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Did I Do This Right?

Right response to the client?

  • Yes

    Votes: 5 55.6%
  • No

    Votes: 4 44.4%

  • Total voters
    9
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NachoPerito

Senior Member
Joined
Jul 25, 2012
Professional Status
Certified General Appraiser
State
Washington
Client asked for a 1004 on a property.

After they accepted the fee, I realized that the highest and best use was likely to subdivide the property into four platted lots. I told the client I would have to put in a hypothetical condition that the highest and best use is as one single family home site. Or I would have to charge $2000-$3000 for a more complicated 'as is' appraisal.

They retracted the contract and went with another appraiser. I was ok with that.
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
What was the intended use of the appraisal?
If for market value, why use an HC for the H&BU?
 

Gobears81

Senior Member
Joined
Nov 7, 2013
Professional Status
Certified General Appraiser
State
Illinois
I told the client I would have to put in a hypothetical condition that the highest and best use is as one single family home site.
If looking at the trees and not the forest, one could possibly contend with this statement, but if looking at the forest, the scenario seems to be handled correctly. Maybe they are trying to ram this through the residential lending side, and an HBU as four lots probably wouldn't fly. But, would a hypothetical condition on the HBU fly either? There are times where valuing different scenarios based on differing uses are straightforward, but I wonder if this is one of those cases, in that lots of this type simply might not sell for a single home site, so using a hypothetical to value it as such would be awkward since there might not be any single home sites of this size.
Aside from minor debates on how this was worded, the outcome is probably how it would have been, so I'm guessing that yes, you avoided a major pitfall regardless
 

NachoPerito

Senior Member
Joined
Jul 25, 2012
Professional Status
Certified General Appraiser
State
Washington
What was the intended use of the appraisal?
If for market value, why use an HC for the H&BU?

They wanted a $600 1004 and didn't want a $2500 narrative. Intended use was financing. With no HC I would give an 'as is' value of $625k and be ignoring the fact that the 'as is' value is $850k based on the highest and best use.
 

NachoPerito

Senior Member
Joined
Jul 25, 2012
Professional Status
Certified General Appraiser
State
Washington
If looking at the trees and not the forest, one could possibly contend with this statement, but if looking at the forest, the scenario seems to be handled correctly. Maybe they are trying to ram this through the residential lending side, and an HBU as four lots probably wouldn't fly. But, would a hypothetical condition on the HBU fly either? There are times where valuing different scenarios based on differing uses are straightforward, but I wonder if this is one of those cases, in that lots of this type simply might not sell for a single home site, so using a hypothetical to value it as such would be awkward since there might not be any single home sites of this size.
Aside from minor debates on how this was worded, the outcome is probably how it would have been, so I'm guessing that yes, you avoided a major pitfall regardless

I think you are right in that a HC wouldn't be allowed for the loan they are seeking and a more complicated appraisal would change the loan to different parameters. So they need to find a residential appraiser that doesn't understand that there are alternative options for the use of the property.
 

gregb

Elite Member
Joined
Sep 3, 2011
Professional Status
Certified General Appraiser
State
California
Fannie Mae will only purchase or securitize a mortgage that represents the highest and best use of the site as improved. If the current improvements clearly do not represent the highest and best use of the site as an improved site, it must be indicated on the appraisal report.

The appraiser determines highest and best use of a site as the reasonable and probable use that supports the highest present value on the effective date of the appraisal. For improvements to represent the highest and best use of a site, they must be legally permitted, financially feasible, and physically possible, and must provide more profit than any other use of the site would generate. All of those criteria must be met if the improvements are to be considered as the highest and best use of a site.

The appraiser’s highest and best use analysis of the subject property should consider the property as it is improved. This treatment recognizes that the existing improvements should continue in use until it is financially feasible to remove the dwelling and build a new one, or to renovate the existing dwelling. If the use of comparable sales demonstrates that the improvements are reasonably typical and compatible with market demand for the neighborhood, and the present improvements contribute to the value of the subject property so that its value is greater than the estimated vacant site value, the appraiser should consider the existing use as reasonable and report it as the highest and best use.
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
They wanted a $600 1004 and didn't want a $2500 narrative. Intended use was financing. With no HC I would give an 'as is' value of $625k and be ignoring the fact that the 'as is' value is $850k based on the highest and best use.
If this is the case, then I would not have given them the answer of using an HC because it isn't consistent with the intended use. :cool:

And, I've been in that situation before where a residential lending client has told me that they don't need the property valued at its H&BU; they just need it valued as-improved. I tell them if it is market value they want, then H&BU as-improved might not be as-is.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
fees aside, for res lending purpose its either HBU as yes as improved, or no, ( other) If no (other, many clients have verbiage in engagement letter where they ask appraiser to stop assignment/contact client , who often will cancel assignment and pay appraiser for work done to that point, if client proceeds it is an as is appraisal and if HBO is "no", Fannie will decline loan but the fannie decline is not the appraiser's problem of course.
 

Michigan CG

Moderator
Staff member
Moderator
Joined
Nov 1, 2006
Professional Status
Certified General Appraiser
State
Michigan
What they want is a report they can sell to FNMA and don't really care about your H and B analysis.

If you check the NO box on H and B then they can't sell the loan to FNMA.

If H and B is four separate lots then I would most likely appraise the house on one of the parcels and either provide them with a separate report for the other three lots or include the value of the other three lots in an addenda of the1004 report. They don't like that either but it is more palatable to them.

They will find someone to do the report who will simply check the YES box with no regard to those valuable parcels.
 

AMF13

Elite Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
Nice verbiage, B. Is it from Fannie? Would fit right into one I'm doing now.

As to the original post, you got the right result, imho.
 
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