MPLS Zoning, Part 2, The Aftermath

[CJ1234]

Here, from the DOC email that came out today, findings from the Fishing Expedition of Spring:

"On December 20, 2019, the Commerce Department sent notice to appraisers and appraisal management companies about new zoning laws in the City of Minneapolis. On January 1, 2020, these new zoning laws went into effect. In an effort to understand how the new zoning laws are being implemented, Commerce staff requested appraisals completed in Minneapolis after January 1, 2020. The Department received and reviewed 135 appraisal reports for Minneapolis properties. This letter summarizes the Department’s findings.
Of these 135 appraisals,

1. 117 of them provided the correct Specific Zoning Classification (e.g. R1A, R2B);
2. 15 provided the correct Zoning Description, which was “Multiple-family District.” The other 120 reports contained a mix of Zoning Descriptions, including: Single Family District (low density) (R1 & R1A) and Two-family District (low density) (R2 & R2B). After January 1, 2020, the R1, R1A, R2 and R2B classifications changed to the Zoning Description of “Multiple-family District.”
3. Three files had a Highest and Best Use analysis that conformed to USPAP Rules 1-3 and 2-2(xii), as described below. The other 132 reports seemed to stop their analysis at single family residential, which is what their current use was, but did not account for the multiple family uses allowed by the new Minneapolis zoning law. If analysis was completed, it was not reported and USPAP requires appraisers to summarize and report their analysis.
4. Zero work files associated with these reports included data that would support either the appraisers’ analysis or conclusion. The USPAP Record Keeping rule states that, among other things, a work file must contain “all other data, information, and documentation necessary to support the appraiser’s opinions and conclusions and to show compliance with USPAP, or references to the location(s) of such other data, information, and documentation.”

As described above, the vast majority of appraisal reports reviewed by the Department as part of this analysis did not take into account the new Minneapolis zoning laws. In addition, work files did not fully document the analysis of the appraisal performed.

Commerce shares this information to make appraisers and appraisal management companies aware of the results of the agency’s review. The Department will collaborate with the Real Estate Appraiser Advisory Board, trade organizations, and continuing education providers to ensure a common understanding of how available tools can be used to raise the overall awareness of the appraisal treatment of residential property in Minneapolis.

Highest and Best Use
The definition of highest and best use, as defined by, The Appraisal of Real Estate, 14th Edition, is as follows:

“The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. Alternatively, the probable use of land or improved property – specific with respect to the user and timing of the use – that is adequately supported and results in the highest present value.”

Under USPAP Standards Rule 1-3,

“When necessary for credible assignment results in developing a market value opinion, an appraiser must:

• Identify and analyze the effect on use and value of: (i) existing land use regulations; (ii) reasonably probable modifications of such land use regulations; (iii) economic supply and demand; (iv) the physical adaptability of the real estate; and (v) market area trends; and
• develop an opinion of highest and best use of the real estate.”

In addition, under USPAP Standards Rule 2-2(xii), when an opinion of highest and best use is developed by the appraiser, the appraiser must state that opinion and summarize the support and rationale for that opinion.

The comments to USPAP Standards Rule 1-3(b) notes that an appraiser “must analyze the relevant legal, physical, and economic factors to the extent necessary to support the appraisers highest and best use conclusion(s).” For example, when running through these factors, local zoning restricts potential uses (e.g. single family residential being the only use permitted), so the highest and best use analysis would be restricted to what is legally permissible as of the effective date of the appraisal.

However, there may be instances when multiple uses are legally permissible. In those instances, an appraiser must consider the site’s physical possibilities, financial feasibility of the permissible uses, and which use will result in the highest monetary return. It further provides that when a site contains improvements, the highest and best use may be different from the existing use. Implied in the definition of highest and best use is that the determination of highest and best use takes into account the contribution of a specific use to the community and community development goals, as well as the benefits of that use to individual property owners. Regardless of the result of the highest and best analysis, whether its the same as its current use or differs from its current use, an appraiser must summarize the analysis that led to their conclusion.

In all appraisal reports, an appraiser should report the correct zoning designation, zoning description, and include in their analysis of all uses that are legally permissible. Of the uses that are legally permissible, an appraiser must identify which of those uses is the highest and best use and their rationale for selecting that particular highest and best use pursuant to USPAP Standards Rule 1-3. In addition, the work file must contain support for the appraiser’s conclusion as required by USPAP Standards Rule 2-2(xii).

If an appraiser would like more information on where to obtain additional education on this topic, education providers can be found here or by contacting the Minnesota Department of Commerce.

 

[CJ1234]

One of my Trainee's files was "requested" It was a file with a Mpls mailing address, but was physically and legally located in St Louis Park (and was addressed as such in the report, with a reference to a "Mpls" mailing address possible). We received the "apology" form letter, which was NOT clear that that matter was closed, and made no mention of the mess up even requesting our non-Mpls file.

So, zero work files....What does that mean? Only 15 had a correct description, 3 had adequate H&B use analysis. If they have the analysis in the report, what more should be in our work-file?. (Not a sarcastic question, but an earnest one)

 

[jay trotta]

CJ1234;
Here, from the DOC email that came out today, findings from the Fishing Expedition of Spring:

"On December 20, 2019, the Commerce Department sent notice to appraisers and appraisal management companies about new zoning laws in the City of Minneapolis. On January 1, 2020, these new zoning laws went into effect. In an effort to understand how the new zoning laws are being implemented, Commerce staff requested appraisals completed in Minneapolis after January 1, 2020. The Department received and reviewed 135 appraisal reports for Minneapolis properties. This letter summarizes the Department’s findings.

Don't know your area well enough, just a simple Question though; Under previous zoning, would this now place all of those site's in a Non-Conformity issue ? And if True, how does the State or Municipality (or both) address the Non-Conformity ? I don't recall ever getting individual notice of zoning changes here, from any commerce department.

 

[CJ1234]

CJ1234;
Here, from the DOC email that came out today, findings from the Fishing Expedition of Spring:

"On December 20, 2019, the Commerce Department sent notice to appraisers and appraisal management companies about new zoning laws in the City of Minneapolis. On January 1, 2020, these new zoning laws went into effect. In an effort to understand how the new zoning laws are being implemented, Commerce staff requested appraisals completed in Minneapolis after January 1, 2020. The Department received and reviewed 135 appraisal reports for Minneapolis properties. This letter summarizes the Department’s findings.

Don't know your area well enough, just a simple Question though; Under previous zoning, would this now place all of those site's in a Non-Conformity issue ? And if True, how does the State or Municipality (or both) address the Non-Conformity ? I don't recall ever getting individual notice of zoning changes here, from any commerce department.

Jay,
To help address a housing shortage, on 01/01/2020, Minneapolis became the first large American city to end single-family zoning:
Prior zoning was R1, R1a "Single Family"
Effective 01/01/2020 R1, R1a is now "Multi family," allowing for up to 3 units. Note, there has been 1 permit issued since the change to convert to more than 1 unit.

The elimination of single-family zoning was accompanied by a package that included four other reforms.
First, the policy created the possibility of more housing density near transit stops by allowing the construction of new three-to-six story buildings.
Second, the policy eliminated off-street minimum parking requirements (the fourth city in the United States to do so).
Third, the package included a provision for “inclusionary zoning”. This required that new apartment developments set aside 10 percent of units for moderate-income households.
Fourth, the city council approved increased funding for affordable housing from $15 million to $40 million in order to combat homelessness and provide immediate relief to low-income renters.

 

[Tom D]

so when they changed the zoning here, they mass rezoned some blocks, or groups of st blocks, to have some multiple uses. so now i have to explain why the single family homes in a mixed inner city commercial use zoning, or a multi family zoning, highest & best use isn't commercial, or 2-4 family.
i have seen to many reports where the appraiser says absolutely nothing about H&B.
this is a good thread, i guess i need to fine tune my h&b. what's another page explaining the obvious. yes, more minutia. working on it right now while waiting out the riots here.
i'm looking forward to some of you more scholarly appraisers to lay out some of your comments. i certainly appreciate this blog & everyone who will do that.

 

[CJ1234]

so when they changed the zoning here, they mass rezoned some blocks, or groups of st blocks, to have some multiple uses. so now i have to explain why the single family homes in a mixed inner city commercial use zoning, or a multi family zoning, highest & best use isn't commercial, or 2-4 family.
i have seen to many reports where the appraiser says absolutely nothing about H&B.
this is a good thread, i guess i need to fine tune my h&b. what's another page explaining the obvious. yes, more minutia.
i'm looking forward to some of you more scholarly appraisers to lay out some of your comments. i certainly appreciate this blog & everyone who will do that.

And that is my biggest question...If I analyze it, what more do I need in my work file?

How can I add to this:
• ZONING CLASSIFICATION
The R2 Multiple-family District is established to provide for an environment of predominantly low density, single-, two-, and three-family dwellings and cluster developments. In Addition to residential uses, institutional and public uses and public services and utilities may be allowed. SH / Shoreland Overlay District

• URAR: Site - Highest and Best Use
The subject property is located in an established neighborhood and is zoned accordingly. A zoning change is unlikely in the foreseeable future. The subject meets the four tests of Highest and Best Use. Residential use is highest use.

On October 25, 2019, the Minneapolis City Council adopted a resolution to approve the Minneapolis 2040 plan. Information about the plan can be found here, https://minneapolis2040.com/. A key element to this plan is that, starting on January 1, 2020, many neighborhoods in Minneapolis that were once only zoned for single-family houses will now be legally zoned to allow up to three units per property.

The four tests of highest and best use are: (1) legally permissible (2) physically possible (3) financially feasible and (4) most profitable. The first two tests are interchangeable in order and, the last two are often are combined. Steps Three and Four (financially feasible/most profitable) cannot be determined until the first two steps are analyzed..

Test 1: current use if legally permissible; 2 or 3 unit would also be legally permissible
Test 2: the current use is physically possible. A 2 -3 unit does not easily lend itself to the current improvement foot-print and floor-plan.
Test 3: the current condition and characteristics of the property do not easily lend itself to conversion to 2-3 unit property as the improvements of high quality and condition. It would not be financial feasible for the other legally permissible uses, as of the effective date of this report. Based on current market conditions, the present use and structure as a single family residence is its financially feasible and maximally productive use.

 

[jay trotta]

Jay,
To help address a housing shortage, on 01/01/2020, Minneapolis became the first large American city to end single-family zoning:
Prior zoning was R1, R1a "Single Family"
Effective 01/01/2020 R1, R1a is now "Multi family," allowing for up to 3 units. Note, there has been 1 permit issued since the change to convert to more than 1 unit.

The elimination of single-family zoning was accompanied by a package that included four other reforms.
First, the policy created the possibility of more housing density near transit stops by allowing the construction of new three-to-six story buildings.
Second, the policy eliminated off-street minimum parking requirements (the fourth city in the United States to do so).
Third, the package included a provision for “inclusionary zoning”. This required that new apartment developments set aside 10 percent of units for moderate-income households.
Fourth, the city council approved increased funding for affordable housing from $15 million to $40 million in order to combat homelessness and provide immediate relief to low-income renters.

OK, better understanding of where that is going, sounds familiar for some reason (maybe read it on the net or somewhere). City services allow big changes, which are not always a good thing, as other services get increased and Taxes will rise to compensate; so now does the SFR become more valuable because of the expanded Use ? OR does one Hold for future soaring value (prime pre-existing use) ?
Interesting to see how that plays out; if I remember, one little old lady held out (Casino Development NJ, I think), but she held to long and wound up they built all around her little house and never made the offer she thought she would get.

 

[Flakey]

"The Department will collaborate with the Real Estate Appraiser Advisory Board, trade organizations, and continuing education providers to ensure a common understanding of how available tools can be used to raise the overall awareness of the appraisal treatment of residential property in Minneapolis."

That's one ominous sentence right there.

 

[Tom D]

CJ1234, you the h&u man. i gonna copy you to my h&u page. the other comment i change is 'The cost of conversion to 2 family with the current single family layout makes it economically unfeasible to convert to 2 family.' i think they want us to be very exact specific about the why not. the term 'economically unfeasible' is a very big general term.

 

[CJ1234]

"The Department will collaborate with the Real Estate Appraiser Advisory Board, trade organizations, and continuing education providers to ensure a common understanding of how available tools can be used to raise the overall awareness of the appraisal treatment of residential property in Minneapolis."

That's one ominous sentence right there.

EVERYTHING about this was ominous. Original post here, and other forums. The original letters said "complaint had been made" please turn in your workfiles, you may be subject to costs associated with the investigation in to the complaint" Second version said, Oops, not "complaint" but something along the lines of "research in to the matter," but still included the statute stating we would be subject to the costs of the investigation. The formal apology letter was a non-apology and the letter never said "Case Closed," which I want, especially since they demanded a file I signed, that was never even located in Minneapolis, but has a mailing address of Mpls. Oh, and it came at the beginning of the pandemic. Super fun time! Stress on top of stress.