Consulting assignment questions

[CANative]

A recent project has turned into what amounts to a consulting assignment. It was originally to be a land appraisal using a hypothetical condition (that the existing improvements do not enroach on the the lot next door). Without divulging too much (the assignment is a referral from a forum member) lets just say that the appraisal part is no longer relevant because there was something about the next door lot that the client didn't know about.

So anyway, here goes my first question:

The client needs information and some analysis and due diligence to help them in their negotiations or on how to best proceed at this point. One of the issues will be (in my opinion) the fact that I don't think the next door lot (the lot on which the clients property enroaches on) was purchased by the present owner at typical lot values for that time and it's probably because he knew there was an enroachment (I have some evidence of this). To support my conclusions I will probably have to say what it sold for and what similar properties sold for at the time. It seems this would result in some sort of retrospective value opinion.

Is this portion of the consulting assignment an appraisal or is it just a discussion of sales data?

*sigh* The issues of this assignment are not too complicated but I've never put a written consulting assignment together and I'm having some USPAP difficulties.

 

[PropertyEconomics]

A recent project has turned into what amounts to a consulting assignment. It was originally to be a land appraisal using a hypothetical condition (that the existing improvements do not enroach on the the lot next door). Without divulging too much (the assignment is a referral from a forum member) lets just say that the appraisal part is no longer relevant because there was something about the next door lot that the client didn't know about.

So anyway, here goes my first question:

The client needs information and some analysis and due diligence to help them in their negotiations or on how to best proceed at this point. One of the issues will be (in my opinion) the fact that I don't think the next door lot (the lot on which the clients property enroaches on) was purchased by the present owner at typical lot values for that time and it's probably because he knew there was an enroachment (I have some evidence of this). To support my conclusions I will probably have to say what it sold for and what similar properties sold for at the time. It seems this would result in some sort of retrospective value opinion.

Is this portion of the consulting assignment an appraisal or is it just a discussion of sales data?

*sigh* The issues of this assignment are not too complicated but I've never put a written consulting assignment together and I'm having some USPAP difficulties.

Read the USPAP requirements for consulting ... they will guide you. You can consult with your client regarding value and that of the adjoining properties, but call it a consultation, meet the consultation requirements, and if you conclude on a value you have to meet those of valuation as well .... I think discussion and presentation of analysis can be done without concluding upon a value but I dont know the needs of your client.

 

[CANative]

If it's an appraisal (of some kind) then it would be an appraisal of a property that is not the subject of the consultation assignment. I guess that makes it not an appraisal... right?

 

[PropertyEconomics]

Exactly what are you consulting on?

 

[CANative]

A lender has foreclosed on a property with a new(er) house on it. They get ready to dispose of it and then find out that a good size chunk of the improvements enroaches onto the adjoining lot. That lot owner puts the kibosh on the lenders plans, complaining about the enroachement. The property would not be marketable anyway until the encroachment issues was cured.

The lender apparently decides that they will try to solve the problem by purchasing the vacant lot being encroached upon. They send me out to inspect and do an appraisal. Upon inspection I find that the lot owner has started building a new house which is about 75% complete. There is now no point in appraising the lot because it is no longer a vacant lot.
The guy purchased the vacant lot in mid July of '07. I have a fax of a survey with his name on it, showing the encroachment, and dated June of '07. He didn't even get the building permit until Feb. '08 and started construction in March... Many months after the enrcoachment issue was known. And why would the county issue a permit under these conditions and why would the PUD's very strict architectural committee alow the project to proceed? If you want to know what I think but can't prove is that the encroached upon lot owner is trying to hoodwink an out of state lender. My referal guy indicated that the lender may be under the impression that lots like this may sell for $100k to $200k when they actually sell for less than $25 or $30 and this guy bought it for $15.


The assignment and scope of work has changed. They now want me to just write a simple letter discussing what I have found out, what is where, when it was known, what options exists (boundary line adjustments, zoning issues, how the heck did this happen), etc, etc. The more I think about it, the less simple it is and if I do a full blown consulting assignment under Stds. 4 and 5 I probably can't get this done by Tuesday because it will take me a week just to figure out how to do it.

m2:

 

[PropertyEconomics]

What was known and when is pretty difficult for you to decide isnt it? Isnt that asking you to read the mind of the owner? Certainly not something I would want to get involved in .. now if you can establish a time line regarding what HAPPENED ... ie survey date such and such, building permit date such and such .. that is one thing but to say when was was known ... not on my watch.

Im curious ... why would he be disallowed to construct? HIs property wasnt incroaching on another .. another was encroaching on him. Sounds like HE has a suit against the "owner" ... which may now be the bank .. and not the other way around.

Obviously the facts are in his favor, he has a survey showing the encroachment and he has a permit to build ... the lender client may have some additional liability here. Wonder who appraised it last time .. perhaps your client would like to talk to their E&O company?

PS if you dont do a full bore consulting job under Standards 4 & 5 .. you may be in trouble anyway. You are consulting arent you?

 

[CANative]

Thanks PE. Some of your suggestions and ideas I've already considered. There is no letter of engagement or any specific communications from the client. It's all coming in piecemeal and things have changed on a daily basis. I've only had this a couple of days.

Actually, it's not very clear what the client wants, I don't think they even know at this point. I think I will steer clear of calling this a consulting assignment and just provide them with facts.

If they want to engage in an actual consulting assignment with recommendations we can discuss it at that time.

 

[PropertyEconomics]

I guess Greg the biggest issue is that you dont really know what it is you are suppose to do. They havent made it very plain have they? Its hard to know what your assignment is without talking to the client and asking WHAT do you want.
Assignments like these are difficult due to poor communication and most likely your client doesnt know what they want either.

 

[c w d]

I asked my 15hrs USPAP instructor last year about consultation since I could not see any useful nature to the rule. Value given by the appraiser is an appraisal. Likewise, indications of direction of value fall under the category of an appraisal. Or so it was explained to me. So Greg, it would seem anything that you communicate to your client concerning value or direction of value would not fall under consultation but rather appraisal. Kind of limits what one can do. So, you could tell your client that there is a property at that location, that there is an encroachment or not, but not that the adjacent lot was purchased for below typical market value as that would be construed as an indication of direction of value? Or could. Maybe. *shrugs* Or so I would assume from the conversation I had.

 

[RSW]

A consulting assignment may or may not include an appraisal. Any mention of value, range in value or direction in value is an appraisal. Stay away from mentioning value if you do not want to do an appraisal. I see nothing wrong with letting the client know about the encroachment. But, I would not say anything about it being purchased below market value. It if were me, I would most likely decline this order. Even though a lot of time has been put into it.