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Fannie Mae and "Multiple Parcels"

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
"Michigan CG, post: 2955477, member: 99171"]
Let us take a five-acre parcel with improvements that are worth $200,000 and the land is worth $60,000 for a total of $260,000. Lender wants you to add a two-acre parcel for a total of seven acres. The two acres by itself is worth $40,000. If we add them up together as some would (wrongly) suggest the opinion of value is $300,000.

It might be wrong - but what if the market says it is right? I understand that frequently the value of the whole is not the same as adding the two up, ( and often might be less if a bulk value, ) however, the market has to tell us- we should not start an assignment with preconceived idea of it. Or as G Hatch says, no always/never, but sometimes....

Now we have another argument that the appraisal be made with an HC that it is one seven-acre property. Just combining them together does not change the fact that the two acres is still excess land so this theory is also incorrect, but maybe better than the first. In this scenario the seven acres is worth about $70,000 (I am using land values from my market). So the value of a house on seven is $270,000. That is not the highest and best use as $270,000 is worth less than $300,000.

I do not believe HC has a place in this assignment so I will leave the HC crowd to answer this one!

The misguided FNMA letter says the additional two acres is value in use. To me that says to value the whole property at $270,000 and that the FINAL value on the 1004 form would be $270,000 but that would not be the MARKET VALUE. The final appraisal value would be based on a value in use.

The FNMA letter advises treat additional 2 acres as a value in use (for its contribution), when it is encumbered with the improvement. They do not tell us what that value or the final value /market value is . Dictionary of RE states value in use and HBU can be equal, aka be the same $ amount ...that is for us to determine.

The correct way to address this would be to conclude a value of the house on five at $260,000 and do an addendum or a second separate appraisal stating the market value of the two acres is $40,000.

Your opinion is that this is the correct way, however it would not fulfill the assignment condition for the client,t because the assignment is the client needs one market value for the 2 properties.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Below example for understanding that the value of contribution of the excess lot when encumbered with the house, can be different than the MV of the lot alone. Remember that even if we provide an additonatl MV for the lot alone , the appaisal assignment if the MV of the two properties conveyed together.

MV for tje lot alone : 40k )
MV for improvement on its site : 200k

IS the MV for the two together 240k? Mayb, or maybe not. Le'ts say for the example we conclude a discount- the MV opinion for the two properties is 230k.

The contributory value of the lot for the duration of it as encumbered (a value in use ) is less than a MV of the lot alone. However, the MV opinion in the appraisal is for the two together, thus a 230k MV opinion as the MV / most probable price for the two ..
 
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George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
I just had a conversation and email from an appraiser friend who makes a very strong and rationale argument for including the value together. The Fannie statement is flawed though or could have been much better.
I'm sure there are some situations where it makes more sense to do it that way; but I know for a fact there will also be some situations where it doesn't.
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Certified Residential Appraiser
State
California
I'm sure there are some situations where it makes more sense to do it that way; but I know for a fact there will also be some situations where it doesn't.
Same bat time / Same bat channel.
 

Michigan CG

Moderator
Staff member
Moderator
Joined
Nov 1, 2006
Professional Status
Certified General Appraiser
State
Michigan
Your opinion is that this is the correct way, however it would not fulfill the assignment condition for the client,t because the assignment is the client needs one market value for the 2 properties.
Ever heard of unacceptable assignment conditions?
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
[
Ever heard of unacceptable assignment conditions?
Indeed, if an appraiser believes this is an unacceptable assignment condition, they should decline it.
 

Eli

Elite Member
Joined
May 12, 2007
Professional Status
Certified General Appraiser
State
Tennessee
The fact a bank takes a mortgage on more than they appraise can be a function of the LTV. It is cheaper to appraise a vacant 40 acres here than the adjacent 40 acres with a poultry farm. And if borrowing $40,000, well why do you need to value the entire farm? Just enough to cover the loan even if you do take both parcels.
Multiple parcels can be on a mortgage. A UCC-1 can also be included (referenced) in the mortgage that takes a lien on personal property. That mortgage secures the loan although it has multiple parcels and possibly a personal property lien recorded as well. The other liens like on personal property or bank accounts usually have to be recorded separately. They can be referenced in the mortgage and recorded separately as well. Depending on if the bank account is held by the lender performing the loan. They (in house loans) even include a lien like on bank accounts and reference them sometimes . It's common with farmers to have a lien on the furniture, fixtures and equipment and real property on loans. All on the same loan sometimes. They can always attach the lien later on the furniture, fixtures and equipment or bank accounts later if they can. Some just do it on the front end. They can always attach the lien later. Bankruptcy comes into play. Can't attach a lien on the property after a bankruptcy has been filed in some cases. Rules are different in chapter 13 vs chapter 7 bankruptcy.
 
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George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
[
Indeed, if an appraiser believes this is an unacceptable assignment condition, they should decline it.
Or renegotiate it until they can get to an acceptable SOW
 

Andrei Fin

Junior Member
Joined
Aug 30, 2017
Professional Status
Certified Residential Appraiser
State
California
What if the value in use is greater than the market value? Second parcel has a stream running through it that provides the main property access to world class trout fishing and an excellent view amenity, but terrain is quite rocky making it difficult to clear a home site. Or second parcel is marginal but comes with water rights that allow the first parcel to greatly increase their ag productivity.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
What if the value in use is greater than the market value? Second parcel has a stream running through it that provides the main property access to world class trout fishing and an excellent view amenity, but terrain is quite rocky making it difficult to clear a home site. Or second parcel is marginal but comes with water rights that allow the first parcel to greatly increase their ag productivity.
value in use can be greater than lower than, or equal to market value as a $ amount
A second parcel not build able might have a different value than a build able site - I've done appraisals here with owned and deeded parcels with beach front ocean or deep water dockage, the narrow strip of beachfront, , while not build able, protects view to ocean and allows a private use ( allowed to build a cabana but not a dwelling ) could be a 500k- to a million or more $ - some houses have private tunnels under the road to reach the beach strip with cabana in Palm Beach Island.
 
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