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Mixed Use Properties

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bororke

Freshman Member
Joined
Jun 14, 2013
Professional Status
General Public
State
Florida
I have a question in regards to mixed use properties. What is the responsibilities of the appraiser if the home has a business. The example I have is the home is being used full time as an Art school and the loan is a refinance of the customer's second home?
 

JTip

Elite Member
Joined
Oct 12, 2004
Professional Status
Certified Residential Appraiser
State
Pennsylvania
I'm not going to lie just so the homeowner can get a loan. My certification is not worth a few hundred dollars.

I'll tell the truth, the whole truth and nothing but the truth.
 

cejack

Sophomore Member
Joined
Mar 3, 2011
Professional Status
Certified General Appraiser
State
Nevada
Is it a legally permissible use or not?

Has it been converted in such a manner that is no longer functional as a residence? (Even if it isn't legal - if it hasn't lost its function or isn't being trashed - the bank gets the property back on default and no harm has really been done. I'd still report the present use in the appraisal though.)

Some "home businesses" are legal and have been approved or received a waiver or variance or special use permit with conditions from the appropriate authorities. Others have not.

Really need to figure out all the legally permissible angles for that use in that location or lack thereof and just tell the truth in the appraisal report and how you think it may or may not affect the value of the real property.
 

timd354

Elite Member
Joined
Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
the home is being used full time as an Art school and the loan is a refinance of the customer's second home?
Smells like loan fraud...if the home is being utilized full time as an art school, then it obviously is not being used by the borrower as a second home nor for any other residential use.
 

Terrel L. Shields

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May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
If there is no damage to the house then how different from an appraiser using the spare room for an office?
 

timd354

Elite Member
Joined
Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
If there is no damage to the house then how different from an appraiser using the spare room for an office?
The difference between the two situations is that the appraiser using the spare room as an office is actually living in the home and using it as a residence. If the home described in the OP is being used 100% to run an art school and not used for residential purposes at all, while that may not represent an increase in collateral risk (asssuming the home has not been modified so it can no longer function as a residential property), but a loan on a property that is not being used for residential purposes has a much higher default risk and is also not eligible for GSE-backed residential mortgage financing, which is why non-residential loan carry a higher interest rate. Trying to misrepresent a home that is being 100% used to run an art school as a second home (if that is what is actually being done here) is occupancy fraud.
 
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Terrel L. Shields

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Professional Status
Certified General Appraiser
State
Arkansas
occupancy fraud.
Never stopped anyone during the boom...Saw a guy in CA buy two houses locally for more than 100k over list, both to move in within six weeks. I doubt he ever left CA.
 

timd354

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Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
Never stopped anyone during the boom...Saw a guy in CA buy two houses locally for more than 100k over list, both to move in within six weeks. I doubt he ever left CA.
Very true, but that does not make it right and look at what happened because of all of the fraud and just plain 'ol stupid lending that went on. I also think that most lenders and secondary market players take mortgage fraud a lot more seriously now although there are undoubtedly still some bad apples out there.
 
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The Warrior Monk

Moderator
Staff member
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Joined
Mar 30, 2005
Professional Status
Certified General Appraiser
State
New York
in situations like this I call the client and discuss the issue. Some zone codes allow this type of use in residential zones if it is non-profit. I've dealt with a few art schools over the years, and in all but one of the situations (unusual preexisting situation) I've dealt with the use of the property as an art school was not the highest and best use of the property. Of course, the issue of financing the property as a second home, when the property is not a second, is an issue that needs to be addressed with the client, regardless of the HBU of the property.
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
I have a question in regards to mixed use properties. What is the responsibilities of the appraiser if the home has a business. The example I have is the home is being used full time as an Art school and the loan is a refinance of the customer's second home?

If the school has been licensed by the county, state or municipality to operate at that location,
you are done at commercial use.

.
 
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