Loan Officers, acres. lake footage, comps.

[Ray Miller]

I have a question on doing acreage’s. I am starting to get request from lenders to do subjects from 1 acre up to 40 acres or more. But the lenders are wanting to appraise on no more then five or so acres with no out buildings. Most of these rural properties need the add acreage and out buildings to bring it up to its value of the current loan. :?

Or the owner has bought the land and built a house and added the out buildings. Dose this not increase the value of the subject. At least that is what I was taught in class. Or is theory and practical unrelated in valuing property?

They are asking not to shoot pictures of out buildings and so forth. I feel that they are asking me to commit fraud. :evil: When in fact the legals show that there is more then five acres, the orignal load was on the entire property. :?

The owner tells the lender they need to refinance $235,000 current loan. The subject with out the thirty five acres and/or out buildings would will not come up to that figure.

Also another problem I am finding in the area I am working is: a lot of the new homes that were built in the last five years are being refinanced. These are larger homes and on tract of 10,20,30,40 and 50 acres. Depending on what the Township now requires to put a homes on. A some are built with new horse barns and out buildings. There are very few to no comparable’s for resale's to find on this kind of property for comps.

The comps are either, all older and small homes on 1 to 5 acres or larger older farm homes with lots of acreage.

Whats an appraiser to do. :?

My moto has always been: to stay honest and not lie. So you will not have a problem remembering which story goes with which lie.

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Another problem I am finding, some people buy homes on the small lakes and pay premium for lake or river frontage for fishing and boating. Yet the other group of buyers are buyers who buying the 30 acre to 50 acres tracks and also paying a premium for it for outdoor recreation of the hunting, snowmobiling and being able to be a short drive from the boat landings. If you take the lake frontage away or the acres the homes are all about the same price and size. Yet, I understand that the loan officers don’t want you using them as comps against each other. Why? Because they feel that the lake frontage is more valuable then the acres. :agrue:

Again what is an appraiser to do?

(Group please remember my original posting when I joined this list. I have a problem with dyslexia in letters and words. Not numbers. So if some of my spelling is a bit off or you find a word in the wrong place. I am not having my posting to these boards checked. Please bare with me on the matter.)

 

[Anonymous]

Ray,
I see the problem as loan officers and applicants trying to use normal loan programs to finance properties which are not normal, ie cookie cutter subdivisions or established neighborhoods. The secondary markets in which these loans are to be sold will not finance excess land or outbuildings. The appraiser is faced with a hypothetical condition, the absense of the extra land or outbuildings.

The lenders want to make a square peg fit into a round hole and expect the appraiser to accomodate them.

 

[George W Dodd]

Ray,

Consider USPAP requirements:

EXTRAORDINARY ASSUMPTION: an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser's opinions or conclusions.

Comment: Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis

HYPOTHETICAL CONDITION: that which is contrary to what exists but is supposed for the purpose of analysis.

Comment: Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.

Some of the requests would fall under a "hypothetical" condition and if you feel comfortable doing the appraisal assignments that way, it is acceptable; BUT remember to fully disclose.

Hope this helps some.

 

[Farm Gal]

Ray:
You instincts are good, don't let the LO's warp them. Nearly every one of your 'requests for help' indicate that you have a pretty good idea of right and wrong.

You might want to check with your state Appraisal Board for a ruling on the 5 acre issue. I did and found that under SOME circumstances this convenience to the lender is fine, however there are a few catches you want to watch out for: your area may vary.

1. You must either be provided a legal description OR provide a legal description or make the report "Subject to the Hypothetical Condition that a legally permissible" lot of such nature can be achieved. You MUST insure that the jurisdictional authority wil permit such a split!!! Remember that a hypothetical condition must be legally permissible and probable.

A subnote to this is that in many counties in my service area such lot splits are not legally permissible~! be veddy careful... and if you are considering building the legal description your self I am going to strongly suggest that you don't!

2. If the outbuildings are significant and located close enough to the house to be on a reasonable 5 acre split you MUST include them. What the lender wants and what they need are not always the same thing. It's YOUR license on the line.

3. If the outbuildings are of low value quality it may be the case that they contribute little OR may even require teardown. Since in our area this can often be accomplished by a match and half a gallon of kerosine... not a big issue but 'splain what you did and why, again the lenders concerns about the property being 'agricultural' is not YOUR problem. (Was it Ben who wrote the hilarious post about the animals??? )

And finally, I am willing to bear with you but I ain't Bare'ing with nobuddy but my hubby!

So sayeth the equaly if not more so dyslexic spelcheck impared kid from Kansas

(who George eveidently beat to the puch with definitions :roll: ) ah well the point got made!

 

[Jo Ann Meyer Stratton]

Just a comment on legal descriptions. DO NOT, NEVER EVER write a legal description!!! Also be very, very, very carefull when typing a legal description!! A wrong comma or period or placement of a letter could create a legal description for 1,000 acres instead of a one acre parcel. On the forms I type lots and blocks of a recorded subdivision (if applicable), but any metes and bounds description I provide a copy of either the assessor's printout that is used for taxation or the actual document. Also be very carefull in deciding if the improvements are on the imaginery five acres. Say something like the improvements appear to be near the south boundary or something similar. Only a survey by a registered land surveyor for that specific state can accurately locate the improvements and the boundaries. Any and everybody else is just a wide guess. Also have a hypotheical condition in report that the appraisal is subject to a survey by a registered land surveyor to determine borundaries, location of improvements within said boundaries and preparation of a legal description. Fences, streets, roads, creeks, etc may or may not be a possible indication of the boundary lines (unless every dimension in the legal description calls out a physical item, which then takes precedence over the length stated in the legal. So if the legal says 200 feet to the road--it may be 20 feet or 500 feet but the road in that case is the boundary and the calculation of area cannot be determined until a registered land surveyor does a survey to determine the actual distances and area. Oops, got on my high horse and wrote a paragraph instead of just a comment. But that is what happens when you have been married 46 years to a registered land surveyor, registered in three states and considered an expert witness regarding legal descriptions. In Arizona, it takes over ten years of experience, training and testing to become a registered land surveyor. So one paragraph in an appraisal book definitely doesn't prepare an appraiser to write legal descriptions!

 

[Stone]

Ray, I have found in your area (Crawford, Richland and Sauk counties?) that older outbuildings have little value. However, newer outbuildings, in particular different types of buildings designed for horses, definitely have some value. I have seen many properties where the horse facilities are nicer than the human facilities.

Another issue that you didn't mention, but will matter in many, if not most of the townships, is zoning. Particularly in Sauk and Richland Counties, remember that ag or conservation zoning typically requires 35 or 40 acres, depending on the township. If you are down in Iowa County, I believe it is mostly 40 acres. I would be very concerned about using that kind of condition in an ag-exclusive or resource conservation district.

 

[Pamela Crowley (Florida)]

You've received excellent answers!

The other thing to consider is telling your client up front that due to the legal issues of zoning, etc., they might not want to try do place this property in a 'normal' loan package. Maybe ask if the lender does loans on agricultural properties. If your client is a mortgage broker, I would be a little suspect of what they are trying to do.

Sounds like this is mainly agricultural and that the lender or LO is trying to get you to do something that probably shouldn't be done. Keep in mind that experienced LOs just LOVE to use a newbie appraiser that might not know that they need to say 'NO' to protect themself. This is a rarely talked about phenomenon that I can only realize is done after I stopped long enough to put it together. It's hard sometimes to say no, expecially as a newer appraiser, when you need to; especially to a loan officer that is offering more biz if you can pull these odd balls together for them.

I might be all wrong on reading this possibility into it, so just take this as additional 'advise' about something else to watch out for. As Walt Kirk said: "The lenders want to make a square peg fit into a round hole and expect the appraiser to accomodate them."

 

[Ray Miller]

In my former life, I was well aware that a lot of people move out to the country and build better barns then they do homes for their horses, pot belly pigs, goats, turkeys, and anything else they think they can have. Had a client who build a small home in the 1.5 million dollar range. Then dump 3 million in the horse barn. :roll: Also had a number of clients who had the $40,000.00 pick up truck, the $50,000.00 horse trailer, the $60,000.00 horse barn and lived in a run down old farm house. Then could not pay the farrier $35.00 to trim the hooves of the horse. :evil:

I also have across the road from me an old dairy barn that the gutted, fieldstone on the outside and redid the inside into a lodge. Put around 1.5 million in just the barn, not counting what they did to the old farm house. They use it only on some weekends. Things kind of get upside down with these city slickers moving out to the country. We have a new home down the road, it has three elevators, nine fire places, 12 bathrooms and helo landing pad. Its their weekend home.

I know here in Iowa county it takes 40 acres to have a legal homestead, unless the townships change it to a more or lesser amount. The township I am is 10 acres the next one over is 50 acres for a single family home. Then they also have restriction on the number of outside animals that a person can have on the land. In our township it is one to every ten acres. Then that brings up another question.

If you know what the zoning is and you find the people like the man across the river that bought the land, built the house and barn then move in 10 horse for boarding on five acres, where it call for 1 animal per 10 acres. Then you have an a non-conforming use. Would not then need to indicate it on your appraisal report? :?:

That is why I don’t understand how these loan officers can request an appraisal for just part of the land. I know it would be not be consider a legal split. Then say the foreclose on the loan. Your appraisal was for just the home and five acres, and the secondary market finds out the value was not there and there was additional property. Then what happens, the appraiser gets called up on the hot and seat and there goes the license.

 

[Ray Miller]

Pam,

I think you are correct. I think that is why I end up with the ones that have problems before I start. I also don’t think that the home owners tell the lenders the whole truth.

But I was talking with a couple of appraisers at the court house in Sparta the Friday. Some are second generation appraisers. They say they are getting the same request. Could it also be that the new loan officers from the cities just don’t have a clue as to how it really is in the small towns and villages that make up the rural area. By the way I have also found out they don’t like the word rural.

I talk to one Friday who had no, clue that Richland County in the township I was working required 40 acres to build on. He also did not understand that the man had bought were he did because of the hunting. That the owner put more value on the hunting then he did the home. In our area ag ground is bring around $1200 to $1600 and acre. A thirty acre piece of ground that is straight up and down with some trees on it will bring $5000 an acre. Yet the level ground just below it at $1200.00

 

[Stone]

Hi Ray. You are exactly right about hunting/recreational lands becoming more valuable than ag lands. It is always interesting to see how many people from Madison, Milwaukee, Chicago and the Twin Cities will buy land for hunting (some with the thought that someday they will build a retirement house on it) and pay top dollar. It really drives the prices up to a point where many locals are priced out.

I think you may also be right about loan officers from other areas not understanding your market. It is really shifting over there, and if they aren't familiar with all the nuances, that could be a problem.

Good luck,

Michael