I Need Guidance...probably A Newbie Question

[Neil Anderson]

So is the lender planning to wrap one mortgage on both parcels? What they may be looking for is a hypothetical in which the lots are assumed to be assembled. In any case, you need to clarify the assignment with the client.

 

[Richard Carlsen]

Thank you Richard for your reply. If I do what you suggest, the value will be significantly LOWER than if I appraise them separately. This is a PUD, and both lots are lakefront. Blah, Blah, Blah....house on .75 acre = $420,000ish...house on 1.5 acres = $450,000ish.... 3/4 acre lake lot= $60,000ish. I can't give the separate lot $60k, when it only contributes $30k when included to make one parcel, right?

Doug

If the site to be appraised consists of two separate but contiguous lots, one of which is improved with a house and one which is vacant but able to be improved, IMO and the way I do it, you will have to value each site and add the values together to get the site value as a whole. Since the additional lot can be built upon, it has to a contributory value that is based on what it's own market value is. There are those who will argue that in the theoretical combining the lots into one site takes away the ability to do this but that is not true. Since it is a PUD and therefore plated, each lot has it's own legal description. The joining of the two lots would only be for tax purposes and mortgage purposes. Joining lots for tax purposes can be undone at any time. We do not worry about mortgage purposes in appraising since we value properties assuming fee simple estate with no encumbrances.

When you do the site values this way, you may find that in fact, that the HO was very nearly right in his estimate of value.

 

[Edd Gillespie]

Originally posted by Richard Carlsen@Mar 4 2005, 06:47 AM
The joining of the two lots would only be for tax purposes and mortgage purposes. Joining lots for tax purposes can be undone at any time.

Not where I live. Once joined they cannot be put asunder.
I understand that the two sites separate are more valuable than the two joined-seems good practice to do two appraisals to me. Let the bank mortgage both if they want. Happens here all the time(well a lot of the time)-one mortgage covers multiple properties. Its a headache for everybody incolced in the loan, but that't your problem. Your instinct is correct-you can do two appraisals-if you cause it to be combined-hypothetically or otherwise-your ignoring the H&BU and most likely hurting the borrower's financial portfpolio-although the H&BU is your real concern and you say it says H&BU is as separate.

 

[Steve Owen]

the way I do it, you will have to value each site and add the values together to get the site value as a whole. Since the additional lot can be built upon, it has to a contributory value that is based on what it's own market value is. There are those who will argue that in the theoretical combining the lots into one site takes away the ability to do this but that is not true.

The question is really whether buyers in the market would pay the same price for the combined lot as they would for an individual lot (times 2). The answer depends on your market, but probably not.

To simply add the two values together is clearly a violation of USPAP Std 4-2(e). I got dinged on it once when I was very much younger, so I know.

It is possible that the value of the lot as a whole may indeed be equal to the value of two separate lots added together. What USPAP is saying is that you have to test that with appropriate market information. The one thing you definitely cannot do, however, is to simply value each of the two lots separately and add the two values together, expressing that as the value of the combined property.

 

[Elliott]

Are lenders lending on separate buildable lots and
wrapping them with a conventional mortgage? Will
they lend on a house with two buildable lots adjacent?

I thought the federal standard was lending on one single family home
that has a larger than standard lot.

elliott

 

[George Hatch]

The market value is based on the HBU. The market value of the assemblage is probably different (lower) than it is for the two components. The only reason they're even trying to wrap the lot in with the improved parcel lies in their loan progam. The loan programs for vacant lots typically max out at about 50% LTV, and not every lender will even make a loan on a vacant lot.


I say you tell it like it is and make two separate appraisals, the results of which will represent the market value for each property; and then let the lender do their job in making their own decisions. The bonus of this approach is that if the lender does include the vacant lot in their loan, having the separate appraisals in the loan file will make it easier to release their encumbrance on one of the components later on down the line.

 

[Edd Gillespie]

Thanks George. You have a very well developed ability to spot issues and provide very clear and understandable answers to questions. Specially when I agree with you. I just said the last so you wouldn't get the big head. Thanks, really.

 

[Mike Boyd]

everyone seems to have the same general theory. However, let's not forget that this is LAKEFRONT property. Typically, in my market area, the value of waterfront property lies in the length of the frontage along that body of water. Houses cramped together on, say, 50 feet of waterfront would have considerably less appeal than one on 100 feet of waterfront.

I don't think that you would adjust in the same manner for waterfront as you would for an ordinary lot. You would not adjust for overall size but for frontage and you might also adjust for appeal.

Mike