MPLS Zoning, Part 2, The Aftermath

[Terrel L. Shields]

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

Apparently the state thinks you need to "have in your workfile" the entire set of zoning rules for the city plus a map plus discuss in great detail (within the workfile) why and how it impacts HBU...in other words, you will be sanctioned if your report comes before your board, period. No ifs, no ans, no exceptions...of course, some will argue that this means the boards are overstepping while others apparently think they can and should do all those steps on even the $100 hybrid and could do so economically. I think it is absurd. Lucky you.

 

[DTB]

City Hall also seems to think that if they change zoning classifications, the market always celebrates those changes.

Bbbbut we want more density and diversity! The market said pffffffffffft!

I am so sick and tired of pinhead bureaucrats thinking that they matter one iota.

 

[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. 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.

Tom: What areas had Mass Rezoning? I'm listening to the MN DoC advisory board, and they are saying that the MPLS change is the first in the nation. I'm hoping to know what city had specific rezoning

 

[CANative]

This doesn't sound fundamentally different than CA's Second Unit Law which essentially states that anywhere a SFR is a permissible use, a second unit is also permissible.

So is your issue the additional HBU analysis to determine if a SFR without additional units still at HBU?

 

[George Hatch]

I'll take a single pass through this, my assumption being that some of the specifics are probably inaccurate.

HIGHEST AND BEST USE SUMMARY​

The analysis of the highest and best use for the subject site in its as is condition is necessary in order to identify the basis upon which the property is currently worth as a means of further identifying which types of buyers will typically pay the most and which of the subject's attributes will be most significant in their valuation of the property. This in turn enables the appraiser to identify which types of properties will be among the most comparable properties to those types of buyers. The analysis of Highest/Best use employs the use of 4 tests which when used cumulatively will narrow the range of possible conclusions from the many to the last one or two possibilities.​

​

Legally permissible: The site is currently zoned "Multiple-family District ", which allows for multiple residences onsite subject to meeting various development criteria; such as a maximum density of 1 dwelling unit per 1500sf, minimum unit sizes of 500sf, minimum onsite parking requirements of 2 spaces (total) and minimum setbacks: 20ft in front, 15ft in the rear and 5ft on either side. This site will also be subject to any utility easements and encroachments as specified in the title report.​

​

Physically possible: The subject site consists of a single family dwelling on a 60 x 120 subdivision parcel. The apparent setbacks of the existing structure are located 25ft from the street frontage of the parcel, with 7ft side setbacks on either side. There is an existing 2-car garage onsite. Based on the minimums outlined in the development criteria noted above these existing improvements appear to be generally permissible. After consideration of the 25ft front setback and the mandatory 15ft rear setback, the remaining building envelope for this site amounts to about roughly 50 x 50 pad behind the existing structure. This will be sufficient to accomodate 2 additional units as permitted under the maximum density of this site.​

​

Financially Feasible: Based on a site value analysis (see the site valuation section contained in the Cost Approach section of this report) compared to the improved sales in the Sales Comparison it is apparent that the existing use of this site as an SFR+additional lot area for 2 more units is worth more than the underlying lot value as vacant. If vacant, the site could be built out with up to 3 residential units.​

​

Most Profitable: The final criterion is to compare the remaining alternatives (either continued use as an SFR+extra lot area for 2 additional units, or as land value) to see which returns the highest value for the subject. As demonstrated by the comparison of the site valuation vs improved sales in the Sales Comparison it is apparent that the existing configuration (SFR+ extra lot area for 2 units) represents the highest and best use for the property in its "as is" condition, whereas the HBU as if vacant would be to build 3 units.​

​

The remainder of this appraisal for Market Value will be based on this conclusion.​

(mostly boilerplate, you will typically edit the areas in red as applicable)

 

[George Hatch]

City Hall also seems to think that if they change zoning classifications, the market always celebrates those changes.

Bbbbut we want more density and diversity! The market said pffffffffffft!

I am so sick and tired of pinhead bureaucrats thinking that they matter one iota.

That's really not the problem that it may appear to be. You're still going to use the same comparables which will also be subject to the same criteria as your subject. So whatever the market's reaction is or isn't, it will be apparent in your data.

What appraisers will need to do is become familiar with the development criteria. A town can say 2nd units can be added but that doesn't necessarily make it physically possible for every lot if they also retain their onsite parking requirements and setbacks. It might be *possible* to add a 2nd story unit to an existing structure but depending on the design/construction it might not be financially feasible to do so.

The site size/shape/topo or the orientation of an existing structure can either enable or effectively prevent the addition of more units to a site regardless of what's theoretically possible in the abstract of a blanket change in the zoning.

 

[CJ1234]

This doesn't sound fundamentally different than CA's Second Unit Law which essentially states that anywhere a SFR is a permissible use, a second unit is also permissible.

So is your issue the additional HBU analysis to determine if a SFR without additional units still at HBU?

No, I actually have no issue completing reports, including H&B. I had a report that was demanded in the fishing expedition, however my property (completed by my trainee, with me inspecting the subject and driving the comps) was outside of Mpls, but had a Mpls mailing address. My peer (the noted below the one with the 3 lone "correct" reports, but incorrect work files) and I compared notes and our H&B and they follow the similar pattern outlined by George above.

My issue is how the DoC has handled this issue and continues to handle it.

I listened in on the MN DoC advisory board meeting this week. One of the questions presented to them, was if 3 reports correctly analyzed the H&B use in the reports, how were their work files lacking? As I personally know the one appraiser who wrote the 3 "correct" reports, I know that his written analysis had all the pertinent data. As his report is part of the work file, I'm at a loss to how his work files were incomplete.

The Advisory Board basically said, "USPAP is a flexible document, we cannot state absolutely what was lacking, or what would be required in the work files" This was the same answer given to the investigator, who had the same response. An attorney for an AMC who was on the panel discussion restated the question to the board multiple times, with no direct answer--or should I say the same non answer.

My second issue is that the DoC said, repeatedly, Mpls is the first city to do away with SFR. I know this to be partially false, as Tom above said there was some partial mass rezoning in his state, and I believe Portland has done something similar. I want to know if THOSE enforcement boards went on a fishing expedition too...and how did they handle enforcement and education?

I had a file go to the DoC a few years back. Refi of a recent purchase. MV was below last sales price, unless market boundaries were crossed (i.e. in to a Nationally top rated school district), there was no way of getting that prior sales price. The DoC came back and said that they found no errors and that the case was closed, but that my work file was lacking. I reached out at that time to see how it was lacking, to which I received no direct answer. This is an ongoing issue, being "called out" for something with out specific guidance or specific examples. I stand by my work file.

 

[George Hatch]

The board might not have a great handle on certain elements of USPAP. First off, on the development side the SOW test has two parts: peers and expectations of other users of such assignments.

So if the board is concluding that most appraisers performing these assignments are not doing something in those assignments and never have then this conclusion will also strongly imply that most users using these assignments are not demanding that something. Otherwise the appraisers would have been doing it all along.

Secondly, on the reporting side the overarching goal is "meaningful to intended users and not misleading". I've been writing substantiative HBU analyses in my appraisal reports for many, many years and I'm virtually certain that most of those summaries don't actually get read. The exception being for land appraisal assignments and other situations where I end up valuing the property on other than it's existing use.

In lieu of explicit instructions in USPAP to the contrary, the ASB *illustrated* what - in their opinion - they meant in their use of the term "summarize" in an AO-38. The examples used to illustrate the difference in the level of detail between "state" and "summarize" have remained intact since they first appeared in AO-11 back in the 1990s, then were later rolled into AO38.

So while the way the URAR treats the HBU conclusion more closely resembles "stating" the conclusion than summarizing it, the equivalent level of detail for a summary of that analysis would not normally include a comprehensive and detailed regurgitation of the data such as the quants have been trying to sell to the appraisal profession as the one and only way to write an appraisal report.

So when a State Board buys into the hype and extends an expectation which is neither user driven nor peer driven (let alone driven by both) then I think they might be getting out over their skis a bit.

Now it goes without saying that AO38 is not USPAP and as such is not an enforceable standard, but by the same token it's unethical for a reviewer or a state board to attribute to USPAP an expectation for a level of detail which is not addressed in USPAP itself, and which does directly conflict with the ASB's stated opinion of what is/isn't a summary. These AOs are not necessarily the only way to handle a given situation, but in lieu of info to the contrary it would be hard to argue that the ASBs opinion as expressed in an AO will always be categorically incorrect.

IMO, it's extremely important for people to attribute to USPAP only what it actually requires, and to refrain from mischaracterizing our individual preferences as a uniform standard to which everyone else must comply. , The document only says what it says, and no more.

And however true that is for a reader or a reviewer, it's 10x more important for a state board to understand.

 

[George Hatch]

BTW, I think the level of detail I used in my example is overkill. Far more than what SR2-2.a requires or what most SFR lenders would expect. The main reason I went into that level of detail was because the example given of upzoning everything makes those anlyses a bit more complicated than what you would normally run into with a standard R1 type zoning scenario. Valuing properties which might allow for multi-unit development can get a little more involved than a simple WYSIWYG as is normally the case.

 

[Flakey]

This is an ongoing issue, being "called out" for something with out specific guidance or specific examples.

I think this is the crux of the matter. Over time, and given enough actual data, it should become easier to properly develop and defend one's work. Under current circumstances, I would tend to avoid assignments with the potential for such adverse consequences.