Lender Wants Only 5 Acres Valued Out Of 13?

[T.E. Faravelli]

If a HC appraisal considers a property that given the HC it is not probable, legally permissible or economically feasible for the purpose of determining market value for the intended use of mortgage origination, I contend the use of such would not produce a credible analysis and thus fail to comply with SR 1-2(h).

 

[Farm Gal]

Got ya on that one TE...

probable, legally permissible or economically feasible

"Subject to the hypothetical condition of no environmental contamination" on a property known to be (minimally) contaminated can faill all three of your tests and still be entirely USPAP compliant.

Yes I DID see:

for the purpose of determining market value for the intended use of mortgage origination

however ...a reasonable comparison with an additional disclosure of "as is value" developed in the course of the HC value... can readily fly USPAP air!...

or am I splitting hairs awfully fine(ly).

 

[hastalavista]

But T.E.-

SR 1-2 ( h ) doesn't list any of the requirements you did for an HC to be used. And, in the Definition section, the comment states "Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics, or about conditions external to the property". (I underlined "contrary").

Doesn't this effectively mean that an when an HC is used, it is a condition which isn't legal?


I want to make sure my position is clear here. I'm not advocating that one can use an HC to complete a misleading appraisal. And there is a danger that if the appraisal is not reported in the property fashion, the HC aspect will not be "clear" to the intended user & readers. But, if the report IS clear that an HC is employed, and is CLEAR about the actual characteristics of the subject vs. the HC, then I don't see how it can be inappropriate to employ an HC.

Obviously, If I as were not comfortable with the specifics of an assignment in using an HC, I wouldn't. But as a general rule, I don't think employing one is a problem.

 

[Couch Potato]

T.E., having lived in the SF Bay area at one time I can understand your perspective. The "legally permissible" part is a BIG hump to get over in that area. However, in many other parts of the country it is a very easy process. When my grandfather's 100 acre farm in East Tennessee was split up and sold in five acre lots (one of which contained the house and was not sold) the entire process took less than six weeks. Most of that time was waiting on the surveyor to find time in his schedule. In CA six years would be getting it done fast. How the question of a HC being appropriate or not is answered in many respects is a question of geographic competency.

 

[T.E. Faravelli]

If everything is contrary to known fact and cannot ever be made probable, permissible or be financially feasible, how could the analysis be credible i.e. seemingly valid or plausible?

 

[Farm Gal]

HC needed for informed comparison and analysis...

say in case of a low level/ASSumed contaminated vs "not"!

eg low level lead dust (or whatever) on ground surface of a very large lot. Lender may want to assume that it poses somewhere between NO value diminution (possible) versus "minimal" for contamination issues which will NOT be cured/repaired... granted this is a case where it is 'legal'...
Not financially feasible to cure, still need to know a value.
There is a lender willing to lend (risk) on nearly every property - for a price.

My issue withthe 5 acres is it is ILLEGAL and not probable and a definite value diminution (if disclosed)... even if some dipwad is willing to 'diminish' the value by 10K and "accept the defect"... right up until he and lender find out the insurance won't pay for rebuilding after the fire (true story)... and he couldn't build the barn out back that he had planned even before the fire...
Send in the BODY BAGs... cause either the HO is gonna commit hari-kiri or other heads are gonna roll!

I like mine firmly fastened on my shoulders, thanks...

 

[T.E. Faravelli]

I concur. The reasonableness is driven by the intended use and intender user. How reasonable is this assertion for the purpose of mortgage origination given the facts presented in the previous threads? What about public policy?

 

[Carnivore]

Originally posted by Lee Ann@Sep 4 2005, 09:15 PM
HC needed for informed comparison and analysis...


My issue withthe 5 acres is it is ILLEGAL and not probable and a definite value diminution (if disclosed)... even if some dipwad is willing to 'diminish' the value by 10K and "accept the defect"... right up until he and lender find out the insurance won't pay for rebuilding after the fire (true story)...  and he couldn't build the barn out back that he had planned even before the fire...
Send in the BODY BAGs... cause either the HO is gonna commit hari-kiri or other heads are gonna roll!

Lee Ann,

There in lies the problem. The definition of value is beginning to rear its ugly head in this debate. It seems that by employing an HC you distort the value definition.

Informed buyers? Would they actually pay the price based upon the value you arrived at if they knew what the truth about the actual subject characteristics?

Santora's late example of turning the HC in the other direction was very telling to the argument. Even your example of pollution can be turned the other way and no reasonable person would think the HC is a proper methodology to apply.

The rub is simple to see when you look at this within the context of the definition of value. Our goal is to reconcile a final opinion of value based upon the definition of value included in the report (USPAP requirement). I can not find anywhere in a typical residential definition commonly used across the lending community that addresses the lender or the lenders quirky little loan requirements.

Again, frt. (IMO), there are legitimate reasons to use a HC in residential appraising. I see little reason let alone reasonable reason to employ HC to site area for residential lending if the purpose is for encumber the whole site.

--------------------

The difficulty in communicating a proper and professional report does not just center on the HC. Look at these and give some thought to how you might handle them if you were using the OLD URAR:

1. Address - What do you put there? How will it effect a reader
2. Property description - Cant use the actual legal, just what do you put here and how do you describe the subject
3. Assessors parcel #
4. Real estate taxes
5. Special assessments - if there are any, what now? Do you prorate them
6. site dimensions - ???
7. Zoning and requirements
8. Market conditions - Is it fair to say they are possibly different
9. HBU - Whoa where did that come from?
10. Flood zone?


This is beginning to look like a complex assignment.


Are you technically competent?


Maybe I am off base here or way out in left field. Consider that in many cases you will be dealing with an AMC Phone Monkey who frankly does not have a clue nor will they ever have a clue!

 

[Fred]

Denis

Could the subject be valued as a SRIP when I knew it legally/factually a condo, and a report be written without the HC and not be misleading? I don’t think so.

I don’t what you mean by “as an SRIP” when I clearly stated, and state again, to appraise it as a condo project. I repeat, the owner has the right to both: 1) hold and collect rents or 2) sell the units; as well as other use options. Again, both of those contemplate the property AS-IS and neither use option is contrary to any known fact. Actually, the unwarranted use of the HC and property that would trigger USPAP issues.

FWIW, this is a very common HBU question.

 

[Fred]

Rich,
It’s real simple. A lender says the borrower owns property comprising five acres and wants you to appraise it as 25 acres using a hypothetical assumption. There are no other givens.

First you tried to switch that into the borrower’s five acres and 20 acres belonging to someone else. I wrote no such thing. That fits the theme of the discussion – people piling on unwarranted hypothetical conditions.

it depends on the following:
1) Do any supplemental standards prohibit it?
2) Is it required for legal purposes, purposes of reasonable analysis, or purposes of comparison?
3) Can the request be met in a USPAP compliant manner?

Ans
1. There are no GSE supplemental standards
2. That’s what I am asking
3. That’s what I am asking.

No one is making the ridiculous argument that we cannot appraise part of a property. I did it last week.

I have to wonder about all this “maybe-there-is-good-reason” willful blindness approach to USPAP. USPAP doesn’t says “maybe” identify the needs of intended users. It says must identify.

If someone ever gets it caught in the wringer over this, the appraisers concern should be that those responsible for doing the judging will use a just a little of common sense that cannot be confused by misrepresenting USPAP details. The defense - that the appraiser promoted public trust by not “intending” that anyone would see the false (read: contrary to kwhat exists) appraisal submitted to federally regulated financial institution in order to induce the release of taxpayer guaranteed funds - is prima facie absurd. How far would a CPA get arguing that he created a false tax return, but didn’t think the taxpayer would submit it (meanwhile the taxpayer is arguing he thought it was OK, after all, the other fellow is the CPA).