NonConforming Apt Zoned Comp versus Residential Zoned Comp

[MMing5000]

Subject has 2 legal attached dwellings on a larger than typical 10,000 sf residential lot with R75 zoning, which requires a minimum lot size of 7,500 sf per detached dwelling or 2 attached dwellings on a 10,000 sf lot.

Due to lack of similar inventory of similar sized R75 (residential) zoned properties that allow 2 dwellings on site, 2 of the 3 comparables i used in the appraisal were A10 (apartment) zoned with 100 ft heigh limit) which allows substantially higher densities to be built on site, where the current A10 zoning requires a minimum lot size of 10,000 sf.

The 2 apartment zoned comps used in the appraisal are substandard sized at only 7,000 sf, both are improved with an SFR. SFR improved on substandard sized A10 zone lots are typical in the neighborhood as it is not feasible to build an apartment building due to lot size limitations.

The Reviewer came back and said A2 zoned comps are not valid comps due to zoning differences because it is not appropriate to compare a property (A10) with development potential to a property (R75) that does not have development potential.

I tried explaining to the reviewer that just because the A10 zoned comps have higher development potential does not mean they have higher development potential. In order to meet the highest and best-use criteria, the improvements must also be physically possible and feasible to build.

The reviewer responded that using different zoned comps are not in compliance with Lender guidelines.

If there are better comps, i certainly would have used it. The market condition is declining in the neighborhood, and all the comps used in the report are within 180 days. To use older comps or more distant comps would require time adjustment or location adjustment which may not provide a true value indicator for current market situation in the immediate area.

Is there a way to appease this difficult reviewer logically without getting the reviewer to be overly defensive?

 

[George Hatch]

The way you win this type of disagreement is by knowing what you're talking about.
-------------------

What town, and how large are these A10 parcels?

Because if the subject's max density under R75 is 1un/7500sf of lot area then A10 might mean one unit/1000sf. Especially when another limitation of that zoning is the 100ft height limit. Thus, a 10,000sf parcel might be good for 10 units.

 

[MMing5000]

The two A10 zoned properties used as comps in the appraisal are both 7,000 sf lots approx. 60'W x 117'L, both are currently improved with an SFR. An A10 zoned property requires a minimum lot size of 10,000 sf and minimum of 70' wide frontage. After taking int account of 15' frontyard setback and 5' sideyard and 5' rearyard setbacks, the buildable area is 50'Wx97L' = 4,850 sf. Current zoning requires on site parking facility at least 1 parking stall per 2 units, which reduce the buildable lot area even further. . Even though the grandfathered Apartment zoning allows high density apartment improvements, it does not necessarily mean the highest and best use is an apartment building because it must meet the HBU's 3 creteria of legally allowable, physically possible and financially feasible. My question is when can an appraiser justify to use an Apartment zoned property to value a residential zoned property and how to justify it?

 

[David S]

Subject has 2 legal attached dwellings on a larger than typical 10,000 sf residential lot with R75 zoning, which requires a minimum lot size of 7,500 sf per detached dwelling or 2 attached dwellings on a 10,000 sf lot.

Due to lack of similar inventory of similar sized R75 (residential) zoned properties that allow 2 dwellings on site, 2 of the 3 comparables i used in the appraisal were A10 (apartment) zoned with 100 ft heigh limit) which allows substantially higher densities to be built on site, where the current A10 zoning requires a minimum lot size of 10,000 sf.

The 2 apartment zoned comps used in the appraisal are substandard sized at only 7,000 sf, both are improved with an SFR. SFR improved on substandard sized A10 zone lots are typical in the neighborhood as it is not feasible to build an apartment building due to lot size limitations.

The Reviewer came back and said A2 zoned comps are not valid comps due to zoning differences because it is not appropriate to compare a property (A10) with development potential to a property (R75) that does not have development potential.

I tried explaining to the reviewer that just because the A10 zoned comps have higher development potential does not mean they have higher development potential. In order to meet the highest and best-use criteria, the improvements must also be physically possible and feasible to build.

The reviewer responded that using different zoned comps are not in compliance with Lender guidelines.

If there are better comps, i certainly would have used it. The market condition is declining in the neighborhood, and all the comps used in the report are within 180 days. To use older comps or more distant comps would require time adjustment or location adjustment which may not provide a true value indicator for current market situation in the immediate area.

Is there a way to appease this difficult reviewer logically without getting the reviewer to be overly defensive?

I would say use old sales or far away sales comps, then use adjustment will be better than use different type of zoning comps.
By the way, are you still a trainee from 2013 till now? That's really long time span.

 

[Charles West]

Subject has 2 legal attached dwellings on a larger than typical 10,000 sf residential lot with R75 zoning, which requires a minimum lot size of 7,500 sf per detached dwelling or 2 attached dwellings on a 10,000 sf lot.

Due to lack of similar inventory of similar sized R75 (residential) zoned properties that allow 2 dwellings on site, 2 of the 3 comparables i used in the appraisal were A10 (apartment) zoned with 100 ft heigh limit) which allows substantially higher densities to be built on site, where the current A10 zoning requires a minimum lot size of 10,000 sf.

The 2 apartment zoned comps used in the appraisal are substandard sized at only 7,000 sf, both are improved with an SFR. SFR improved on substandard sized A10 zone lots are typical in the neighborhood as it is not feasible to build an apartment building due to lot size limitations.

The Reviewer came back and said A2 zoned comps are not valid comps due to zoning differences because it is not appropriate to compare a property (A10) with development potential to a property (R75) that does not have development potential.

I tried explaining to the reviewer that just because the A10 zoned comps have higher development potential does not mean they have higher development potential. In order to meet the highest and best-use criteria, the improvements must also be physically possible and feasible to build.

The reviewer responded that using different zoned comps are not in compliance with Lender guidelines.

If there are better comps, i certainly would have used it. The market condition is declining in the neighborhood, and all the comps used in the report are within 180 days. To use older comps or more distant comps would require time adjustment or location adjustment which may not provide a true value indicator for current market situation in the immediate area.

Is there a way to appease this difficult reviewer logically without getting the reviewer to be overly defensive?

I could be wrong but are you appraising a duplex? Or something similar to?

 

[MMing5000]

I would say use old sales or far away sales comps, then use adjustment will be better than use different type of zoning comps.
By the way, are you still a trainee from 2013 till now? That's really long time span.

Is there a way to appease this difficult reviewer logically without getting the reviewer to be overly defensive?

 

[George Hatch]

The two A10 zoned properties used as comps in the appraisal are both 7,000 sf lots approx. 60'W x 117'L, both are currently improved with an SFR. An A10 zoned property requires a minimum lot size of 10,000 sf and minimum of 70' wide frontage. After taking int account of 15' frontyard setback and 5' sideyard and 5' rearyard setbacks, the buildable area is 50'Wx97L' = 4,850 sf. Current zoning requires on site parking facility at least 1 parking stall per 2 units, which reduce the buildable lot area even further. . Even though the grandfathered Apartment zoning allows high density apartment improvements, it does not necessarily mean the highest and best use is an apartment building because it must meet the HBU's 3 creteria of legally allowable, physically possible and financially feasible. My question is when can an appraiser justify to use an Apartment zoned property to value a residential zoned property and how to justify it?

In most jurisdictions the minimum lot size is a limitation put on mapping new parcels, not on developing existing parcels. Meaning, they wouldn't allow the mapping of a new parcel in that size but you could still max the density out on a smaller one that was previously mapped.

You didn't mention the maximum density. And yes, you can *easily* get 7 units on 7000sf lot and still maintain the requisite parking requirements. They can built up, so the building area isn't limited to 4870sf. 3500sf + tuck under parking (carport) on the ground level plus 4850sf on the 2nd level. = 8,000+sf of building area.

In any case, you can compare other past sales of homes on A10 zoned parcels with the homes on R75 parcels and see if there's any difference in pricing. If there isn't a pattern showing a difference then that's your explanation.

All RE is local, but if that property were located in any of the urban towns in Southern Calif then an existing SFR on a lot that's good for 6 or 7 units could very easily be an underimprovement for the site; meaning the underlying land value could exceed the value of the property as an SFR. Next time, go find SFRs on SFR lots and then you won't have this problem.

 

[MMing5000]

In most jurisdictions the minimum lot size is a limitation put on mapping new parcels, not on developing existing parcels. Meaning, they wouldn't allow the mapping of a new parcel in that size but you could still max the density out on a smaller one that was previously mapped.

You didn't mention the maximum density. And yes, you can *easily* get 7 units on 7000sf lot and still maintain the requisite parking requirements. They can built up, so the building area isn't limited to 4870sf. 3500sf + tuck under parking (carport) on the ground level plus 4850sf on the 2nd level. = 8,000+sf of building area.

In any case, you can compare other past sales of homes on A10 zoned parcels with the homes on R75 parcels and see if there's any difference in pricing. If there isn't a pattern showing a difference then that's your explanation.

All RE is local, but if that property were located in any of the urban towns in Southern Calif then an existing SFR on a lot that's good for 6 or 7 units could very easily be an underimprovement for the site; meaning the underlying land value could exceed the value of the property as an SFR. Next time, go find SFRs on SFR lots and then you won't have this problem.

Thank you for the excellent and detailed response. If there were better comparables available, i would certainly have used them SFRs on large conforming residential lots typical sell a lot more than SFRs on smaller substandard sized apartment zoned lots, which is typical for most residential neighborhoods. Although legally allowable by zoning for an Apartment zoned lot in a residential neighborhood, does not mean it will get approval from the neighbohood board to build a 5-story apartment building. But my question in the forum is:
"Is there a way to appease this difficult reviewer logically without getting the reviewer to be overly defensive?"

 

[George Hatch]

If you're looking for some dazzling verbiage or turn of phrase that will convert a non-believer then that isn't the solution. The solution is to find out for yourself whether there is or isn't a difference prior to telling them that.

I already told you how to explain that there's no difference between house on R75 vs house on A10, assuming that is the case. Find otherwise similar properties of each and compare them to each other. These pairs don't need to be recent, they don't need to be super proximate and they don't need to be comparable to your subject; they just need to be comparable to each other.

You're not looking for comps for your subject, you're looking for a "paired" support for the adjustment factor. Don't lose sight of the point that "$0 difference" is one of the possibilities.

 

[MMing5000]

If you're looking for some dazzling verbiage or turn of phrase that will convert a non-believer then that isn't the solution. The solution is to find out for yourself whether there is or isn't a difference prior to telling them that.

I already told you how to explain that there's no difference between house on R75 vs house on A10, assuming that is the case. Find otherwise similar properties of each and compare them to each other. These pairs don't need to be recent, they don't need to be super proximate and they don't need to be comparable to your subject; they just need to be comparable to each other.

You're not looking for comps for your subject, you're looking for a "paired" support for the adjustment factor. Don't lose sight of the point that "$0 difference" is one of the possibilities.

Thank you again for the thoughful answer and suggestion. Based on my research in preparing the appraisal, all the recent sales of substandard sized A10 lots with an SFR sell at approximately 10% less than a conforming R75 residential lots with an SFR. In fact, have not found any substandard sized A10 lots that has an apartment building on it. Contrary to popular belief, small substandard sized apartment zoned lots are not more valuable than a conforming residential lots. Higher density zoning does not mean it is physically possible or feasible to build an apartment complex because construction costs sky rockets when going higher than 2 stories.