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Mixed-use/rural Property

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Sooner Mike

Freshman Member
Joined
Feb 10, 2002
Professional Status
Certified Residential Appraiser
State
Oklahoma
Hi fellow appraisers. I don't post often, but I have an issue that I can't seem to find an answer for. A client ordered an appraisal for a single-family residential property (a conventional 1004 UAD). County records here are not very good, so I'm never really sure what I'll find until I get out there.

This particular property is a small acreage (2.00 acres) with a 1900's school house that was converted into a residence (1,600 sf - three bedrooms, one bathroom, living, dining, kitchen and laundry room). The interior of the "house" is nice, with all of the normal amenities; but the property still looks very much like an old school-house or church (large square building with a small square entry and double entry doors). There is also a large (70' by 40') metal building with an additional 30' by 30' "shop" built onto one end. The metal building has a very "commercial" look and feel to it. It has a glass entry door with a canvas canopy, and a large asphalt parking lot in front. The building is divided into three sections; 1) a 30' x 40' finished area with a lobby, a "sales counter", a partitioned "office", a small room with a refrigerator, sink and a few cabinets, and another larger "storage" room; 2) a 30' x 40' open "industrial" shop area with a plywood-walled bathroom (utility sink/wash basin and toilet only), a large overhead door and a small entry door; and 3) a 10' x 40' storage area with a large over-head door. This building has recently been used as a trucking company and a truck mechanic shop, and was used commercially as recent as two years ago. The current owner lives in the "school-house" and rents this building to an OTR trucker that apparently lives there (even though there is no functional kitchen and no bath or shower; she said that the guy "comes over" to shower when he needs and "only eats out"). The tenant setup a small "living room" in the lobby, put a bed in the corner, and has a few hotplates hooked up at the sales counter. The other 30' x 30' portion of the metal building is not accessible from the interior of the main building and is basically used as a detached garage for the "school-house", with a couple of overhead doors and a small entry door. This smaller section is basically a typical metal "workshop" (which is very typical for the area).

Ok, so now that I've described what is there, let me describe where it is. The property is located in a somewhat rural area about 10 miles south of Norman (OK) that was recently annexed by a small bedroom community. The area is currently zoned as agricultural, and is considered a grandfathered-use. The property owner told me that the city is very anxious to rezone the property strictly for commercial use. The property is located on the east side of I-35, right at the on-ramp to the northbound lane, and is just over the bridge from the southbound I-35 exit. The interstate is highly visible from the property, and the property is highly visible from the interstate. In fact, the acreage recently changed due to the taking of additional land for right-of-way.

Now the problem: As soon as I got to the property, I immediately thought that this was a commercial property. I brought up the issue with the property owner and told her that she may have an issue getting a residential mortgage on this type of property. She was annoyed, and tried to convince me that the property was a residential property. I tried to explain Highest and Best Use, and she finally conceded that the property would be worth far more to a commercial buyer than it would be to a residential buyer. When I got back to the office, I notified the client that the property was a commercial property (which was not appropriate for the type of loan or for the appraisal product ordered), and that it was beyond my expertise and license level (I'm not a CG). Today, I received this email from the client:

"I have spoken with the loan officer on that has he has given his instruction to appraise this as a 1-4 family (I'm sure he meant 2-4 Family). He has walked through this property before and assures it is residential. He has made note that this information can be placed in the report in order to avoid any further issue. Please let me know if you need anything else further. Thank you,"

I flipped through USPAP a few times, searched the forums, and called a few appraiser's, but I don't really know the best way to handle this. I always assumed that if the highest and best use is commercial, then it needed to be appraised as commercial. Can I even appraise this as a residential property (I wouldn't think so)? The property is zoned AG, and both uses are legally permissible. Based on the grandfathered use and what the property owner told me about the city's wish to re-zone, I'm sure that if the property were to ever not be used as a residence (burned, destroyed, etc.), the zoning would likely change to commercial.

Thanks to all in advance for your advice.

Sooner Mike
 

Sooner Mike

Freshman Member
Joined
Feb 10, 2002
Professional Status
Certified Residential Appraiser
State
Oklahoma
I forgot to mention:

Obviously, I realize that the property is not a 2-4 unit residential property. My question is more about whether I should even appraise the property at all, not whether I should appraise it as a 2-4 unit. The email asking to appraise it as a 2-4 unit is not what confuses me. I was afraid that my post may come across as 'how do I appraise it as a 2-4 unit property.'
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
Sooner Mike said:
When I got back to the office, I notified the client that the property was a commercial property (which was not appropriate for the type of loan or for the appraisal product ordered), and that it was beyond my expertise and license level (I'm not a CG). Today, I received this email from the client:

"I have spoken with the loan officer on that has he has given his instruction to appraise this as a 1-4 family (I'm sure he meant 2-4 Family). He has walked through this property before and assures it is residential. He has made note that this information can be placed in the report in order to avoid any further issue. Please let me know if you need anything else further. Thank you," The property owner told me that the city is very anxious to rezone the property strictly for commercial use.



1st. :ROFLMAO: Let the loan officer write the appraisal. Last I checked, they don't have to certify or hang their license on the line for an opinion of highest and best use of a property.

2nd. If you are uncomfortable doing this report. Don't do it. It will wake you up at night worrying about it.

3rd. Did you contact the city to verify this desire of theirs to rezone the property? If not, do that. Owners will tell you all kinds of stories to try and boost the value of their property, until they realize they've shot off their mouth too much and what they said could have negatively impacted their value.

4th. I brought up the issue with the property owner and told her that she may have an issue getting a residential mortgage on this type of property.


NEVER discuss loan types with property owners. You are not a loan officer, and your loan officer is not an appraiser, but somehow, you guys seem to want to do each other's jobs. You made your issue, (Not knowing if the property can be appraised as a residence) the property owner's issue, by spouting off about something you do not know, and are now here asking.

5th. We can not tell you if the property is commercial or not. Sounds like it to me, but would depend on what the city zoning officer is saying, what the current zoning allows as permitted and conditional uses and what the area demand is for truck centers.

Best advice I can give beyond the above is that,

I believe Terrel Shields may be very familiar with the Norman OK area. He is a commercial appraiser and may know of this property. Ask him what his thoughts are.

.
 

KHS445

Member
Joined
Aug 20, 2011
Professional Status
Appraiser Trainee
State
Michigan
I am not being critical of you for asking these questions, but frankly if you are asking these type of questions you probably should step back from this order. Definitely sounds like there could be a lot of moving parts in this request and I seriously doubt it will fit neatly on any sort of residential or 2-4 unit form. Even if you can force it to fit a form report finding comparable properties sounds like it will be difficult if not impossible.

Things I would consider:
Highest & Best Use - both as currently zoned and possible future zoning. I believe that an honest and uninfluenced H&B study will result in this property being commercial. Remember to consider both "as vacant" and "as Improved".
How is it more than a single unit property without having kitchen/bath facilities in the supposed second unit?
Does current use meet existing zoning? I seriously doubt the rental of the outbuilding to the trucker as living quarters is a legal activity (not grandfathered if it is not), so calling it a multiple unit residential income property is not an option.
What is the likelihood of the zoning being changed and would this property meet that criteria?

To me this is a commercial request with an owner occupied/rental house and commercial rental space. Be sure to remember if there is more than one occupant at a minimum (to be fully functional) a bathroom would need to be installed in the commercial space. By all means do not let the lender or the property owner talk you into completing a request you are not comfortable with. Sometimes the deals you walk away from are your best deals. You can probably complete two or three regular 1004 reports in the time you will spend on this one.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Give the assignment back, you already analyzed it and concluded (rightfully so), that HBU may be commercial . The lender is trying to railroad you into doing it as a 2-4 family? Wow. Withdraw from assignment, reiterate it may be beyond your license level and move on. This is imo a sleazy client and you might want to rethink taking work from them. They are trying to get you to do a possibly misleading appraisal ( as a 2-4 family) to get a loan through. Also be more careful about the kind of conversation you had with a homeowner about her mortgage, HBU etc. We can ask them questions about the property, tenants etc, but should not be discussing types of mortgages with them.
 

JTip

Elite Member
Joined
Oct 12, 2004
Professional Status
Certified Residential Appraiser
State
Pennsylvania
"After physical inspection of the subject property and the expanded scope of work involved, I request the fee be increased to $5,500 and 4 week turn time. Please confirm acceptance the fee or reassign. Thank you."

1) Get it, find a CG and pay them $4,000 to help.

2) Reassigned, hooray.
 

Michigan CG

Moderator
Staff member
Moderator
Joined
Nov 1, 2006
Professional Status
Certified General Appraiser
State
Michigan
No way that is a 2-4 unit property. Loan officer doesn't care if you lose your license. Tel then to call a CG and get out the checkbook. $3,000.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Concur that HBU as vacant is comm. AS IS the question becomes do the improvements which appears to be RESIDENTIAL with an outbuilding so question is, does it have more value as vacant or does the improved property have the most value? So central to that is there a high amount of external obsolescence? And, is the remaining life measured in single digits? It could be residential for years and no one can force commercial on them. But value land as if vacant and available for its highest and best use, diff in land value vacant (commercial) v. if residential is the measure of external obsolescence.
 

Sid Holderly

Senior Member
Gold Supporting Member
Joined
Jun 16, 2005
Professional Status
Certified Residential Appraiser
State
Indiana
I agree with Terrel, "AS IS" is residential, which is what the lender is lending on. The question problem is HIghest & Best Use, vacant land or as improved. The lender may still lend on it even it the highest and best use is not residential, that depends on the lender.
Local banks lend on all types of combinations. If they are not going to resell the loan it does not have to meet stricter standards than those of that particular lender/bank. Based on descriptions given commercial use is off into the future. This report would have additional research and analysis. In this area, the local lender would want a 1004 or GP with ADU valuation and they might want the ADU income excluded. Residential homes with large a toolshed/shop or more are common on small acreage. It is an odd variant and would be an odd appraisal.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Revisit the OP post...this does not sound so much like residential with an outbuilding, AS IS more a mixed use property, highly likely the smaller house has less contributory value. than the larger commercial use building with a big asphalt parking lot to the site..

In any event, the lender is pressuring appraiser to appraise it as a small income residential. This is a client I would be very wary of doing future business with. It's sad that an unethical/pressure tactic from a client causes an appraiser to doubt themselves, rather than doubt the client.
 
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