Lender Wants Only 5 Acres Valued Out Of 13?

[Fred]

Rich,

find your "if you identify with it, so be it" to be implicative and offensive.

It was not directed to you, but you are entitled to as "offended" by the comment as I am by the 5-ac HC.

 

[Carnivore]

Originally posted by Greg Boyd@Sep 5 2005, 10:47 AM
It could probably be successfuly argued by a state appraisal board or an attorney that these policies set industry standards or precedent. Fannie Mae guidelines have made a clearl and positive statement that the "house and 5 acre" appraisals are unaceptable appraisal practice and are misleading. This carries a lot of weight for any appraisal where the intended use is mortgage lending, IMO.

Absolutely positively one of the best points made in this thread.


Thank You

 

[Webbed Feet]

Originally posted by Greg Boyd@Sep 4 2005, 01:10 AM
"subject to" what?

Wouldn't it be "as is" under the hypothetical condition used in the development?

Mr. Boyd,

Concerning the "5 acre appraisal" I say you are correct. Yes it would be an "As-Is" appraisal under the Hypothetical Condition. The last I talked to him about it, the head of my state appraisal board says it is "As-Is" also.

Tons of confusion on this. The value conclusion is already based on something that is hypothetical. Therefore the conclusion itself is hypothetical.

Those who believe all appraisals containing HC's must be made "Subject To" the HC being turned into reality ... (Note: I have already conceded in the past that "Subject To" notification that the readers of a report pay attention to the fact a HC was used is a totally different slant that I might even agree with. Though I see it as unnecessary if HC notification is spread all over a report.).... probably have violated their very own logic everytime they have completed a plans and specs appraisal. The reason for this is that subject to condition was for completion per plans and specs. Not subject to the HC being turned into reality. Why not? ..... That HC for that plans and specs appraisal was that all the improvements were complete as of the Effective Date of that appraisal. The HC was NOT that they were complete as of some future date.

Therefore, if one checks the subject to box and states that part of the subject to conditions are that the hypothetical condition itself, used to complete a plans and specs appraisal, is "Subject To" being turned into reality ..... one has just required the impossible.... Because those improvements will never be completed as of the effective date of the valuation.... Which was what the HC being used has in fact stated. ... "That the improvements are complete" on the effective date... It is a current value appraisal....Not a prospective value appraisal using some future effective date. ...... So again, therefore, the parties involved make the appraised value good by completing the construction.... It is impossible for them to make the value good by meeting the HC used that states construction is complete as of the current effective date, when in fact it is not......

The only possible way a plans and specs appraisal could be done in a manner that the parties involved could meet a "Subject To" condition that the HC be turned into reality, would be for the appraiser to do a "Prospective" appraisal... Using the future estimated date of completion from the builder as the "Effective Date" of the valuation.... With the HC structured to state that the value was as of that future date. .... I bet nobody has one of these in their work files.

The above is why I keep droning on and on. That for example, when the 2055 version 9-96 states after the one box "subject to completion per plans and specifications on the basis of the hypothetical condition that the improvements have been completed" ..... That this statement simply "Notifys" the reader the appraisal is "based" on a HC. .... Not that it is subject to the hypothetical condition. ... The only thing it is subject to is completion per plans and specs.

Barry Dayton

 

[JSmith43]

Originally posted by Andrew Picarsic@Sep 5 2005, 10:36 AM
Absolutely positively one of the best points made in this thread.


Thank You

Would the line of reasoning Greg made also apply to the Cost Approach? I have a copy of guidelines of the 2nd largest (sometimes largest) lender in the USA that essentially says the Cost approach is worthless.

I have posted the relevant part of the guidelines in the past & have no intention of getting into any more trouble by posting them again B) But, if any of you are getting trashed by an appraisal board for exclusion of the Cost Approach or misapplication, and you believe it will help, I will share the material with you directly.

Fannie can dis the 5 acre hypothetical, Freddie can dis the Cost Approach. There are multiple drummers. Which one are you going to follow? I think the best advice is to follow the drummers that you believe aren't marching you into hell.

 

[Webbed Feet]

Originally posted by Greg Boyd@Sep 5 2005, 09:47 AM
Fannie Mae guidelines have made a clearl and positive statement that the "house and 5 acre" appraisals are unaceptable appraisal practice and are misleading. This carries a lot of weight for any appraisal where the intended use is mortgage lending, IMO.

Mr. Boyd,

I agree with a lot of your statements and thoughts on this. I too separate the two differing topics of can and how should a 5 acre appraisal be done, with the business concerns involved..... I certainly note quite a few people here are not separating those two topics at all. ... I feel Mr. DeSaix has done a wonderful job and thank him for a fine effort on his part..... though I disagree with the concept of making one's subject to conditions subject to forcing a HC into reality each and every time. ... I say this does not have to be done, and often if done can be totally inappropriate to the appraisal assignment.

But this statement of yours I have quoted. I have to ask for a link or fully traceable reference back to the exact Fannie Mae documents that state Fannie's official stand is any use of a 5 acre assignment results in a USPAP violation as a misleading appraisal and therefore result in unacceptable appraisal practice. I want to see those exact words and have a copy to discuss it with my appraisal board.

Thank You,

Barry Dayton

 

[T.E. Faravelli]

This thread gives an all new meaning to the term creative financing. A mortgage lender willing to encumber a property based on a hypothetical condition funded upon an appraisal report made "subject to." I checked with wholesale reps at BofA, CWHL, Wells and WAMU. Unfortunately, none of them have this program. Too bad. We could all make use of a little creative financing couldn't we?

 

[CANative]

Barry,

My reference is the infamouns (and perhaps lengendary) quote from page 35 of the Fannie Mae Appraiers Handbook. See rtubbs pdf copy on page 3 or 4 of this thread.

rtubbs pdf

I have been reading the selling guide for quite some time and it's interesting that there is no corresponding discussion of this issue, yet there is a reference to it in the handbook.

 

[Fred]

George,

I can think of a number of situations where an HC could be legitimately used, too.

We all can. It’s only one type of situation that comes under criticism. George, the ASB opinion you cite says appraiser doing Fannie appraisal should be aware of Fannie policy. Leaving Fannie aside, do you suppose the same should hold for appraisals done for federally regulated lenders? Should appraisers be aware the policies of the federal financial regualtory agencies? (See bolded question that follows).

Denis

Is the use of an HC appropriate in Santora’s scenario of appraising a property with a lot size greater than its actual size?  It very well could be. I’ve appraised properties where the assignment was to appraise with additional land for a mortgage finance

That adds real estate that wasn’t included in Santora’s question. That is, lender asks for “it” (a single, five-acre parcel) to be appraised as if “it” were hypothetically 25 acres. There is none of this “additional” land that both yo and Rich tried to put into the problem. That's why it's an HC.

Is the use of an HC in the appraisal process acceptable when it is employed in an assignment for a mortgage finance transaction?
Yes.

The correct answer is, “sometimes,” also know as, “it depends.”

The only HC’s I have seen in banking regulations are for project appraisals, what some would call “per plans.” I can understand a need for assurance that a completed project will give sufficient debt coverage for the total indebtedness. Can anyone cite banking regulations that refer to any other acceptable hypothetical – for example, the infamous 5-ac hypothetical?

What are the major concerns of appraising a property using an HC mentioned in this discussion?
I read two: A- The report may be misleading-

Misleading report doesn’t jump out on my list. My primary issues are development. I’d start with Std 1, competency rule ethics rule, SRs 1-2e, I-2h, SMT-9 and SMT-10. “Prominent” disclosure does not cure inappropriate development, even if the confession is good for the soul.

Do I need to determine if their requirement of only valuing 5 acres is a valid analysis for their decision making process? No.

Another way of saying that is, yes, you have to correctly identify the problem (client decision) and the scope of work necessary to solve it.

 

[T.E. Faravelli]

Can anyone cite banking regulations that refer to any other acceptable hypothetical – for example, the infamous 5-ac hypothetical?

I really want to know the answers to this. What financial institution or mortgage company is lending based on value from a HC appraisal made subject to(conditions that we never materialize)?

 

[Webbed Feet]

Originally posted by T.E. Faravelli@Sep 5 2005, 01:34 PM
This thread gives an all new meaning to the term creative financing. A mortgage lender willing to encumber a property based on a hypothetical condition funded upon an appraisal report made "subject to." I checked with wholesale reps at BofA, CWHL, Wells and WAMU. Unfortunately, none of them have this program. Too bad. We could all make use of a little creative financing couldn't we?

Mr. Faravelli,

I believe your research on this to be absolutely correct.... It should provide thought for the two camps on this topic to eventually come together on it.

Your research would tend to support my position that appraisals employing hypothetical conditions are "Based" on the HC's and should not be made "Subject To" the HC's in most, if not all, cases. ... Which is opposite the stand that simply due to the fact the word "condition" is part of the term "Hypothetical Condition" that the subject to box should be checked off each and every time.

Again, referring back to my earlier post regarding plans and specs (or "Project") appraisals.... If one makes such an appraisal "Subject To" the HC, instead of "Based" on the HC, one has just shot oneself in the foot if a top notch review appraiser or underwriter considers what has been required..... Because if the HC were to be followed the appraiser involved just required completion on the same day as the effective date.... Correct?.... Our HC's for such appraisals are that the improvements are complete the moment we are standing there.... Does it make any sense, to anyone, to then make such an appraisal subject to those improvements being completed the moment you are standing there? ... An impossible condition to meet.

Barry Dayton