Hypothetical Condition

[Zoe]

Let's assume there was a MV definition appraisal performed on subject property before it was subdivided and MV appraisal determined H&B use was subdivided per plans and specs.

Subject has subsequently been subdivided per plans and specs. See how confusing that is when bank wants me to do it as if it was never subdivided? What effective date is going to be the appraisal? Concurrent or retrospective effective date?

 

[Surf Cat]

In some sense it doesn't make sense with what they want. Unless they need an appraisal for the previous purchase. It still makes no sense to me, since there are now 3 separate sellable parcels for which i assume they will be lending on to do whatever. Lender, don't give me the current improved value, give me the old purchased value. I don't understand on this one the thinking.

I agree with this....

It kind of seems like a subject to plans and specs appraisal where the lender also wants the current, as is value, of the old dwelling that's going to be razed.

The OP's report surely has the previous purchase of the lot prior to subdividing since it's within the last 3 years....doesn't make sense.

 

[BRCJR]

If the H&BU was for subdivision the comps in the original appraisal should have been tracts with the same potential. If not, is the original opinion credible?

 

[shrubberyvaluation]

So, if the highest and best use is to subdivide how do you not appraise the property to the highest and best use?

Would multiple values need to be opined?

One as a whole, per the client request, with a retrospective date. Then one as an aggregate of three lots? How else do we determine the H&BU?

Excerpts from IAEG:

The appraiser’s scope of work should be consistent with the extent of the research and analyses employed for similar property types, market conditions, and transactions. Therefore, an institution should be cautious in limiting the scope of the appraiser’s inspection, research, or other information used to determine the property’s condition and relevant market factors, which could affect the credibility of the appraisal.

The estimate of market value should consider the real property’s actual physical condition, use, and zoning as of the effective date of the appraiser’s opinion of value.

An institution should understand the real property’s “as is” market value and should consider the prospective market value that corresponds to the credit decision and the phase of the project being funded, if applicable.



Other values may be provided, but lenders are REQUIRED to obtain "as is" values.

Just something to think about.

Highest and best use is not needed for all values, it is needed for market value.

OP doesn't specify what type of value.

 

[shrubberyvaluation]

If the H&BU was for subdivision the comps in the original appraisal should have been tracts with the same potential. If not, is the original opinion credible?

Depends on the type of value.

 

[BRCJR]

Depends on the type of value.

PO stated: "I am working on an appraisal for a bank"

Federal laws states:

An institution should understand the real property’s “as is” market value and should consider the prospective market value that corresponds to the credit decision and the phase of the project being funded, if applicable.

So, if the "as is" market value is for a tract that has potential to be subdivided should not the comps be of the same or very similar character?

10 acres of a vacant tract, with no demand for division, should appraise for a different value than a tract that does have that demand. (?)

If comparing a tract with subdivision demand against one without, considering them basically equal, will probably yield different values.

 

[Zoe]

If the H&BU was for subdivision the comps in the original appraisal should have been tracts with the same potential. If not, is the original opinion credible?

You would have to do H&B use analysis for "as is" before subdivided and "subject to completion per plans and specs" to determine which value was highest. You could possibly and woud probably have to do discounted cash flow on the lots after the division is made. Cost approach is really irrelative on MV appraisal in that situation. It is only comparing the lot "as is" based on similar sales vs the value of the 3 lots sold based on similar sales considering discounted cash flow analysis. You can get cost estimates to complete the subdivision, but it is really irrelative in the final opinion of value on MV appraisal on "subject to plans and specs". If the lots will already have some site improvements, then you would want comparable sites with similar site improvements for comparison. You may have to make adjustments there in order to complete discounted cash flow analysis per plans and specs.

 

[Zoe]

You could use cost estimates on differences between similar developed lots. Like if one already had sewer hookups, or similar hookups or site improvements and subject won't or subject will and the comparables don't. But cost approach doesn't matter other than comparison to other sold lots. All the weight is put on sales comparison and income cap approaches to value. It is all that is needed for H&B use analysis "as is" vs "subject to".

 

[Zoe]

Yes, a hypothetical condition would be used on subject to. Same would apply if you were reversing what is already done. Terrel explained that well.

You are appraising different property rights in H&B use analysis. You are not setting those property rights. You are basing your opinion of H&B use analysis based on the property rights you are appraising. You could reverse what is already done and explain that the H&B use of the property "as is" is higher than the MV value of the subject property "as if it is combined again". These are the results of each. Either one is a hypothetical condition that does not exist at the time of the appraisal. If you change the effective date, it would change things.

That is why it is confusing why a bank would want that performed. It makes no sense to me. Maybe if Walmart wants to buy all three lots for commerical use other than residential use. I don't understand.

 

[BRCJR]

You would have to do H&B use analysis for "as is" before subdivided and "subject to completion per plans and specs" to determine which value was highest. You could possibly and woud probably have to do discounted cash flow on the lots after the division is made. Cost approach is really irrelative on MV appraisal in that situation. It is only comparing the lot "as is" based on similar sales vs the value of the 3 lots sold based on similar sales considering discounted cash flow analysis. You can get cost estimates to complete the subdivision, but it is really irrelative in the final opinion of value on MV appraisal on "subject to plans and specs". If the lots will already have some site improvements, then you would want comparable sites with similar site improvements for comparison. You may have to make adjustments there in order to complete discounted cash flow analysis per plans and specs.

There is no requirement for DCFA on less than five lots. You could simply comply with federal law by using the aggregate value of the three lots in this case.