Land can be divided. Attorney says not so fast...

[Terrel L. Shields]

Estates are valued "as is". Period. What is it worth exactly like it is. Quit creating scenarios that are some future event. She will sell it and the next person divide it. It is not your job to second guess a future developers intentions.

 

[Delvec]

Appraising a 4.74 acre of land with two older homes on it. This is for an estate, with the mother just passing. Based on zoning it can be divided and sliced and diced with homes, a townhouse or condo complex. When she sells next year (she told me that is her plan), there is no doubt a developer will buy and do just that. I explained this to the attorney. He said she has to pay taxes on the value I come up with, so said can't it just be appraised as it sits now on a large acreage with two homes and not divide-able. Typically, everyone wants their values high, so this threw me. I don't believe I can do as a hypothetical assumption that it can't be divided, when in fact it can. There will be a huge difference of at least $500K+ if I appraise it as dividable or if I appraise as it can't be divided. Advise please.

Per Fannie Selling Guide section B4-1.3-04:
Site Analysis
The appraisal must include the actual size of the site and not a hypothetical portion of the site
for the subject property. For example, the appraiser may not appraise only 5 acres of an
unsubdivided 40–acre parcel. The appraised value must reflect the entire 40–acre parcel.

 

[J Grant]

Estates are valued "as is". Period. What is it worth exactly like it is. Quit creating scenarios that are some future event. She will sell it and the next person divide it. It is not your job to second guess a future developers intentions.

Today's effective date MV value is a hypothetical sale and if proper HBU, subject IS the same buyer as "the next person divide it"- THAT is buyer now, or 8 months from now - an informed buyer who buys property knowing it can be divided/built on more density.

I was just pointing out to the OP that since it is a tax/estate, the IRS could note if a subsequent sale shows an appraisal was under valued and based on that they missed out on taxes.

 

[CANative]

One of my first estate appraisals was a wide house that set over the property line. Everyone told me it must only be one site (two 50x100 lots). And I like a dope appraised it accordingly. A real estate broker snatched it up, went to the city, pleaded he could seg off a site with a tappered lot line adjustment and viola, he created a new site, built a new house on it and sold the old house too. Made me feel like a dope. Total violation of set-backs for fire safety which specified 5' on each side for both properties. Every time I drive by it, it looks like a fire trap that shouldn't have happened.

I've seen more cases where zoning created two lots when it looked like one than I care to count. Oregon actually just passed a law that re-zones all single family zones from one house to one house or a duplex (have you heard of the housing/rental shortage?). I once saw a 50 x 50 built on, then sold off that was with a 50x100 and a 50x50. So I've concluded, cities only care about tax revenue and they will let you build anything, anywhere, just so they get their taste.

Your situation even seems simpler.

I've been amazed at what a developer or land owner can creatively cook up with the planning department. But I don't think mere tax revenue is the sole reason for doing this. If there is a perceived benefit for the public and the proposed plan makes some sort of sense, they figure "who are we to deny it?"

Sometimes an appraiser it may be best to use "squishy" talk in an appraisal to avoid looking like a dumbazz or, worse, getting sued or causing harm.

 

[CANative]

Estates are valued "as is". Period. What is it worth exactly like it is. Quit creating scenarios that are some future event. She will sell it and the next person divide it. It is not your job to second guess a future developers intentions.

The issue though, is "what type of buyer" would purchase the property based on what is known about the property on the effective date of value?

 

[CANative]

Edit: quoted wrong poster.

 

[CANative]

Per Fannie Selling Guide section B4-1.3-04:
Site Analysis
The appraisal must include the actual size of the site and not a hypothetical portion of the site
for the subject property. For example, the appraiser may not appraise only 5 acres of an
unsubdivided 40–acre parcel. The appraised value must reflect the entire 40–acre parcel.

I don't think GSE lending is the intended use. And excess land, if any, is not hypothetical and can (and probably should) be valued separately. That is how HUD rolls and they have the same anti-house and five policy.

 

[J Grant]

The issue though, is "what type of buyer" would purchase the property based on what is known about the property on the effective date of value?

Agree. And MV is predicated around a well informed buyer . A well informed buyer would see the potential subdivision potential of the subject (HBU today) and thus pay more for it because of the potential that exists on today's effective date. And the seller in MV is also well informed, realizes that and charges accordingly ( The OP even says she plans to sell it later as a lot ripe for subdivision, she knows it is worth that now too ) The owner is aware it is worth high $ now but hopes it gets appraised for less so she/the estate can pay low taxes on it . Nice. Get hired to help her do tax evasion. Sure

This is not uncommon where an appraiser is hired to be a pawn with hope they will allow an attorney or other user/client tell them what how to do an appraisal so that it meets X agenda ( agenda of a higher or lower value or not disclose a known defect etc. ) There can be a moment of indecision before an appraiser realizes what is happening ...the BB can be a sounding board for that.

 

[glenn walker]

The Attorney ordered a Retrospective to date of death (DOD) "not a "Prospective Appraisal" based on any potential future uses. The appraiser completes the report based on what is currently existing there now and what it's physical condition was upon the persons date off death. *** The poster is confusing the difference between completing a Highest & Best Use Analyze "V" appraising a property for a proposed different future use, which normally would be significantly higher and inflate the stepped up basis, it could also result in the IRS auditing the estates appraisal and accusing them of inflating the value. If the estate wants a second appraial based on them developing it that appraisal would be completed by a commercial appraiser and based on a "prospective" date which is frequently sought in connection with projects that are proposed, under construction, or under conversion to a new use, or those that have not yet achieved sellout or a stabilized level of long-term occupancy.”

In Summary: The appraiser "will complete a highest and best use analysis for all reports including DOD" for estates and that's to make the client/user aware of it's current zoning and potential future uses, then he-she will determine the Subjects value based on what is currently existing on the land. No offense but the poster should decline the assignment or return the Attorneys money because he/she needs to take some courses on DOD appraisals and read the IRS guidelines and definitions of value.

 

[Res Ap]

Thank you all. I didn't think I could do as a hypo, but like to question other appraisers to get their thoughts. HBU is not to leave it as it is with two homes on such large acreage. HBU is to remove the homes, and a developer will purchase (where the home sits, utilities, zoning, other homes that have been recently built in subdivisions) and divide the land to build more home which is financially feasible. I figured, just as J Grant said, I appraise it lower, and she sells in a year (which she already told me she is going to do) and they sell it for $1M+. Just need some feedback from my fellow appraisers sometimes. Thank you