Land value and value opinion are the same - UW questioning

[Mark K]

I think you're trying to fit a square peg into a round hole.

 

[Mark K]

Yes, from a market perspective the value of the improvements is $5k. I agree. I'm just saying from a replacement perspective or an income approach the value is more than $5k.

 

[Joe Flacco]

Your cost approach is not considering functional or external depreciation. It is considering only physical depreciation.

 

[Steve Pendleton]

I think you're trying to fit a square peg into a round hole.

Your cost approach is not considering functional or external depreciation. It is considering only physical depreciation.

True, it has no functional or external depreciation. I'm a little gun shy on using those. I had an UW the other day who challenged my use of functional obsolescence in a similar situation. "How do you know there is FO? How did you calculate the FO?" If someone can help me with language to justify a functional or external obsolescence I would be very appreciative.

 

[Steve Pendleton]

BTW, thank you to all who are responding. I just haven't run into this issue before. In a perfect world I would increase the effective age, but...

 

[Joe Flacco]

If sales comparison approach indicates a market value as improved of $230,000, opinion of site value is $225,000, and there is 50% physical depreciation, then the data is telling you that there is 50% depreciation to the improvement from functional, external, economic factors.

 

[Steve Pendleton]

OK, I get that, but the UW's objection was that the site value and sales comp value were approximately the same. Do I just have to stick with the original numbers and confirm that the majority of the value is in the land? Answering myself...of course it is. I just want to try to figure out how to figure out how to answer the UW and push the report through. And maybe learn how to deal with this in the future.

 

[Joe Flacco]

Those are the comps that best match the condition and characteristic of the subject property. There aren't any that are higher priced in the same condition within a reasonable distance. In this area developers are buying up lots and replacing the homes with 4-8 unit detached townhomes. So $225k for a 20,000 sf lot is a bargain for them.

Typically, a 20,000 SF single family lot is not the same zoning as a lot that allows 4-8 townhomes. Are you sure the zoning is the same? The zoning for the subject allows townhomes?

You need to get with your supervisor and have him walk you through this. That is his job.

 

[Steve Pendleton]

This is Houston. We dont have zoning. You can build anything anywhere. Also, I forgot change my profile. I got my certification last year. So I'm on my own.

 

[J Grant]

FHA reverse mortgage. 1955 house on 20,000 sf lot. House has some unfinished work, missing door casings, etc. but pipes and wiring were replaced. Definitely livable. Sales price of comps is $215K, 214K, 212K, 155K, and 245K. Adjusted values are $232K, $237K, 241K, 210k, and 228k. My value opinion was $230k. Cost method comes in at $320k, mostly because site value is $225k. Five solid comps for land value between $190,000-235,000. UW is questioning land value. Have already set the effective age to 30 years so I cant get any more depreciation for cost approach without deep-sixing the loan. Any suggestions on how to reconcile the two approaches or explain to UW?

We can't distort the apprasial in order to avoid "deep sixing the loan." That said if the subject contribution is 5k to a land value of 225 k HUB is a teardown and then the HBU is not the current use it is as vacant site

But I am confused - are all the comps torn down? Or are some owner-occupied and not torn down? There are interim HBU for properties as well.