Highest and Best Use question, please

[Mary Tiernan]

yup - rural area - lakefront lots are all this size, some with 1/2 of an additional lot, some with less than 30' within past 5 years.

 

[c w d]

Which is one question I had - can I do it for the lender with two parcels under one report, when the separate parcel's highest and best use is vacant land?

You don't need two separate reports though you will need to include additional analysis in your report to demonstrate how you arrived at your site adjustments. You could do two reports as is suggested but I don't think it's necessary.

You'll make the report subject to a hypothetical condition: the combination of the two 50' parcels into 100' front footage parcels.

 

[Rick Neighbors]

Lots

You might want to also review the definitions of surplus versus excess land.

Rick

 

[PropertyEconomics]

What about HBU means you can't appraise a property as a client wants it appraised? The tests required for HBU allows the appraiser to determine what would produce the highest value of a property. It does not mean that is the only use of the property. You are being asked to appraise the property for a specific use. The loss of potential value between the best use and another use should be determinable through market analysis. You've already mentioned the typical property is 50' frontage. You also mentioned there are other properties of 75' front footage. Compare the two and determine a loss of value per unit measurement. Then you should be able to apply that to your subject property as defined by your client. Then caveat the appraisal appropriately so that the reader understands. Or do I not correctly understand your conundrum?

The client request does not meet the test of maximally productive use of the site. Its not the highest and best use of the site as you have noted.
I further dont think it meets the definition of market value but most probably "investment value" and would certainly require a hypothetical condition as it is contrary to that which exists.
I would never recommend, nor have my client make me require, combination of two lots which will result in a lower value of the subject property. Its a good way to be sued, no matter what the client or the owner tells you.
The really interesting issue is that the property and collateral is worth more as two parcels and not one. And isnt that the true issue at hand? I think the question is answered on that basis alone.

 

[c w d]

The client request does not meet the test of maximally productive use of the site. Its not the highest and best use of the site as you have noted.
I further dont think it meets the definition of market value but most probably "investment value" and would certainly require a hypothetical condition as it is contrary to that which exists.
I would never recommend, nor have my client make me require, combination of two lots which will result in a lower value of the subject property. Its a good way to be sued, no matter what the client or the owner tells you.
The really interesting issue is that the property and collateral is worth more as two parcels and not one. And isnt that the true issue at hand? I think the question is answered on that basis alone.

It wasn't my intent to determine what is best for someone else's client. I was only pointing out that the property can be appraised any way the client wants it. USPAP compliance is, of course, implied in my statements. While the two parcels are most probably worth more than combined it is well within the realm of acceptable practices to provide an opinion of value based on their combination if a client so choses to know such. The client doesn't make the appraiser do anything. But, it is the appraiser's responsibility to provide what the client is asking for. The client may have specific needs to know such a value of a combined property. The client may already understand the phenomenon of larger parcel/lower value. Or if they don't, the HBU analysis will inform them. To conduct the appraisal in a manner that contradicts the client's needs is a good way to get sued. Again, I must state, as I feel it will crop up, all of my comments imply, of course, USPAP compliance.

 

[PropertyEconomics]

It wasn't my intent to determine what is best for someone else's client. I was only pointing out that the property can be appraised any way the client wants it. USPAP compliance is, of course, implied in my statements. While the two parcels are most probably worth more than combined it is well within the realm of acceptable practices to provide an opinion of value based on their combination if a client so choses to know such. The client doesn't make the appraiser do anything. But, it is the appraiser's responsibility to provide what the client is asking for. The client may have specific needs to know such a value of a combined property. The client may already understand the phenomenon of larger parcel/lower value. Or if they don't, the HBU analysis will inform them. To conduct the appraisal in a manner that contradicts the client's needs is a good way to get sued. Again, I must state, as I feel it will crop up, all of my comments imply, of course, USPAP compliance.

And you run the risk of the homeowner suing you at some point in the future for having "required" them to join the two lots. At some later date if they try to re-split them and its not possible and the homeowner realizes a loss in value ... guess who the attorney will be calling?
I personally think the client request is unreasonable and contrary to value, in which case, I would simply turn down the assignment. Remember, the first order was for one lot and the house only. That assignment is complete and fine per USPAP (lets assume). The second assignment ... Id simply walk away from.
Not that it cant be done, but perhaps it shouldnt be done.

I further agree with you that it can be done in one report. The land analysis should already be complete within the original report and a simple line adjustment for a second lot can be made with explaination as to the reasoning and need for the adjustment. The report will have two legal descriptions, but that also is not a violation of anything within USPAP, although it may be contrary to the lender requirements.

 

[c w d]

And you run the risk of the homeowner suing you at some point in the future for having "required" them to join the two lots. At some later date if they try to re-split them and its not possible and the homeowner realizes a loss in value ... guess who the attorney will be calling?
I personally think the client request is unreasonable and contrary to value, in which case, I would simply turn down the assignment. Remember, the first order was for one lot and the house only. That assignment is complete and fine per USPAP (lets assume). The second assignment ... Id simply walk away from.
Not that it cant be done, but perhaps it shouldnt be done.

“Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering.”

Last time I checked an appraisal wasn't binding. Why would the owner be required to join the lots because of an opinion based on a hypothetical condition? That's a rhetorical question. I don't require an answer to it.

It is not our responsibility to contradict the client's needs. And at this point we really don't know what their needs are. Nor is it our responsibility to know. Nor is it our business to question the client's ultimate reasoning for such a request. I certainly think it would be a good idea to discuss it with the client. Even that, though, is giving away your opinion of HBU for free. Still, it would be best to inform the client. But, ultimately, it's not our responsibility except from within the report.

Is it a good way to get sued? I don't know. But, we have a chain of evidence to prove this is what the client asked for. As long as one does their job and gives the client what was asked, how are we liable? If the client "requires" the homeowner to combine the lots that is their liability. If in the future the homeowner sues because of a loss of value the HBU analysis along with the chain of evidence should lead the judge or jury to conclude the client was in error. Among other things, the report is going to tell the reader that the highest and best use of the property is different than the hypothetical condition the opinion of value is based on.