Commercial Zoning, H&b Use, 4 Unit Res, Rent Control &

[vazira]

Asked to appraise a 4 unit property (old craftsman SFR split to triplex, w/ accessory unit) Commercial zoned. Sold 2014 for $500K. On traffic street in LA, CA. Notice the property for sale across street for sale 4 bay commercial auto repair shop found listed at $1.7m. (rumors of offers of $1.5M)

Look it up on loop.net and contact listing agent. Sends me a CMA; used to assist in H&B use, finding 4 competing commercial lots on subject street or similar commercial w/ SFR and or commercial SOLD from $1.5 to $1.9 un adjusted. 1 torn down and w/ commercial office retail now listed at over $3.5.
He also included a pro-forma building (similar to above) on the listing across street.

Now in LA CA we got rent control; with 3 units currently rented with a rent roll of $4,150, with rental eviction of 6 months and other moving assistance it would be around $35K + legal fees & hold time and demo cost of another $25K.

No real competing style complex with all the similar functional, physical and external obsolescence; as a 4 unit property. Competing 4 unit property with traditionally built Quad's at $900K to $1.3M with current rent roles. Similar size competing duplex's in $800k.

Now, to many Q to ask; or Need I ask? How fast do I run? Thinking of advising client of the H&B use issue found and ask how to proceed? (Day and half work for a trip fee?) How do I disclose its grown out of my pay grade and still get paid? (yes AMC), Can't fire them all. I'm just an AR that can't just have the boxes pre-filled in my template.

p.s. I am the second appraiser and from what I've seen the other appraiser just slammed one out at near $1m and addressed non of these issues; from what I've herd or seen. Now I find my self thinking; if this is what a pier did?

 

[J Grant]

My advice is to withdraw. It hurts to lose money but sometimes it is part of the reality of business. Charge a trip fee and be done with it. It would be a pretty unusual AMC to compensate you for the time spent in concluding the HBU could well be commercial with disqualifies you for the assignment, but you can try.

Caveat: they may pressure you to finish the assignment, or tell you the "other appraiser" did it as an income property so you can too- don't let them do that.

 

[The Warrior Monk]

Because of the commercial consideration, I would not recommend doing this assignment unless you are working under CG supervision.

 

[timd354]

My advice is to withdraw. It hurts to lose money but sometimes it is part of the reality of business. Charge a trip fee and be done with it. It would be a pretty unusual AMC to compensate you for the time spent in concluding the HBU could well be commercial with disqualifies you for the assignment, but you can try.

Caveat: they may pressure you to finish the assignment, or tell you the "other appraiser" did it as an income property so you can too- don't let them do that.

Why would a client pay a trip fee to an appraiser who withdrew from an assignment because he lacks the competence (including the correct licensing) to complete the assignment? The OP knew or should have known that this was a 3 or 4 unit property with commercial zoning on a busy commercial street...any residential appraiser should have been able to determine that this is an assignment outside of their competence without ever having visited the property.

 

[J Grant]

WTF did the client assign it to the appraiser, the client as licensed agent for lender is supposed to use due diligence and look up a property and know it could very well be commercial.

If appraiser felt they needed to inspect property to determine HBU they deserve to be paid.

 

[hastalavista]

Timd, I disagree.

It isn't always clear what the H&BU is of a property without a site inspection and additional research.
I have an example that I use for a residential-advanced H&BU CE class I teach. I had an assignment where a commercial building was converted to a residence in a neighborhood where such conversions are (a) occurring and (b) accepted. I researched the zoning, etc., all from the desk before I accepted the assignment; however, I notified the lender that I would have to do an on-site inspection & visit the planning department to confirm some items. Per the zoning, it appeared conversion wasn't an issue. However, after the inspection and a trip to the jurisdiction, conversion, while possible, was not as easy as I had thought based on my desk research. And my on-line records (permit) search didn't discover other information I obtained when I visited the building department.
Since I have a commercial appraisal license, I could appraise the property but what existed didn't qualify for the loan: the assignment was cancelled and I was paid a fee for the work I did (which exceeds what most pay for a 1004).

Vazira-

Chances are good this loan is dead. Also, while the USPAP allows appraisers to gain competence during the assignment (with disclosure to the client and in the report), Fannie Mae does not allow that; so working with a commercial appraiser in this case would mean that appraiser would have to co-sign the report.
My recommendation is to summarize your findings and then request whatever fee your client pays for a trip charge. This assignment's dynamics changed during the development process. Another appraiser valued the property as a residential income property which is contradictory to your findings; if that appraiser worked for the same client/AMC, they had reason to believe that it was a residential income property... and so would most appraisers going into the assignment.

Good luck!

 

[vazira]

Update; Client came back, after I submitted a good analysis, that the city website and prior appraisal and city stated the code use is Residential.
As for why I did the inspection knowing its in commercial zoning, Not all commercial zones have the H&B use as commercial, That's why were asked to do the H&BU.
That's why lenders should have a basic report for these properties and flag the property. I realize that this may change with time, But in boom time in high density area, not now.

My guess is that the lender or Borrower will hire other appraiser tell they get the one that will not develop or consider commercial lot sales, and use conforming buildings.

 

[J Grant]

Update; Client came back, after I submitted a good analysis, that the city website and prior appraisal and city stated the code use is Residential.
As for why I did the inspection knowing its in commercial zoning, Not all commercial zones have the H&B use as commercial, That's why were asked to do the H&BU.
That's why lenders should have a basic report for these properties and flag the property. I realize that this may change with time, But in boom time in high density area, not now.

My guess is that the lender or Borrower will hire other appraiser tell they get the one that will not develop or consider commercial lot sales, and use conforming buildings.

Don't apologize for your own due diligence. The lender/AMC, as you perceive, will likely appraiser shop till they find one that will ignore commercial HBU and value it as a small income property and get the deal through. Didn't I predict the client would try to use the "other appraisal" to pressure you to continue? They dont' give a rats a** about correct HBU, or risking an appraiser's license, they want to close a deal and make $. The AMC wants to keep their lender client "happy".

 

[The Warrior Monk]

that the city website and prior appraisal and city stated the code use is Residential.

This is to be expected. The use code is simply for taxation purposes, and represents the current use of the property. Many areas will actually classify a property on its use even if the use is an illegal use. Ultimately, the use code does really mean much, except as a starting point. The current certificate of occupancy should be viewed, as it represents the property's current legal, permitted (or preexisting) use.