Missouri and Chapter 9—Competency and Scope of

[The Warrior Monk]

Sean, thanks for responding.

I understand the changes, however, I was wondering if the "Hobby Farms" on 10,20,30,40 acres, etc. would happen to fall under this and not be able to be appraised by a Cert. Res? I saw an article on the MREAC website newsletter that stated, "Any land with Income Potential" could not be appraised by a Cert. Res. This would basicially exclude ALL acreage sites since nearly all could have hay, raise 2 calves, etc. Also, was personally told by a Commissioner that a "Hobby Farm" could be appraised, as long as it didn't produce any income. Basically, Cert. Res. appraisers can appraise acreage and homes with acreage as long as they don't produce any income. I personally don't see how that is possible. From your comments, I don't take it that way, but just aren't sure based on what I'm reading and being told.

I would be real careful, as a certified residential appraiser, of appraising properties that have income not related to the residential use with the supervision of a CG. The income could be so small as to have not measurable effect on value, but if the licensing board has a strict interpretation of the law, they still might reprimand the appraiser.

Also, note this from the rule, "This designation permits the appraisal of vacant or unimproved land that may be utilized for one- to four- (1–4) family purposes." Have you noticed, or has anyone pointed out before, that it doesn't state that HBU is needed, but only that the land "may be utilized" for ..... ? They use HBU in the ARE definition, why not use it here? Seems to me to be a lesser standard and I don't know why it isn't included.

I cited the minimums from the AQB, which includes the HBU reference. For CRs and CGs, these minimums must be adopted by the states. The state can only make these minimums more restrictive, not less.

 

[MoTim]

Thanks everyone for their input. Jimgraner, I appreciate your response. To me, by the board stating its "situational", shows this rule can be used either to punish an appraiser or exonerate them. Basically, very vague. David, I appreciate your input. Yes, that's my question and I see it the same way. But in this area, someone can, and some do, have "large" gardens where they sell the excess produce at local farmers markets, they raise extra calves to sell to neighbors, friends, etc. for extra income, etc. with the income potential not necessarily a consideration just a "byproduct" of the joys of living in the "country". And that is what I am saying about this rule: Depending upon the "makeup" of the board, the rule's application can change. Get a bunch of Gen Cert appraisers who are involved in this type of property valuation and they can use it to better themselves, or vice versa, loaded with Cert. Res and the number of acres "allowed", and permitted "uses", can go through the roof. I would rather a clear, defined ruling that is applicable TO ALL be in place so that I, a Cert. Res., can confidently accept an assignment and not have to constantly look over my shoulder wondering if its going to bite me.

Also, I pose this to everyone: Sean has someone to sign off. What if the ruling were interpreted that ANY property with Income Potential, read the April 2010 Newsletter and see what it says, were to be done ONLY by Gen Cert appraisers or Cert. Res with sign off? What if the Gen Certs' decided to ban together and "lock out" any Cert. Res by refusing to sign their reports? That would be reasonable since they are ultimately taking responsibility for the report anyway, right? Hasn't this, in fact, just rendered my license obsolete for these properties? How many thousands of Cert. Res appraisers in the State of Missouri would this affect? If I'm only limited to "town" properties, I'm out of business, in my rural area. This would force everyone to either upgrade to General or just get it in the first place, or put many out of business. We would have no need for Res. certification. The Generals then could only "train" their family members, those who could pay to get licensed, etc. Also, in the interim, wouldn't it be great to know that, for these properties, you could basically charge what you wanted since the lenders would be forced to use you, no matter what? Can you even imagine what the fees would be!!! Once again, this is what concerns me about the "vagueness" of the rule.

Sean, I have a transcript of testimony where the Commissoner makes that statement. Not saying you doubted me, just saying I was as incredulous as you. I believe his intent was the same as David's: Presence of Income disallows property for the Cert. Res. I agree with you on many points, but without clear language, Cert. Res can find themselves fighting all the time to prove its Res, not Ag. We fight enough over value, don't want to see us devolve into that arguement. Myself? I don't want to see an appraiser get into trouble just because the current interpretation of the rule is applied for someone's personal gain and what they're doing goes against the grain. I think we're over regulated in the first place, this just adds an additonal burden.

Thanks again, good discussion. Kinda confirms what I thought. A lot of room for interpretation, probably too much.

Sean, I agree about the HBU analysis. Would you agree with me that if the rule only used the 2 statements, that a Cert. Res could do properties that can be utilized for 1-4 family units and the definition of Agricultural Real Estate, that this would clear up a lot of the confusion? The 3 words, "For all other" appraisals is what is actually causing the problem and opens Pandora's box? Not trying to argue, because I've seen what you have to, Res. appraisers stepping over into areas they don't belong.

 

[The Warrior Monk]

I personally believe that the scope of practice for CRs is exceedingly clear. It refers ONLY to 1-4 family use. Therefore, if the use is in question, or income derived from it, is not 1-4 family use, AND the HBU becomes 1-4 family plus an agricultural component, then it falls outside of the scope of practice. A commissioner's interpretation might not be as clear, because it is addressing a specific question, but it becomes very clear when combined with the legally defined scope of practice.

A court could decide otherwise, but until that legal precedent is established, I would play it safe.

 

[MoTim]

David, that's how I would interpret it as well. I agree with you about income and Scope. I can't reconcile how a Cert. Res can appraise a property where even $1 is derived from the site. We can appraise income producing properties, i.e. rentals, however the income comes from the dwelling, not the site. This would fall under the Scope of a General. However, I believe it boils down to property complexity. If I pay $20,000 for 5 acres and cut and sell the hay off of it for a GROSS profit of $750 per year, is this really why I purchased the property? Let me pose this as well: A town dweller typically only has a "lot", say 100x200, if its overly large. I personally own 7 acres. If I use my site to practice my children's baseball and softball teams, pull them behind my 4 wheeler when its snow covered, etc. do these uses exclude a Cert. Res from appraising my property since I have uses that are different than a "typical" 1-4 family property? Not trying to start an argument, but pointing out how each person's interpretation can change a ruling's effect when it is written so vaguely and unclear. This is where I wonder where the term "Recreational" property comes from and how it can be applied? At what point does the site's uses go from 1-4 family, HBU, and crosses over into this undefined "Recreational" use? Is it based on size? Topography? Vegetative mix?

Note that Sean is saying that he considers, or finds that, 50 acres or less properties can be proven to have as a HBU, Residential. I can actually agree with that in certain areas. If I interpreted that incorrectly, forgive me, Sean. But I can guarantee everyone that the 50 acres can, and will, produce income, either by hay, livestock production, etc. But may not rise to the level of "business pursuits". The intent isn't income production, but use as a Res site, with a side benefit. I believe this is the problem. Given each Commissioner's individual interpretation, Cert. Res appraisers are at risk each time we do appraisals of this type. And this is a large percentage of a lot of appraisers income, especially when you consider the makeup of Missouri properties. I would imagine it isn't limited to Missouri, however. Note Terrel's response about Ark. still having a $250,000 de minimus. This state borders Missouri and I know several appraisers from there travel into Missouri.

Sean, I respectfully ask the following question: Land should have the same uses and appeal in the market place, with or without a home. Why would just the prescence of a home on a 50 acre site make it easier for me to argue its HBU is Res, but the lack of, cause it to be considereed outside the scope of my license? The site not used for the dwelling would be considered Excess or Surplus land and have the same uses, with or without the dwelling. I appreciate your input, just wondering how you arrive at your HBU with tracts like that.

Thanks everyone, Jim, hope to hear more if you've got it.

 

[The Warrior Monk]

"Highest and Best Use" is specifically mentioned in the AQB minimums, and is the determining factor. If a particular property owner uses all/part of the property for an agricultural use and derives income from that use, it does not mean that the HBU of the property is that use. If "Average Joe" won't continue that use, then it is not the HBU of the property. Appraising a use that is not the HBU is not market value. It is another value type, commonly Use Value, but it could also be another value type such as Investment Value.

FWIW, I run into this situation in my practice all the time. Many times farm parcels are subdivided into building lots, but the agricultural use is continued. This is done (though a series of actions I won't bore everyone with) in order to dramatically reduce the real property tax and make some income while the property is being held. But it pretty obvious that if a property is leased for $150-$250 per acre and the value is $3M-$4M for a 1-acre building parcel, the HBU is not the agricultural use, and the appraisal of such a property falls under the scope of practice of a CR.

 

[nachocheesefries]

Sean, I respectfully ask the following question: Land should have the same uses and appeal in the market place, with or without a home. Why would just the prescence of a home on a 50 acre site make it easier for me to argue its HBU is Res, but the lack of, cause it to be considereed outside the scope of my license? The site not used for the dwelling would be considered Excess or Surplus land and have the same uses, with or without the dwelling. I appreciate your input, just wondering how you arrive at your HBU with tracts like that.

and that is the crux of the whole deal....its subjective...and unfortunately it appears that the commission is who will decide on a case by case basis.

I have just told you what I do in order to protect my license. I would think as long as you site what the properties HBU is and how you got there....you might be safe appraising the 50 acre tract with or without a house...I would just want you to be careful. 50 acres in some places have completely different uses than 50 acres in others. Ex: edge of town vs. a rural area.

The Missouri board has taken action against a ton of appraisers over the past three years, but I can't recall any of it being over this issue. (I read each one of them).

I think many appraisers get into trouble by not even addressing the HBU on small acreage properties. If you address it and have support for your reasoning, I can't imagine the board taking action against your license...but then again, I'm not on the board.

BTW: I didn't mean to sound like I thought you weren't being truthful about the other commissioners statements...just pointing out why it doesn't mesh with the existing statute as I read it.

 

[MoTim]

Sean, appreciate your response. I agree, its very subjective, actually too subjective, and, while I may understand my reasoning, I'm afraid a board member may not. Even though I present my case logically, it can still turn against me. I would just like more clarification for those of us Res appraisers.

I've become more interested, becaused I've been licensed since the mid-90's and have done hundreds of these non-complex vacant land tracts prior to the rule change. I have the background, training and even the education outside of appraisal school to do these. Probably more training and knowledge than a majority of the Generals' working in my area doing them. I just lack the General License. What got me going is I have turned down approx. $3,000-$4,000 worth of work in vacant land assignments and at least another $1,000 worth of homes on moderate acreage amounts just in the last 90 days. Probably $8,000-$10,000 in income this year. Got to researching the rule and became more confused as I went. I'm a businessman. I like to use my experience and knowledge to make a living. I have had a General sign off before, but its a hassle for both of us and I'm more independent than that.

I didn't take your comment in a negative way. I was amazed by it myself to be honest. I look at it more as, how would I explain a working "hobby" farm that doesn't produce income? I think that one would actually get laughed out of the board meeting!

Thanks for everyone's input, especially you David. Your insight helped me feel like I wasn't crazy!! The way I was trained to think didn't match up with what I was being told and was reading. I guess we'll call it good and thanks again!

 

[rolco]

The problem with using HBU as a determining factor on what a CR can or cannot appraise, is that a thorough HBU analysis would need to be completed prior to accepting the assignment, correct?

Is the CR expected to have the education, experience, and resourcefulness to complete a HBU analysis for a property which may potentially have a HBU of something other than a Residential use?

rolco