Fannie Mae and "Multiple Parcels"

[alebrewer]

I actually never said one legal lot --- Though one economic unit sums it up neatly.

How could it be possible that I stated numerous times in both threads that it is not being appraised as if it were one lot? It is being appraised as if it were one property, comprised of a lot and adjacent house

As far as how to report it on grid, I think it would be cleaner to line item out the second lot rather than combine site sizes as one large one but either way could work as long as what is being appraised is clearly explained and disclosed.

I really don't want to go down this path - the FAQ refers to it as 'one legal lot'. Greg refers to it as 'one economic unit'. You IMPLY one lot (or one economic unit if you like that better) when you combine the site sizes on the grid. As to whether it would be cleaner to adjust the vacant lot in a separate line item, I would guess that would be up to the individual appraiser, but it seems to me that it would be cleaner to combine the site sizes into one site.

 

[J Grant]

I really don't want to go down this path - the FAQ refers to it as 'one legal lot'. Greg refers to it as 'one economic unit'. You IMPLY one lot (or one economic unit if you like that better) when you combine the site sizes on the grid. As to whether it would be cleaner to adjust the vacant lot in a separate line item, I would guess that would be up to the individual appraiser, but it seems to me that it would be cleaner to combine the site sizes into one site.

Please post the FAQ so I can see it and respond - but it sounds as if it might address a different appraisal question . I said one property, not one lot...one economic unit a cleaner expression!

 

[George Hatch]

Couple of points: (1) the fact that there are two separate lots does not absolutely imply that there are two different H&B uses (e.g. that there is excess land). Determination of whether or not there are separate H&B is the job of the appraiser, who may, OR MAY NOT, conclude that the vacant parcel is excess land. (2) IF the appraiser determines that the 2nd lot is NOT excess land, then the guidance is to invoke a HC (namely that the appraiser is valuing the property as if it were one single lot).

Obviously two parcels with the same current use can have the same HBU whether vacant or improved. And equally obvious that HBU is an opinion to be developed (not assumed) in conjunction with all 4 tests, not just zoning. But as I keep saying "HBU as improved" is the thing when there are existing improvements.

Illustration:

Site is zoned for 2 units but is currently improved with a single residence. In terms of the HBU as improved there are basically 3 alternatives; either
1 - the property is worth more in its existing configuration than the underlying site value as if vacant, or
2 - the property is worth more as conversion bait to a different use
3 - the property is worth more as land value (arguably, less the cost-to-cure to make return it to vacant condition).

If the property is worth more in its current use then THAT value will represent the property's MV and those are the comps we're looking for.

So with the excess lot that's the question - if it's worth more in its current use as additional lot area to the improved parcel then that's the HBU for that parcel. If it's worth more if sold off individually to a different buyer then that's the HBU. There are no existing improvements to convert so that alternative doesn't apply.

As always, the definition of MV includes the explicit assumption of a hypothetical sale as of the date.

We also sometimes overlook marketability and supply/demand issues. What is the current value of this parcel if nobody is buying such parcels at this time? We can come up with a number, but can we actually expect it to sell within a reasonable exposure time as of the date, or a reasonable marketing time into the future? If the typical marketing time (relative to the eff date) for a particular property type is measured in years instead of weeks we might have to consider the effects on value of the market conditions that may change during the interim. As a buyer you may be looking to what you think the value of the flip will be in the future, not necessarily today.

 

[George Hatch]

What did I say, it is a smaller group of buyers. Indeed, I meant it You agree, correct?

Many niche properties have a small pool of buyers . We deal with it as part of analysis and if it affects price and or marketing time

Meaning, your comps are different. The buyer that's looking for 2 lots is looking for 2 lots.

 

[alebrewer]

So with the excess lot that's the question - if it's worth more in its current use as additional lot area to the improved parcel then that's the HBU for that parcel. If it's worth more if sold off individually to a different buyer then that's the HBU.

I think that is also the point of the FAQ - the appraiser has to make the determination of whether the vacant lot is worth more in it's configuration with the improved parcel, or whether it's worth more sold off individually.

 

[alebrewer]

Please post the FAQ so I can see it and respond - but it sounds as if it might address a different appraisal question . I said one property, not one lot...one economic unit a cleaner expression!

I did - it's #115.

 

[Eli]

Obviously two parcels with the same current use can have the same HBU whether vacant or improved. And equally obvious that HBU is an opinion to be developed (not assumed) in conjunction with all 4 tests, not just zoning. But as I keep saying "HBU as improved" is the thing when there are existing improvements.

Illustration:

Site is zoned for 2 units but is currently improved with a single residence. In terms of the HBU as improved there are basically 3 alternatives; either
1 - the property is worth more in its existing configuration than the underlying site value as if vacant, or
2 - the property is worth more as conversion bait to a different use
3 - the property is worth more as land value (arguably, less the cost-to-cure to make return it to vacant condition).

If the property is worth more in its current use then THAT value will represent the property's MV and those are the comps we're looking for.

So with the excess lot that's the question - if it's worth more in its current use as additional lot area to the improved parcel then that's the HBU for that parcel. If it's worth more if sold off individually to a different buyer then that's the HBU. There are no existing improvements to convert so that alternative doesn't apply.

As always, the definition of MV includes the explicit assumption of a hypothetical sale as of the date.

We also sometimes overlook marketability and supply/demand issues. What is the current value of this parcel if nobody is buying such parcels at this time? We can come up with a number, but can we actually expect it to sell within a reasonable exposure time as of the date, or a reasonable marketing time into the future? If the typical marketing time (relative to the eff date) for a particular property type is measured in years instead of weeks we might have to consider the effects on value of the market conditions that may change during the interim. As a buyer you may be looking to what you think the value of the flip will be in the future, not necessarily today.

I agree. However as JGrant has repeated, sometimes the highest and best use of a property is to "hold it". In that case, you would check "no" as many have indicated and explain. The loan can still go "in house". Many lenders love "in house" loans. FNMA may not. There is no way to put a stereotypical rule on it. No way. H&B use don't work that way. Can still do a "hypothetical" and make it work. Fannie won't like "no" or the "hypothetical". But both are curable.

 

[alebrewer]

I agree. However as JGrant has repeated, sometimes the highest and best use of a property is to "hold it". In that case, you would check "no" as many have indicated and explain. The loan can still go "in house". Many lenders love "in house" loans. FNMA may not.

I could be wrong, but as soon as you check 'no', aren't you then estimating a value other than MV? And if so, I'd agree that some lenders may portfolio based on value in use, but I'd think most lenders would still want MV, even for port loans...

 

[George Hatch]

I think that is also the point of the FAQ - the appraiser has to make the determination of whether the vacant lot is worth more in it's configuration with the improved parcel, or whether it's worth more sold off individually.

That's what I think, too. The way I read it "appraiser developing their opinion" is the thing. "What the client wants" is an assignment condition that can be fall under the category of reasonable vs unreasonable, but in no case would client instructions be considered one of the elements of an HBU analysis. Sure, a client can ask for a value in use, and an appraiser can provide that value in use without a problem, but it would be a mistake for that appraiser to proceed to call that the mv because it isn't.

There are so many parallels to the house-n-five; subject parcel is 40 acres but the client only wants a value on the house-n-5 acres because they don't do land values. That's not an unreasonable question to ask or to answer, but the answer to that question does not represent the mv for the property rights appraised in their current condition.

 

[George Hatch]

I agree. However as JGrant has repeated, sometimes the highest and best use of a property is to "hold it". In that case, you would check "no" as many have indicated and explain. The loan can still go "in house". Many lenders love "in house" loans. FNMA may not. There is no way to put a stereotypical rule on it. No way. H&B use don't work that way.

Again, the definition of mv includes an explicit assumption of a hypothetical sale as of the date to the typical buyer. It does not make any reference to what the current owner is actually doing with that property.

Vacant parcels *commonly* get bought and sold without anybody building anything on them. Whether someone intends to start building is not one of the elements of an HBU analysis.