Condition: Arms-length Commercial activities

[ZZGAMAZZ]

Assignment is the purchase of a large home on a large parcel without r.e. agents, without marketing.

1) I defined the seller/buyer relationship as "arms length" because nohing about their prior student-teacher interaction affected the contract terms--although maybe that's why my OV was $275,000 less than the offer of $1,250,000. Client says it's non-arms-length 'BC THEY KNOW EACH OTHER.

2) Client condition wants to know whether the extensive equestrian improvements are commercial if used to create income. My memory kinda remebers that the AF advises the real property appraiser of real property to focus on real property. HOWEVER the seller vividly described various equstrian boarding servicess....and I can't igore the condition or un-learn something I learned about the property.

Kinda need advice before I submit my pending response that says "I just don't give AF." [remmbering Newphew Glen's advicee about business decisions.][

 

[swandel1]

I would think that you would have to look at what the income amount is. If raise tomatoes in your garden and you have a few pounds a week extra that you sell for $15 on that little stand in front of your house, that is income producing, but insufficient to support anything so it doesn't mean anything. One way to look at this is "is this just a supplemental hobby income?" or is there sufficient income to pay the mortgage, business overhead, operating expenses of the property, etc., then it is a commercial property and requires a commercial appraiser. I.E. is the property self sufficient with the boarding / lessons, etc. income? Hobby farms or gentleman's farms are not commercial properties unless if they don't produce enough income to be self sufficient. The other critical issue you need to watch is HBU. Does the HBU indicate a commercial or residential property and why. Be very careful with this as this is where they can hang you !! Make sure you closely review all zoning on this.

 

[swandel1]

Sorry - regarding the arm's length transaction - because they know each other doesn't mean anything. If they are related, you kind of have to look at it as non-arm's length. But in this case, it is just a common private sale. This is very common in rural and ag areas. There is one rural area that I cover that most of the residents are members of the LDS flock. Probably 40% of the transactions in that area are off market. The participants all are somewhat acquainted with each other and offer their properties via their church bulletin. That doesn't make it a non-arms length transaction.

 

[ZZGAMAZZ]

Sorry - regarding the arm's length transaction - because they know each other doesn't mean anything. If they are related, you kind of have to look at it as non-arm's length. But in this case, it is just a common private sale. This is very common in rural and ag areas. There is one rural area that I cover that most of the residents are members of the LDS flock. Probably 40% of the transactions in that area are off market. The participants all are somewhat acquainted with each other and offer their properties via their church bulletin. That doesn't make it a non-arms length transaction.

Only thing that I question is whether the variance between the contract and my OV might imply collusion. Regarding the self sufficiency premise: seems perfectly logical IMO but I'm reluctant to puty career on the line without formal support e.g., IRS, Equalization Board, FFA, etc. Your perspective is very precise and well-expressed!

 

[swandel1]

Only thing that I question is whether the variance between the contract and my OV might imply collusion. Regarding the self sufficiency premise: seems perfectly logical IMO but I'm reluctant to puty career on the line without formal support e.g., IRS, Equalization Board, FFA, etc. Your perspective is very precise and well-expressed!

You might want to interview both the buyer and seller separately and find out how they arrived at a sale price. I have run into this specific situation a few times, and the answers have made sense as to why it was so far off.....i.e. called a local realtor for a verbal estimate, but relator did not visit the property; using a non-competitive comp; "my cousin told me this is how much it was worth.."; and they usual "zillow said it was worth this much..." It could also be that they may know of a FSBO that didn't show up in your search, so it is important to ask. We are all human and sometimes we miss something.

The lender will most likely order another appraisal. This is where you have to start sweating!! I had one I did back in 2008. It was an immaculate property that had been the living quarters for church clergy for 80 years e.g. no children in the house ever!! The oak wood finishing on the interior was immaculate and extraordinary. Because the value was outside of the norm, Chase ordered a drive-by appraisal for some really low ridiculous for fee of $105 that came in approx. 20% lower than mine. I did 2 or 3 rebuttals when confronted with it as the drive-by appraisal was just total crap, non-competitive comps, etc. But back then Chase was on a witch-hunt to punish appraisers to the point where some states were no longer investigating their complaints because of the insanely high complaint volumes and it was all a waste of time. So, of course, they filed complaint with my state at the time and I had to go thru all the hearings, etc, etc.. It was assigned to an investigator (appraiser) and a state attorney - neither of which had ever done one of these investigations before. The investigator was completely unfamiliar with my market and I don't know how the state attorney finished college, let alone a JD. Anyway, the amount of time, stress, costs (lost work and traveling 4 hours round trip to each meeting) had me rethinking a new career. We ended up settling on a letter stating I may or may not have violated a USPAP standard, and I had to retake the 14 hour USPAP and pay $500. With the verbiage of "may or may not" have violated....it had no affect on my insurance.

Hope you can still sleep after this !!

 

[ZZGAMAZZ]

You might want to interview both the buyer and seller separately and find out how they arrived at a sale price. I have run into this specific situation a few times, and the answers have made sense as to why it was so far off.....i.e. called a local realtor for a verbal estimate, but relator did not visit the property; using a non-competitive comp; "my cousin told me this is how much it was worth.."; and they usual "zillow said it was worth this much..." It could also be that they may know of a FSBO that didn't show up in your search, so it is important to ask. We are all human and sometimes we miss something.

The lender will most likely order another appraisal. This is where you have to start sweating!! I had one I did back in 2008. It was an immaculate property that had been the living quarters for church clergy for 80 years e.g. no children in the house ever!! The oak wood finishing on the interior was immaculate and extraordinary. Because the value was outside of the norm, Chase ordered a drive-by appraisal for some really low ridiculous for fee of $105 that came in approx. 20% lower than mine. I did 2 or 3 rebuttals when confronted with it as the drive-by appraisal was just total crap, non-competitive comps, etc. But back then Chase was on a witch-hunt to punish appraisers to the point where some states were no longer investigating their complaints because of the insanely high complaint volumes and it was all a waste of time. So, of course, they filed complaint with my state at the time and I had to go thru all the hearings, etc, etc.. It was assigned to an investigator (appraiser) and a state attorney - neither of which had ever done one of these investigations before. The investigator was completely unfamiliar with my market and I don't know how the state attorney finished college, let alone a JD. Anyway, the amount of time, stress, costs (lost work and traveling 4 hours round trip to each meeting) had me rethinking a new career. We ended up settling on a letter stating I may or may not have violated a USPAP standard, and I had to retake the 14 hour USPAP and pay $500. With the verbiage of "may or may not" have violated....it had no affect on my insurance.

Hope you can still sleep after this !!

When the assigment first started a few weeek ago, the selleer described the role of the r.e. agent who was reepresenting the buye in a diffeerent transaction, and who had established the contract price for the sale of the subject, but without being named in the contract--and the AF at that time strongly advised me to stop being so anal and leave well enough alone--although I was surprised when neither AMC, LENDEER, SELLER, OR BUYER PUSHED BACK AGAINST MY OV, ALTHOUGH THE PURCHASE DOC DIDN'T INCLUDE AN APPRAISAL CONTINGENCY OR ANYHING THAT WOULD ADDRES A VALUE SHORTFALL.

 

[sputnam]

Assignment is the purchase of a large home on a large parcel without r.e. agents, without marketing.

1) I defined the seller/buyer relationship as "arms length" because nohing about their prior student-teacher interaction affected the contract terms--although maybe that's why my OV was $275,000 less than the offer of $1,250,000. Client says it's non-arms-length 'BC THEY KNOW EACH OTHER.

2) Client condition wants to know whether the extensive equestrian improvements are commercial if used to create income. My memory kinda remebers that the AF advises the real property appraiser of real property to focus on real property. HOWEVER the seller vividly described various equstrian boarding servicess....and I can't igore the condition or un-learn something I learned about the property.

Kinda need advice before I submit my pending response that says "I just don't give AF." [remmbering Newphew Glen's advicee about business decisions.]

If the offer is significantly higher or lower than market value, that is strong evidence that the transaction is not arm's length. Of course, there are other factors which may be involved... concessions, special financing, contracted repairs. I once had an assignment for a forensic review where they tried to hide $50,000 cash.

The simple fact that the Buyer and Seller know each other doesn't make it non arm's length.

 

[ZZGAMAZZ]

If the offer is significantly higher or lower than market value, that is strong evidence that the transaction is not arm's length. Of course, there are other factors which may be involved... concessions, special financing, contracted repairs. I once had an assignment for a forensic review where they tried to hide $50,000 cash.

The simple fact that the Buyer and Seller know each other doesn't make it non arm's length.

Thanks. Question: whats the typical Intended Use/User of a forensic review? Court testimony usually.involved? Opposing sides?

 

[J Grant]

Assignment is the purchase of a large home on a large parcel without r.e. agents, without marketing.

1) I defined the seller/buyer relationship as "arms length" because nohing about their prior student-teacher interaction affected the contract terms--although maybe that's why my OV was $275,000 less than the offer of $1,250,000. Client says it's non-arms-length 'BC THEY KNOW EACH OTHER.

2) Client condition wants to know whether the extensive equestrian improvements are commercial if used to create income. My memory kinda remebers that the AF advises the real property appraiser of real property to focus on real property. HOWEVER the seller vividly described various equstrian boarding servicess....and I can't igore the condition or un-learn something I learned about the property.

Kinda need advice before I submit my pending response that says "I just don't give AF." [remmbering Newphew Glen's advicee about business decisions.][

Imo, no marketing and prior relationship of parties makes it non-arm's length.

As to the rest, report what you know , or can get info on about income from boarding or training and let the lender decide what to do with it.

The way they phrased the quesion....if the equestrian improvements are commercial if used to create income- is that exactl y how they asked it?
Imo, if the income is substantial enough, then it could be. A few horses boarded vs a 20-horse operation, for example.

 

[sputnam]

Thanks. Question: whats the typical Intended Use/User of a forensic review? Court testimony usually.involved? Opposing sides?

Could be anything, I guess. The one I vaguely mentioned was ordered by Fannie. I think they were fighting with a Lender about buybacks.