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Livable home with no value?

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Atlanta CG

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Senior Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
New development, closed lot sales $300,000 to $600,000, homes TO BE built starting around $1.8 million, first lot sold has the original 1950's home on it, now refinancing. Obviously no similar comps. Construction will likely start this year but none has yet. House is livable. Development is very viable, housing construction starts likely a result of the economy. My opinion is that the home can be lived-in for a couple of years until the new construction starts for real, then demolition & construction of mcmansion. Think 2 year GRM approach, discounted 2nd year (maybe not) then end of house. Normally I would simply say house has no value as typical buyer would demolish immediately but with today's economy that scenario doesn't fit. Therefore the house has marginal value, at least for the projected period. Does that make sense? I am aware it will not pass normal underwriting guidelines for a conventional mortgage refinance but I want to be right in the valuation. The value of the lot is easy. Any support or opposition to this methology?
 

Marcia Langley

Senior Member
Joined
Aug 26, 2005
Professional Status
Certified Residential Appraiser
State
Missouri
So do you think that the improvements do not add value to the property but are viable as an interim use?
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
I am aware it will not pass normal underwriting guidelines for a conventional mortgage refinance but I want to be right in the valuation. The value of the lot is easy. Any support or opposition to this methodology?

How can you disregard supplemental standards in the quest to be "right"? That in itself is a USPAP violation. If you really mean to disregard the assignment guidelines, you must decline the assignment.

It sounds like you are assuming that the improvements will be taken down in favor of new construction. That could be a good possibility but if you are doing an "as is", then you must appraise the property in the here and now; not what is likely to happen in a couple of years.

I think that what you have to do is take a hard look at H&BU. It sounds to me like the H&BU for the property is or has changed from residential improved to residential unimproved. This happens and is called gentrification. Out with the old and in with the new.

If in fact you come to the conclusion that the H&BU has changed (property worth more as vacant than as currently improved less the cost to demolish the current improvements) or if you conclude that there is very strong evidence that this is the trend that will happen in a relatively short prior of time, you cannot use the FNMA residential forms as they are not permitted for any other use than residential. At the point in your analysis that you determine that H&BU has changed or is very likely to change (which is what I hear you saying), you must stop and notify the client as any other value given would be contrary to the assignment.
 

leelansford

Elite Member
Joined
Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
You know better than the rest of us--or, you will have to know better that the rest of us--as to the demand for the site as though vacant.

Is it possible at this time that the improvements contribute SOMETHING to the Market Value of the property?

The property as it presently exists: Does the current use represent an Interim Use? I'm not suggesting that I have THE answer, but perhaps the existing improvments have a remaining Economic Life of, say, a couple of years?!
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Does the current use represent an Interim Use?
That appears practical to assume. REL of 2 years is far less than any underwriter should be willing to let stand as a residential mortgage, but you see this frequently where old houses are rented out to a terminal renter (frequently the renter finishes off the last bit of use) At that point, its simply not worth 'fixing up' and gets demolished. If the Sale Price is X and the cost to demolish is Y, then the value = X+Y = Value. The point of renting same out until the investment "ripens" is to defray some of the demolition expense. So often Sale Price = Market Value and its hard to find a market difference that reflects that Y (cost to cure)
The problem is will - in two years-the market support the construction of a McMansion? I see these as ugly, dated fads and think we may see a return to a more traditional house appearance, or to go on to other 'fads'.
Look at the upscale contemporary houses of the late 50's. Flat tar and gravel roof, angled walls, large plate glass windows. The passive solar fad of the mid-70s. This faux french folly things we are seeing now with spires on top and gray speckle brick..I think they will look pretty dated before long...not to mention too large.
 

Randolph Kinney

Elite Member
Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
You know better than the rest of us--or, you will have to know better that the rest of us--as to the demand for the site as though vacant.

Is it possible at this time that the improvements contribute SOMETHING to the Market Value of the property?

The property as it presently exists: Does the current use represent an Interim Use? I'm not suggesting that I have THE answer, but perhaps the existing improvments have a remaining Economic Life of, say, a couple of years?!
I wonder if a lender would loan on an interim use? Certainly a few years of economic life is not consistent with a 30 year mortgage.
 

Dirty Harry

Junior Member
Joined
May 11, 2005
Professional Status
Licensed Appraiser
State
Oregon
Just suggest to the borrower they contact the local fire department and use the house as a training burn. Done all the time, especially when the house is sitting out by its lonesome and at the end of its useful life. :shrug:

Waalaa! :new_multi:

Vacant land appraisal = Vacant land loan. :clapping:

Maybe not the normal approach, but then it's not a normal situation.

P.S. What did the original appraiser do? Not that it was correct...
Just curious... :icon_question:
 
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leelansford

Elite Member
Joined
Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
I wonder if a lender would loan on an interim use? Certainly a few years of economic life is not consistent with a 30 year mortgage.

Someone, or some entity, WOULD provide a loan for this property.

I appreciate that you understand, but for those who do not: it's not the appraiser's problem if a lender-client is attempting to put a square peg in a round hole.
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
Someone, or some entity, WOULD provide a loan for this property.

I appreciate that you understand, but for those who do not: it's not the appraiser's problem if a lender-client is attempting to put a square peg in a round hole.

I agree. The valuation problem is different from the lending decision and the poster did say
I am aware it will not pass normal underwriting guidelines for a conventional mortgage refinance but I want to be right in the valuation.

Here's my stab at the answer (which is really a different way of asking the question): If the subject has an interim use (rental), but for only two years, would a typical buyer pay any premium for such a short-term use?
Theoretically there may be value, but in practice? I would want to consider hard and long if any added-value the income stream may provide offsets the risk of purchasing a lot that should be developed into a McMansion two-years hence (but not now) in the mind of a typical buyer?:shrug:

Good luck!
 
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