Fannie Mae's New Highest and Best Use 2020

[Mark K]

...What does "it" mean to you, in the above ??

The excess land or additional site that should be appraised separately based on its own merits.

 

[J Grant]

The excess land or additional site that should be appraised separately based on its own merits.

The above "The excess land or additional site that should be appraised separately based on its own merits"

Does that mean. in your opinion the excess lot can not be appraised together as sold with an improvement - which means the appraisal assignment can not be done .

Or does it mean that within the appraisal assignment, a SOW component of would be to develop an additional MVO for the excess lot sold alone?

 

[Mark K]

Or does it mean that within the appraisal assignment, a SOW component of would be to develop an additional MVO for the excess lot.

This^

However,

Does that mean. in your opinion the excess lot can not be appraised together as sold with an improvement - which means the appraisal assignment can not be done .

It means that there's nothing wrong with including two appraisals within one report with each appraisal having its own HBU analysis.

Unless F/F says its wrong for their use, in which case, the appraiser has to make the call whether to follow Fannie guidelines or USPAP, specifically that part about misleading reports.

I think there's a lot of appraisers that will blindly follow Fannies dictates and ignore USPAP. A business/financial decision that may someday come back to haunt them.

 

[Carnivore]

The excess land or additional site that should be appraised separately based on its own merits.

Not sure I understand your comment. In one of these types of assignments, I do agree that you need to know the Individual Site values. In examples that have been give the commonest one is both sites are similar and these two Sites have legal Descriptions and the dimensions. These same examples all had the same HBU. Simply SFR. For example I have come across random sites that were literally almost worth nothing except maybe to the adjacent owners. They were easily identified as surplus land. If the site had road access a zoning variance would be needed or if it needed a right of way also that can be difficult. In my state you can't purposely land lock a neighbor.

The Bottom line is these assignments that come through the AMC Surrogates are not going to be cheap, nor are they going to be fast.

 

[George Hatch]

The value conclusion goes with the property rights appraised. That either represents the appraiser's true opinion of what both parcels are worth in the market or it doesn't.

If the appraiser winds up with an unreasonable conclusion then "the client made me do it" will not comprise a defensible position. That same client will usually be the first party to throw the appraiser under the bus. They're certainly not going to step to the defense of appraisers who get caught calling the MV $300k when the data exists that clearly show it to be $330k.

 

[J Grant]

This^
However,

It means that there's nothing wrong with including two appraisals within one report with each appraisal having its own HBU analysis.
Unless F/F says its wrong for their use, in which case, the appraiser has to make the call whether to follow Fannie guidelines or USPAP, specifically that part about misleading reports.
I think there's a lot of appraisers that will blindly follow Fannies dictates and ignore USPAP. A business/financial decision that may someday come back to haunt them.

Not arguing the point, just expanding on it...
Folks are focused on the site/lot alone value. What about the house ? Does the report needs 3 appraisals -? First we all need to agree subject of assignments is a MVO for a house and a lot together::

1) CLIENT ordered appraisal MVO for the house on its site together with the excess lot
SOW appraiser a second MVO for house on its site alone
SOW appraiser a third MVO of excess lot alone.

The real challenge of these assignments is finding market upport for the two sold together $ value. Though tedious, it is straightforward to develop a value for the house alone and for the lot alone.

Client Assignment : Market value opinion of # 31 Cherry Street (house ) sold together with excess lot # 32 Cherry Street.

Appraiser opines a MV for # 31 Cherry St of $200,000 and a MVO # 32 Cherry St MVO of $60,000.
Is the combined two worth $260,000??

Appraisal practice cites not adding the components for a total. However, if market shows it is worth $260,000. then it is . Or market can show $270,000, or $240,000, ( etc.) If there is a purchase contract we have that buyer/seller price support for a market reaction. If no sale contract it's harder- either way one tries to find similar house plus lot sales in area and if none a tougher job .

 

[George Hatch]

We've been through this a dozen times already. Inasmuch as an "appraisal" is an opinion of value, and an "appraisal report" can include many opinions of value, then yes, 3 "appraisals" in the same appraisal report is definitely going to be appropriate in some cases.

Just because an appraiser is having trouble finding direct comparables that are current doesn't justify skipping the analysis altogether - not when they can go back in time and/or use other combos in other market segments to at least look at whether or not there's a discount.

 

[George Hatch]

Appraiser opines a MV for # 31 Cherry St of $200,000 and a MVO # 32 Cherry St MVO of $60,000.​

Is the combined two worth $260,000??​

​

It can be. I've seen examples of that in the past. I've seen exampled where they have conveyed 2 separate transactions, the SFR getting financed one way and the extra being financed another way.

​

Appraisal practice cites not adding the components for a total. However, if market shows it is worth $260,000. then it is . Or market can show $270,000, or $240,000, ( etc.) If there is a purchase contract we have that buyer/seller price support for a market reaction. If no sale contract it's harder- either way one tries to find similar house plus lot sales in area and if none a tougher job .​

You're right, we don't assume that the sum of the individual values represents the value of the whole to a single buyer. Where the REAL problem lies is that unless you have direct comparables of other 2-lot sales to use in your SC the only other way to get to a discounted value for the assemblage is to first identify the retail values of each and then identify the applicable discount or bonus factor - if any - that will be applicable.

Which brings up another point that people seem to be missing. Just as it's possible for the value of the whole to be less than the sum of the retail values of its parts, it's ALSO possible for the value of the whole to be more than the sum of its parts. And the reason people are missing that possibility is because they're working on "the client says " instead of operating on principle.

 

[George Hatch]

If you don't believe me, here's a recent example. Vacant industrial-zoned properties out in the western Riverside and San Bernardino County areas are sometimes worth more on a price/sf basis if they're larger in size - think 10+acres as opposed to 1 Acre. That's because there's demand to build the big distribution centers with buildings of 4+acres under roof. As a consequence, I've seen a number of examples where an investor bought a bunch of small parcels at a collectively lower price in order to result in a new multi-acre parcel that was worth more that the sum of its parts. Sure, that's not an SFR example but it demonstrates the principle that's involved with the valuation of assemblages.

It's not that it WILL go one way or the other all the time, but that it CAN go differently in different situations. That's what makes the use of a knee-jerk or a directed assumption (Fannie says) a bad plan.

 

[adventure0us1]

The way I addressed it in the reports I did was along lines of :

" The subject consists of a site and house improvement , 32 Cherry St, together with an adjacent vacant lot, 31 Cherry St. The vacant lot is excess land and buildable. It can have its own HBU as a buildable lot. However, demand at present time seems low for purchasing the lot for that purpose, it has been vacant for years and no indication of offers to buy it per RE agent. The vacant lot acts as a contributory value to the whole and has an interim use of providing additional yard area and green /privacy or to retain for investment purpose "

The HBU checkbox on page one checked YES as improved because the improvement contributed more value than tearing down would have . If it had been reverse, the improvement contributed such a low value that tearing it down for vacant site and lot , then the answer on page one would have been NO.

I am working on one right now with a similar situation except the extra lot is buildable, it's very proximate to the ocean, any available land (which is scarce) is being developed with residential improvements, some older homes are being bought for teardowns. I have a similar sized lot on the subject's street with similar zoning that recently sold for $425,000. The added value of this 1/3 acre lot if combined with the improved 1-acre lot won't be anywhere near $425,000. These are being sold together and the bank wants to be appraised together.

In this case, can I check Yes to HBU on page 1 of the URAR?