraisers out here to get thet their opinion, and the consensus is yes but disclose. Thoughts? A few suggested hypotheticals and one suggested it was all SOW....which makes sence. Appreciate any feedback. Thanks!

 

[Carnivore]

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

 

[CANative]

You need to know the intended use of the appraisal. Does the client simply want an opinion of value of the underlying land (as if the improvements are not or have never been there which requires one type of HC) or does the client want to know the value of the land to a buyer who would have to consider the cost and time to demolish and remove the existing improvements in order to redevelop the site (which would involve a different sow and different types of HC's)?

Intended use and intended user will be very imortant in this assignment.

 

[PamelaCelilo]

"Does the client simply want an opinion of value of the underlying land (as if the improvements are not or have never been there which requires one type of HC) "

Yes...I spoke with my client in great detail. Oddly enough it is a refi, but they JUST want the value of the land, as if it were raw and unimproved...not to account for demo costs or anything else. I initially thought it was a hypothetical would be appropriate, however, I spoke with an appraiser that sits on the AZ Board Of Appraisal, and he said it was all SOW...disclose there is a manu affixed, however, the SOW was to value the land alone.

Thanks and I guess you are right Greg...if I am to value it "as if vacant" then a hypo would be in order, as well as SOW.

Anything else I am missing that needs to be considered?m2:

 

[Don Clark]

You need to know the intended use of the appraisal. Does the client simply want an opinion of value of the underlying land (as if the improvements are not or have never been there which requires one type of HC) or does the client want to know the value of the land to a buyer who would have to consider the cost and time to demolish and remove the existing improvements in order to redevelop the site (which would involve a different sow and different types of HC's)?

Intended use and intended user will be very imortant in this assignment.

It would not be Hypothetical as Greg has stated. I would suggest reading AO-9. That AO is about environmental conditions, but, it is an excellent guide on how to do a hypothetical appraisal. The key is you MUST disclose the improvements throughout the report but state that you are doing the appraisal as though they do not exist for________________purpose(s). I went to an Appraisal Board meeting where an appraiser, who is also a USPAP Instructor, did an appraisal of a property that was commercial, being rezoned to residential. The appraisal was for an opinion of value as though vacant and ready to be developed into residential lots. There were some minor issues with some cloned innapropraite data being in the report but the Appraisal Board nailed him because he failed to disclose the Commercial Building on the site and state that his appraisal was hypothetical as though the improvements did not exist.

 

[Don Clark]

"Does the client simply want an opinion of value of the underlying land (as if the improvements are not or have never been there which requires one type of HC) "

Yes...I spoke with my client in great detail. Oddly enough it is a refi, but they JUST want the value of the land, as if it were raw and unimproved...not to account for demo costs or anything else. I initially thought it was a hypothetical would be appropriate, however, I spoke with an appraiser that sits on the AZ Board Of Appraisal, and he said it was all SOW...disclose there is a manu affixed, however, the SOW was to value the land alone.

Thanks and I guess you are right Greg...if I am to value it "as if vacant" then a hypo would be in order, as well as SOW.

Anything else I am missing that needs to be considered?m2:

The appraiser on the Arizona Board is suggesting that you violate USPAP.

 

[CANative]

Don is correct and I either misspoke or didn't go far enough because I relied on the "depends on intended use/user."

The comment to 1-2(e) states: An appraiser is not required to value the whole when the subject of the appraisal is a fractional interest, a physical segment, or a partial hold.

But a response to the same scenrio we're discussing, as published in the USPAP instructor's manual for 2008-09 USPAP (Q113, Page F-52) states, in part, that "Appraising the land component of an improved property does not necessitate the use of a hypothetical condition."

So does "not necessitate" mean that you can't use a HC, don't HAVE to use an HC, or that there is a USPAP violation if an HC is used?

The reason I ask is because it's difficult for me to discern the substantive difference between disclosing that there are existing improvements and disclosing that the value opinion of the underlying land is based on the hypothetical condition that there are no improvements. I understand the reason for not needing an HC (the subject of the appraisal is the land and not the whole property).

I know someone has been fighting litigation for going on 10 years over this issue.

 

[Jay Emmar]

I have a request form a client on an improved parcel with an affixed manu home. Client wants me to value as vacant land only, with no value given to the improvements. I talked with a few local Certified Appraisers out here to get thet their opinion, and the consensus is yes but disclose. Thoughts? A few suggested hypotheticals and one suggested it was all SOW....which makes sence. Appreciate any feedback. Thanks!

Regardless of whether or not the lender wants you to include demolition cost, you must (IMO) include it - otherwise the report could be considered misleading. If you use a comparable sale that is truly vacant (and everything else similar) is that sale not more valuable as no demolition costs will be borne by the purchaser, thus warranting adjustment? The appraiser is to decide what is appropriate as far as what steps need to be taken in order to develop a credible result, not the UW or LO.

I would write it using the HC and disclose, disclose, disclose.

 

[The Warrior Monk]

The comment to 1-2(e) states: An appraiser is not required to value the whole when the subject of the appraisal is a fractional interest, a physical segment, or a partial hold.

But a response to the same scenrio we're discussing, as published in the USPAP instructor's manual for 2008-09 USPAP (Q113, Page F-52) states, in part, that "Appraising the land component of an improved property does not necessitate the use of a hypothetical condition."

So does "not necessitate" mean that you can't use a HC, don't HAVE to use an HC, or that there is a USPAP violation if an HC is used?

The reason I ask is because it's difficult for me to discern the substantive difference between disclosing that there are existing improvements and disclosing that the value opinion of the underlying land is based on the hypothetical condition that there are no improvements. I understand the reason for not needing an HC (the subject of the appraisal is the land and not the whole property).

One of the FAQs helped make the issue more confusing.

In my own practice, I draw the line with using a hypothetical condition as what exists versus what doesn't exist. For example:

• A commercial building is located on leased land. Does a hypothetical condition need to be used to appraise the land? No. Why? The property rights are legally divided, thus the rights pertaining to the land and the rights pertaining to the improvements are spelled out.
• A residential property is improved with a dwelling, and the rights pertaining to land and building are not divided. Would a hypothetical condition be required to appraise the land. Would a hypothetical condition ber required. IMHO, Yes...because the property rights are not divided, thus the appraiser must "pretend" that they are something other than what actually exists in order to appraise a segment of the property.

As this pertains to lending, it's a problem. Lenders do not lend on hypothetical properties, thus as a stand-alone appraisal is inappropriate. When I've had to use hypothetical conditions in a lending report, it is part of a larger analysis.

 

[Walter Kirk]

You can adopt the hypothetical condition that the house is not there however you must also consider the site improvements (water lines or well, septic or sewer, sidewalks, driveways, grading, lawn etc. In addition you must do a complete H&BU analysis, Can you build a new house or other improvement under current zoning?

This isn't a simple assignment.