Hypothetical Condition

[heelsfan]

I am working on an appraisal for a bank in which the builder purchased a lot in November that has since been subdivided into three lots. However, the bank wants the current value of the single parcel that was purchased in November. Can I complete the report based on a hypothetical condition that the lot was not subdivided? Thank you all in advance for your input.

 

[Terrel L. Shields]

Well, it is contrary to what exists assuming you are valuing it as of the date today. If you are doing a date in November, then it wasn't contrary to what existed as of the date of appraisals. You might mention that it will impact the value in the future or some such.

 

[KHS445]

Be sure to mention in your highest and best use analysis’ (if true) that dividing the lot as done by the current owner results in a greater market value that the value of the subject as a single unit. But based on a client imposed condition you have valued the land as a single unit.

 

[J Grant]

The subject as a single unit had the potential to be subdivided, which added to its value - yes to a HC sounds like the way to go.

 

[heelsfan]

Thank y'all!

 

[sputnam]

I am working on an appraisal for a bank in which the builder purchased a lot in November that has since been subdivided into three lots. However, the bank wants the current value of the single parcel that was purchased in November. Can I complete the report based on a hypothetical condition that the lot was not subdivided? Thank you all in advance for your input.

Two approaches... 1 - yes. 2- retrospective appraisal with the effective date before it was subdivided.

 

[BRCJR]

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.

 

[Tom D]

Does the lender want the value today as if the lot could be subdivided, or a retrospective date before subdivision. The previous single lot, was it or not, approved to be subdivided with plans intact at it's 1st purchase. If the builder took the risk of subdividing it when he bought it, and then went thru all the work to subdivide it, then it should be worth more today, but not yesterday. However, the single parcel has already been subdivided, why not the added value of those 3 parcels together. The question is, was there any subdivision plans done before the last purchase. Or was the builder taking a gamble that it could be subdivided.

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.

 

[Zoe]

Is the land developed on any of the three lots? Regardless, the bank may wanting to sell the current lots individually. Your effective date will be huge factor how you handle it. If your effective date was before the land was subdivided or has development occurred on a single divided lot in current recorded documents. You basically have two or more separate real property rights you are appraising. What is intended use of the appraisal? What is value definition? What is effective date?

 

[Zoe]

I really can't picture your bank wanting the lots back combined that were separated. I can't picture why. I don't know. Some surveyor had to subdivide it for a reason.

I may be missing something in the picture. Very possible. I am confused. I could solve the bank's problem with me setting SOW based on why they need the appraisal and/or appraisal(s). The real property rights are different.