Land appraisal revision

[Mark K]

This appraisal is made with the lender imposed Hypothetical Condition that the subject's on site private well does not exist.

You could appraise either a segment or use a hypothetical condition. For the sake of expediency, I would do it as above.

The argument over whether or not the Well is considered an improvement is not worth fighting over.

 

[Terrel L. Shields]

Actually my E&O said it was a business decision.

The lender responded through the AMC:

“For all our land appraisal orders the appraisal must support land value only. No value should be given to any structure or improvements. Per the assignment conditions: If the subject has any improvements, appraiser to use a hypothetical condition that those improvements do not exist on the property (report would be completed “subject to” that hypothetical condition). Can we please get the revised report back today”

So apparently I need to revise the as is appraisal to a report with a hypothetical condition that the well does not exist. I am not sure what to make the report “subject to” to.

Any guidance?

Secondary market or AIG world? Under ordinary non-conforming conventional loan, you MUST provide an "AS IS" value in addition to any other value. So, you can must provide AS IS value. Keep the as is if a regulated bank. And provide the bare land value as a separate value. Make it plain that you are doing an HC. CONTRARY TO WHAT EXISTS.

 

[Tom4value]

You need to revisit the meaning of “hypothetical condition.” Your last two posts are exactly backward. USPAP actually allows you to appraise a physical segment of a property without invoking a hypothetical condition.

I think you are misunderstanding me. Please elaborate because I don’t know where you think I am wrong.

 

[JTip]

H&BU is going to make you explore utilities in physically possible. A $5,000 tap fee is a lot cheaper than $30k well, and surely affects the value. I wouldn't use public utilities comparables for on site subject unless you knew the adjustment, which beaver does. Same subdivision is icing on the cake.

QC passed, release the payment.

 

[Terrel L. Shields]

A $5,000 tap fee is a lot cheaper than $30k well,

And a lot more expensive that a $3,000 well and we have a lot of wells here that are quite shallow. My own well many years ago cost $1,300 which would be about $4,000 today. And the monthly bill equals a lot more in 5 years than the typical repair for same. Electricity? Not much.

I don’t know where you think I am wrong.

You're not. A physical segment can be appraised. But secondary market is not going to accept an HC most times. And they don't want EAs either. So, the bank and loan program dictates the use of HC and EAs.

 

[sputnam]

Then the only way is to condition for its removal or rendering it inoperable and factor the cost from the value.

You CANNOT say it doesn’t exist. It does and to say otherwise is misleading, not an hypothetical condition and a violation of USPAP. That is the same as in the “old days” of lenders wanting to say that you are only to appraise up to 5 acres of a large lot. You could appraise just the 5 acres but you couldn’t say the excess land doesn’t exist.

Right. The valuation itself would be a land appraisal. The appraisal report would describe improvements that actually exist and then, say that at Client request, the improvments are not included in the valuation.

 

[Mark K]

You're not. A physical segment can be appraised. But secondary market is not going to accept an HC most times. And they don't want EAs either. So, the bank and loan program dictates the use of HC and EAs.

Any lot appraisals I've done have been for local lenders, in-house/portfolio loans, no F/F or secondary market so if they say to use a HC, do it.

The only issue in this thread that I see as problematic is the discussion/argument over whether or not the well is considered an improvement. In my work, I've always separated out Land, Improvements, and Land Improvements. I would consider the well a land improvement but since the engagement letter didn't specify and the lender later states that they consider a well an 'improvement', do as they ask and move on. Not a hill worth fighting over.

 

[Andy Taylor]

When/if you remove the value for the well thus reducing the appraised value of the lot under the contract price they will then want you to add it back in to make their deal work.

Then you hit'em with, "Um yeah, that changes the scope of your original engagement letter which will require a new appraisal and um a new fee."

 

[George Hatch]

I wouldn't do it. Not for a loan decision. The casual reader will see an address and a value conclusion based on the definition of MV. Yeah, you can appraise a physical segment but there's no good reason for trying to figure out the value of what amounts to a hypothetical that effectively cannot convey as such in the hypothetical sales transaction as of that date. Nor for a mortgage decision, anyway.

If I was to entertain doing a [land value excluding well] then I'd do two values; one without as requested and a 2nd value relating to how the property would typically sell in the market. Let the reader decide which makes sense to their usage.

 

[sputnam]

Any lot appraisals I've done have been for local lenders, in-house/portfolio loans, no F/F or secondary market so if they say to use a HC, do it.

The only issue in this thread that I see as problematic is the discussion/argument over whether or not the well is considered an improvement. In my work, I've always separated out Land, Improvements, and Land Improvements. I would consider the well a land improvement but since the engagement letter didn't specify and the lender later states that they consider a well an 'improvement', do as they ask and move on. Not a hill worth fighting over.

Okay... but try reading AO-23 and FAQ-192.