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Hypothetical conditions

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FRANK JONES

Thread Starter
Freshman Member
Joined
Jul 30, 2002
Please help.
House has five acres of land, lender wants us to use just one acre with a hypothetical condition.
Can we do this, is it USPAP complient.?
It is my understanding that we have to be able to identify the actual land that we are appraising.
Does each State have different rules on this, or are all states the same.
We are in Tennessee
 

Judy Whitehead (Florida)

Senior Member
Joined
Jan 20, 2002
Professional Status
Certified Residential Appraiser
State
Florida
We have been through this before - you may find some of it on another thread. My opinion is that Yes, you can appraise the house on one acre, (subject to it being legally permissable to split the property) but you do have to have that "one" acre identified for you - in other words, what size is it, (lot dimensions) does it front on the road, or would there have to be a "hypothetical" easement to it, etc. An acre of land could be approximately 200x200 or 100x400, or whatever....it could make a difference on the site value with the dimensions, road frontage, etc.

Also the zoning on the property would have to permit the residence having only one acre of property. I had a similar request this week and suggested to the owner that he perhaps needed to get a survey first, so that we (meaning I) would know exactly what I was appraising.

Then you would simply address the issue by stating that the site for the subject is presently five acres (and the property taxes will include the whole 5 acres) and that you are appraising the property per the lender's request as if it were one acre only. I sure hope the borrowers are not encumbering the entire five acres.

As far as different rules, USPAP covers us all - coast to coast. If you do the appraisal without a survey, you had better write an entire book of disclaimers and explain everything fully - in fact you had better write a book anyway! :lol:
 

Jeff Horton

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Alabama
I have done many of these and what I do is identify somewhere in the addenda the original tracts legal and plat and state the facts. That there is 5 acres and the appraisal is based on the house and one acre. That the house is on the one acre :) I make my appraisal (and value) conditional on a survey and legal description of the 1 acre tract.

My feeling is this is just another hypothetical situation. No different than appraising a house from house plans. We never hesitate to appraise a house we can't see.

I have yet to ever have seen a survey or be asked to go back on one of these. As far as i am concerned my appraisal is not any good because they never meet my conditions. Might not hold up in court thought. :)
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
There have been a couple of threads on this. The problem arises when the borrower looks at the report and thinks that the (lower) hypothetical value is the appraiser's opinion for the value of the property as a whole. This, because they really don't know what 'hypothetical' means in an appraisal report. Most lenders can't seem to figure it out, either. It can be very misleading if you don't handle it well.

There is no problem doing this as long as it's very clear all the way through the report that it's a situation that does not actually exist at this time. Easiest way I know of to remove all doubt is to report the resulting value as a hypothetical and then also include an "As Is" value, which is the true and correct value for the property if sold today. You should stick the "As Is" value in the Reconciliation section or Comments section, same place where you notify your reader that your hypothetical is based on a condition that does not actually exist at this time. Don't just bury this in one of your addenda pages because many reviewers don't seem to get those pages when they're doing a review.

It may seem like more work to add an "As Is" value to your report, but it will probably only take you an extra 10 minutes if you handle it up front. That's nothing when compared to how long it will take you to answer questions later on in the event that someone in your client's office or your borrower is smart enough to understand what the word "Hypothetical" means in an appraisal.

George Hatch
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
I have yet to ever have seen a survey or be asked to go back on one of these.

Jeff, that is because the 1 acre is a silly lender requirement. Betcha when they did the loan and recorded the security deed, it included the whole 5 acres. Just extra collateral, :wink: seen this soooo many times before.

I have lots of fun with those west coast lenders sometimes, and we go round and round about their silly land requirements. In some areas, 1 acre is a horribly undersized lot that would need a not so nice adjustment. Then they would complain about the 25% net ratio thing. :roll: :lol:
 

FRANK JONES

Thread Starter
Freshman Member
Joined
Jul 30, 2002
Thanks for your replies, i appreciate your input.
I guess my main concern is identifying the acreage for the hypothetical condition.
I have no problem making the hypothetical condition, but how do i satisfactorally identify which acre i should include. Can this only be done with a survey, or can it be done by a verbal identification (i.e 'the land to the left of the house'.)
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
Use photos, general description, tax maps, whatever. Making a legal description or lot boundaries is NOT our job. I generally will take photos of the house and land around the improvements, then tell 'em to call a surveyor.
 

wyecoyote

Senior Member
Joined
Jan 15, 2002
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Washington
M Legget,

Suprised you say that it is a West Coast thing. Most conditions that I receive are from the east coast. Oh well they must send the west coast appraisals to the east coast and vice versa.

Ryan

P.S.

Have yet to have a lender request house on 1 acre only. Been a long times since I received the request for a house on 5 acres only come to think of it.
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
With how they goble up (I mean buy out) each other, I am not sure many true regional banks exist anymore.

It use to be that anytime I got a crazy request, it comes from WF or C-wide on the west side. I guess that I forgot about BOA, in NY, when posting. :wink: They are the pits. :x
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Yes, Frank, identification of that exact and clearly-defined one lonely acre is quite an important thing to consider. My last time dealing with the (excess) land issue involved mfd's on 35 acres and I had 3 absolutely perfect manufactured comps, all on 35 acres, all within 100sf of each living area and none had a garage structure. Client wanted 5-acre comps which in my market is much closer to the blacktop and the suburbs and priced differently. I gave the client data of recent vacant 35-acre sales and current listings and they all had very consistent $/acre pricing. I completed the report with my 35-acre comps and suggested the reader apply whatever calculation they needed to (take dollars away) make their adjustments upon the subject. Never heard one peep from them in the days following sending the report. Same approach may help you here. Give them land price data and let them "do their math". --- P.S. , It is hard to imagine that these U/W's have not dealt with these situations before and my client then was from Chicago area.
 
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