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Extraordinary assumptions, hypothetical conditions or...?

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Dave Smith

Senior Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Wisconsin
Today's problem!

In January I did an appraisal that involved an 812 square foot older remodeled farm house and barn on 40 acres. Most of the 40 acres is zoned wetlands that can't be developed. The house is located in an area zoned "Natural Area" which has a minimum lot size of 15 acres. Of course I had poor comps. The three comps were on 20 acres, 8.5 acres and 5 acres.

Now the lender wants me to "revise" the appraisal using "just the house and one or two acres" because they can't loan on the property as appraised. I don't know where the septic system is in relation to the house and the house is set back 400 feet from the road. I don't know if the house, the barn and the septic system could be configured within a two acre area.

Am I looking at extraordinary assumptions, hypothetical conditions, or no revisions at all, in essence telling the lender to take a hike? Do I say "provide me with the legal description of the parcel you want me to use?" Without a legal description I would have no site dimensions. The 1 or 2 acre lot size would make the lot an illegal parcel from a zoning standpoint. Access to the hypothetical parcel would involve an easement from the road.

What to do? Advice anyone?

Thanks!
 

airphoto

Senior Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Pennsylvania
Dave,

Why don't you suggest that the lender survey out the smaller area that they wish to lend on, and provide you with the municipality's approval of that smaller site as a legitimate parcel? Won't happen .. but puts the ball in their court. Remember, we can't appraise an illegal use ..
 

Jeff Horton

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Alabama
I agree with Airphoto totally and I think you answered it yourself without even realizing it.

"provide me with the legal description of the parcel you want me to use. Without a legal description I would have no site dimensions. The 1 or 2 acre lot size would make the lot an illegal parcel from a zoning standpoint. Access to the hypothetical parcel would involve an easement from the road."
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Bill is right. The LO needs to find the right loan program for that property instead of trying to force that square peg into the round hole.
 

Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
I believe in order to use a hypothetical condition, there has to be a reasonable probability of the condition being able to happen. Sounds like in this case, that will not happen.

The lender is in a bind, because they are trying to push through a conforming loan in which land values can not exceed 30% of the total value.

Did you make a comment in the aprpaisal, that based on the sales and other similar properties inthe area, that due to the land use regulations, this is typical of the area and a desirable attribute (if so) to typical buyers? The concern is they do not want to be lending on "farms" or commericial proeprty as a residential loan.
 

Ted Martin

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified General Appraiser
State
Kansas
Bill is correct that a hypothetical condition needs to be reasonably possible. Based on your comments what they are asking for would be an appraisal based on an "Extrodinary Assumption" which will also change the report to restricted use. If you do what they want make it perfectly clear to the reader that the lender specified the site size and that is unlikely that the proposed site would pass local zoning requirements which might also limit transfer of the subject or eliminate the possiblity of a building permit to repair, remodel or replace the existing structures (anyway that's what would happen in my market). Don't forget to comment of the need for the easement to the new subject site, and you also might want to ponder who is going to maintain this easment. It is what it is and it's not you problem if the subject doesnt' conform to the lender's property requirements. I would guess that somebody knew this was a non conforming property before they ever ordered the appraisal. I've had LO's ask for a 5 acre site size on a 5.5 acre site and tell me that it's a FANNIE or FREDDIE requirement, but they never seem to be able to produce the documentation to backup thier claim and always send over some inhouse document written by an Underwriter that doesn't have a clue what they are doing. I'm really amazed that the legal staff at some of these lenders hasn't stopped this nonsense, given the amount of liablity that the lenders are assuming with these arbitrary sites which don't conform to local land use laws.
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Why not abide by the 15-acre zoning compliant with the "natural area" specifications ? Get the place re-surveyed with home on 15, and have a 25-acre wetland preserved. I am not sure their reasoning on the very small 1 to 2-acre parcel. From your desciption of the home, barn and septic layout upon the land that 1 acre (or 2 acre) parcel would be quite strange and definitely "extraordinary" ! You already have a 400' set-back. Don't forget the water well too. The 15-acre piece would be more within the range of sizes of your comps' parcels. Were to 8.5 and 5-acre comps' a grand-fathered situation for older nearby homesteads or are they outside of the subject's immediate zoning area ?
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Plus, if the property were split legally, would there be an ingress/egress easement to access a portion of the site behind the one being used with the house?

This kind of thing is just plain stupid on the part of the LOs, UWs and lenders. If they don't understand Real Estate, what are they doing making real estate loan decisions? They need to back up and find a loan program that will accept this kind of property instead of trying to have the appraiser do something to make the property fit the loan program they want it to. Geeeeeeesh!

The subject property is what it is! Mr/s LO, go find the loan program that this property fits into!!!

:twisted:
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
We have a recent rash of lawsuits in which a homeowner who filed a loan or even refi'd on a reduced site size had significant damage to the premises, resulting in a need for a building permit.

After trotting down to the building department they were more than a tad dismayed to discover that the authorities would NOT issue a permit on the basis that the reduced site size constituted an illegal lot split.

They are sueing everyone involved in any way and guess who heads up the list :? : the appraiser 8O (of course).

My current policy is to require a recorded lot survey and some sort of notification that it is a legal split.

I am sure that there are other appraisers not following this policy, but as for me and my house we will follow the current law of the land...

I sleep better that way 8)
 
W

walt kirk

Guest
I don't see a problem. Just value the house and the ground immediately around it and consider the rest of the parcel excess land and assign no value to it.
 
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