Must appraisal GLA be based on city records GLA?

[Dan Tosh]

Mike Kennedy, you are correct. We did not say anything about "City Records" so that was not our concern. I don't disagree. KD 247, all appraisals use multiple regression. Regression is simply going back in time; ie 6 months prior to the valuation date. The multiple portion in the comment refers to the various differences as opposed to linear regression. The R2 should be higher than 95% if possible for good comparables. In this case there were many sales of homes similar in size, with finished basements that sold for equal to, less than and more than the assigned value. The only thing we are speaking to here is the fact that we are not going to be bullied into counting a finished basement as GLA unless and until it is considered legal. That's it! If anyone else wants to do it be my guest....

 

[Dan Tosh]

I'm sorry CANative, I forgot to mention that my step-sister lived in Hopland for over 20 years and we used to visit her and her husband. I didn't just pass through. Take Care

 

[gavin]

For whatever its worth, I'm not an Attorney, as Dan for some reason states in #30. I'm a Mechanical Engineer (with a fairly solid math and analysis background).

Regarding permits, I purchased the house 5 years ago and it was in this condition. Whenever the "conversion" of the lower level was done (I don't know how long ago), I don't believe any permits for anything were pulled (I don't know what Dan is referring to where he states in #30 "He has permits for something other than living area").

The permit report at time of purchase lists: 1957: Repair front steps; 1979: comply with BBI file 18391; 2006: Reroof. In 2010 I pulled permits to repair rear foundation.

The use is not "illegal," to my best guess as to what this implies. I don't see any reason why this could not have been done with permits. The bedrooms meet all the requirements that I know of (e.g. ceiling height, closets, heat, methods of egress, etc.).

Thanks to all who contributed to this discussion. The overall opinion that I'm left with is that there was no documentable reason to not count this area as GLA; and additionally no reason to assign market valuation of $30/sq-ft (not counting as GLA but assigning realistic valuation would have satisfied everyone).
It appears this is simply a fatally flawed appraisal, costing my broker, me & USBANK lost time and money on this refi. This opinion is further bolstered by the fact one of the comps was listed in MLS as "Fire damaged, bring your contractor."

I am going to attempt to refi again soon. Hopefully this time I will get a competent appraisal which will represent market valuation of the property, and not some fiction based on assuming that an entire floor of a house is not there ($29,000 valuation is basically $0, in practical terms).

Thank you, Gavin

 

[Mike Kennedy]

Please site these "very specific requirements" so verification and validation can be ascertained by a third party reviewer.

"What Is An Illegal Conversion Or
Change In Occupancy Or Use?
Sections 106A.1.12, 109.A.2, and 3406 of the San
Francisco Building Code requires a building permit
whenever a change in use or occupancy is made.
Some common examples of conversions that require
permits include:
Converting a attic, or basement storage area to a
dwelling unit or rooms used for living, sleeping,
eating, or cooking, (habitable space/rooms)."

http://www.sfdbi.org/ftp/uploadedfiles/dbi/Key_Information/Code%20Enforcement%20Process.pdf


I.E. above or below grade basement

"Story, first, is the lowest story in a building which qualifies as a story, as defined herein, except that a
floor level in a building having only one floor level shall be classified as a first story, provided such floor
is not more than four feet below grade, as defined herein, for more than 50 percent ofthe total perimeter,
or mon: than eight feet below grade, as defined herein, at any point."

 

[Marty Boone]

Marty, maybe you need to Google Dan Tosh?

Smokey, not really necessary. I followed the thread and I read where Mr. Tosh stated he was a USPAP instructor prior to my last post. What is your point. Smokey, should the OP still insist on a "local" appraiser?

 

[KD247]

... The overall opinion that I'm left with is that there was no documentable reason to not count this area as GLA...

If the appropriate comparables were put through a reasonable analysis, it shouldn't matter whether the area is considered to be GLA or treated separately as an additional amenity. Kind of like arguing that you would have won the race if the distance were only measured in meters instead of yards.

The exception would be in a case where a client specifies that the appraiser perform an analysis that deviates from considering the actual market reaction to the property.

 

[Dan Tosh]

For whatever its worth, I'm not an Attorney, as Dan for some reason states in #30. I'm a Mechanical Engineer (with a fairly solid math and analysis background).

Regarding permits, I purchased the house 5 years ago and it was in this condition. Whenever the "conversion" of the lower level was done (I don't know how long ago), I don't believe any permits for anything were pulled (I don't know what Dan is referring to where he states in #30 "He has permits for something other than living area").

The permit report at time of purchase lists: 1957: Repair front steps; 1979: comply with BBI file 18391; 2006: Reroof. In 2010 I pulled permits to repair rear foundation.

The use is not "illegal," to my best guess as to what this implies. I don't see any reason why this could not have been done with permits. The bedrooms meet all the requirements that I know of (e.g. ceiling height, closets, heat, methods of egress, etc.).

Thanks to all who contributed to this discussion. The overall opinion that I'm left with is that there was no documentable reason to not count this area as GLA; and additionally no reason to assign market valuation of $30/sq-ft (not counting as GLA but assigning realistic valuation would have satisfied everyone).
It appears this is simply a fatally flawed appraisal, costing my broker, me & USBANK lost time and money on this refi. This opinion is further bolstered by the fact one of the comps was listed in MLS as "Fire damaged, bring your contractor."

I am going to attempt to refi again soon. Hopefully this time I will get a competent appraisal which will represent market valuation of the property, and not some fiction based on assuming that an entire floor of a house is not there ($29,000 valuation is basically $0, in practical terms).

Thank you, Gavin

I stand corrected, Gavin, why in the world did you tell the appraiser, you were an attorney? Just for your information, the appraiser nor I as the supervisor, were looking to punish you. We spent a lot of time speaking to the County and trying to find out what the real size of the livable area was, since there was some converted basement area. Many homes in San Francisco have converted basements and some have areas behind their garages that are converted. The opinion of value is not flawed, it is an opinion and the one sale with fire damage was not given most weight in the analysis. There are other sales in the area that sold for even less than the ones we used. Of course, if the value had siuted your needs, we would not be going through all this grief. Appraisers are not advocates and the definition of value is "most probable price" not highest price. By the way, does competent mean and appraiser that will do what you want and reach a value that you need? I think you might mean "cooperative" appraiser. Wink, Wink, Nod Nod. All the appraisers on this forum are smart and competent, however, after they see the property, examine all the evidence and discover the facts, they may not be able to form a satisfactory opinion of value to meet your needs either, I guess they will be considered incompetent too.

 

[KD247]

... KD 247, all appraisals use multiple regression. Regression is simply going back in time; ie 6 months prior to the valuation date. The multiple portion in the comment refers to the various differences as opposed to linear regression. The R2 should be higher than 95% if possible for good comparables. In this case there were many sales of homes similar in size, with finished basements that sold for equal to, less than and more than the assigned value. ...

Sounds impressive, but not quite accurate. (In statistics, the term regression was coined when it was initially observed that, over time, organisms regressed towards a norm.) Multiple regression techniques are not appropriate for circumstances where there are innumerable variables (both objective and subjective) and limited data. Particularly when the results are extrapolated to points that lie outside of the range of data (due to a lack of bracketing data). Appraisals aren't reliably predictive (they can't be tested), they are mostly explanatory. Correlation does not imply causation - that's first year stuff but most appraisers seem to skip that annoying detail. Unrealistic degrees of precision, pseudo-science and bad logic are paving the road that leads towards the end of the appraisal profession.

Assuming that the "assigned" value you reference is the appraiser's opinion of value, it sounds like you had a reasonable assortment of comparable sales. But, did you analyze sales that bracketed the legal status of the subject's basement? If not, I'd be curious to know how you derived the adjustment that reflected the market's reaction to the missing permit. Also, it would be interesting to note the relationship between the subject's prior sale(s) and other contemporary sales. What was the market reaction to the basement at that time?

 

[gavin]

If the appropriate comparables were put through a reasonable analysis, it shouldn't matter whether the area is considered to be GLA or treated separately as an additional amenity. ....

Dan,
The specific question regarding this appraisal, which I've tried to ask and several on this forum have alluded to, is this: if the lower level were permitted, would you still arrive at something remotely close to $758,000 as valuation?

The answer is (should be, if the appraisal were done correctly) no. You would start with comps of similar size (~2,150 sq-ft), and make adjustments from there. You have only one relevant comp in your appraisal, the other four are either: damaged by fire; small house with guest cottage; in a significantly different neighborhood; or can't be located in MLS and appears to be 2/3 the size as listed in the appraisal. The relevant comp went for $698/sq-ft. Of the 6 relevant comps I could find (listed in a previous post), the lowest valuation was $638/sq-ft (2,350 GLA, very relevant, $1,500,000). The average was $823/sq-ft.

A decent comperable analysis would put my house - at a minimum - at $1,075,000 ($500 /sq-ft, the lowest rate by far of any sale in recent time period).

So, please tell all of us that if the work were permitted, the "most probable price" would still be $758,000. I don't think you can, the data shows otherwise.

Gavin (who has never told anyone that he is an attorney )

 

[23Degrees]

Data rich enough to adequately determine the value of unpermitted area through RA would be a shocker down here so I get your point KD. That being said, no one without access to that area can say one way or another that this is the case here. The appraiser in this case is adamant that they are able to determine the value of the unpermitted area and whether it be through RA, "sort of" paired sales, or sensitivity analysis after appropriate bracketing we as outside observers should take his word for it. If the data has been adequately explained within the summary report or emphasized post fact through an addendum then that is all he can do and it is up to the client to determine if the issue needs to continue to be addressed and if not, up to the borrower if they want to press forward on the basis that this aspect of the analysis is not credible.

The question of the prior sale of the subject is interesting. Despite a readily observable discrepancy between public records and what was on site, it seems that the last appraiser pressed forward without distinguishing permitted GLA vs non permitted area in the development of the opinion of value, and presumably indicated "legal" under zoning compliance. Perhaps that report, rather than the current one, is the report that resulted in a vast distortion in terms of value for the property in question. Losing a refi and a few hundred bucks is one thing. Overpaying hundreds of thousands of dollars or getting stuck with tens of thousands of dollars in repairs to obtain permits due to an appraisal that was done in ignorance or was done with the "wink, wink" suggested is the far greater burden to bear here.