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Interestingly most construction loans are not "prospective" in reality. They are as if built on the day of the appraisal already and hence are a hypothetical. However, if prospective and assumes that the building is built as of Dec. 10, 2022, then it would not be contrary to what (will) exist then, so is an extraordinary assumption.
He has already accepted a potentially untenable assignment condition. He can't just ignore his client's requirement to treat the building as though it has no value without a hypothetical if it does have value, which he understandably wants to avoid.
Ah, exactly right. I know this is wandering close to off-topic but have been in this situation and there were times I just wanted out. Since the assignment condition might not be acceptable now that he's discovered it isn't a valid one without a change in scope, could he retrospectively decline the assignment if the client won't budge? And, is he due a fee? I wouldn't want to create bad blood with a steady client, but in this case they have misrepresented the assignment.
I’d guess the misrepresentation wasn’t intentional - the borrower or loan officer probably told the appraisal “orderer” that the building had no value, so all the preliminary underwriting was done with that assumption. When the appraiser got out there, he saw something different. The scope needs to change - whether there’s an additional fee is a business decision. Providing an additional value may be a simple as adding a couple of paragraphs or it could be a lot more involved.
It is truly amazing at the number of lenders that don’t have a good grasp of , or want to ignore, the IAEG. I would think some dialogue with the client and quote their regulations to them, assuming they are a regulated lender, they would understand what must be done for compliance.
Again the Q & A is clear. The appraiser can value a portion of the property and other than acknowledging the existence and impact of that space, not include it in the value. I get this all the time in rural areas where the lender wants the land value but doesn't want the value of a manufactured home that is there. And the reason is that they don't have a loan on the MH, it is often financed via the seller of the Manf. home. They have the note on the land only and want the value of the land only. Again, it is not a hypothetical. It is not contrary to what is there.
How confident in your HBU are you? If the owner thinks that mini-storage will generate more revenue and will create consistency of use, then I would be careful simply dismissing the idea. The building could be in great physical condition, but the opportunity cost may result in it having outlived its economic life.
I agree with what you are saying in your scenario, but the comparison is not correct. You cannot simply ignore a permanently affixed industrial building located on the subject site without analyzing the highest and best use. If it has outlived its useful life, you handle it like Michael mentioned. If not, then the value would be subject to a hypothetical condition.