Obligation To Take Future Offsite Conditions Into Account

[Howard Klahr]

There is no appraiser that will tell you they check building permits for vacant land in all neighborhoods of all subject's and all comparable sales and competitive active listings when doing lending work.

I understand your position and to a degree I even agree. However, what do you believe is the obligation of an appraiser to investigate to at least some degree adjoining vacant property when doing a residential appraisal? Clearly the appraiser would be aware if the zoning of an adjacent parcel was different than that of the subject property. If so, would the appraiser not be inclined to analyze the effect, if any, of being adjacent to something?

I am not suggesting that the buyer, the seller or even real estate agent doesn't have some obligation of their own, but in performing an appraisal doesn't the appraiser have take into consideration the composition of the neighborhood and in the case of vacant adjacent land gain an understanding that as of the effective date what could be developed there?

 

[hastalavista]

The subject of this thread is a good topic of discussion for appraisers to consider.

In the commercial arena, it would be automatic to look at neighboring properties, consider what they are being used for (or, if vacant, what it could be used for) and describe that in the report. I'm doing a commercial report right now (retrospective); the subject is a retail center (small, non-anchored) at the edge of the commercial development and is surrounded by non-retail uses (light industrial; almost exclusively used for auto repair). Although on a busy street, it has limited access from only one direction of traffic. It is not a good location for retail.
Across the street is a new medium-density residential project going up; on the surface, that sounds like a potential positive for my subject (although there is no crosswalk to get to my side of the street, and the walk is about 1-2 blocks one-way by using the existing intersections). However, the project, while predominantly residential, is mixed-use with retail space as part of the plan. This is an inferior retail space to begin with and the new retail space coming online will likely diminish or negate any benefits of the additional housing units. The point is, as of the date of my appraisal, this project was already approved and was going forward even though the lot was still vacant at that time. I don't have to go into a huge market study to analyze the the influence for my assignment. But I do need to comment on what was planned for that space and I can provide an opinion as to its impact on my subject.

It should be automatic, in a residential assignment, if the subject is adjacent to or across the street from unimproved land, for the appraiser to make some inquiry as to what that land is zoned for and if anything is planned for that land in the near future. One would think that if the appraiser has researched the subject's zoning using a zoning map, the land use pattern surrounding the subject would be identified. If my subject backs to something other than what my subject's zoning allows, I should (at a minimum) identify that characteristic and do some minimal investigation to determine if anything is being planned for that space.

One of the problems we have (I include myself here) is that we get set in our routine. If the majority of our assignments are residential properties surrounded by similar residential properties in a zoning that only allows our kind of improvement, it is easy to not worry about land use patterns and if our subject may be influenced by what can occur (why should we worry in that situation?).
A very simple way to change the routine which would help catch a situation like the OP's circumstance is to get in the habit of describing the properties that surround our subject (and would have a significant location-external impact on our subject).

"The subject's site is an interior lot located on the west side of Mockingbird Lane. Mockingbird Lane is a typical residential street within this neighborhood. The subject's neighbors (side and rear, and across the street) are similar residential homes within the same zoning district."​

That should be in the site description (along with whatever else is important). By making this part of one's routine, one should never fail to consider proximate unimproved land or zoning differences that could impact the analysis.
Even if the report failed to do anything else, at a minimum, it identified what exists and an argument becomes, "Should more have been done?" rather than "The report failed to identify and consider...".

EDIT TO ADD: I was typing while Howard posted. I think he and I are saying the same thing. Naturally, he says it in fewer words.

 

[Meandering]

I understand your position and to a degree I even agree. However, what do you believe is the obligation of an appraiser to investigate to at least some degree adjoining vacant property when doing a residential appraisal? Clearly the appraiser would be aware if the zoning of an adjacent parcel was different than that of the subject property. If so, would the appraiser not be inclined to analyze the effect, if any, of being adjacent to something?

I am not suggesting that the buyer, the seller or even real estate agent doesn't have some obligation of their own, but in performing an appraisal doesn't the appraiser have take into consideration the composition of the neighborhood and in the case of vacant adjacent land gain an understanding that as of the effective date what could be developed there?

There was no question of zoning presented in the original article. In high density northeast areas, there may be no distinction between SFR and apartments in some area zoning, sufficient it to say, zoning was not the issue.

What I see in the original argument is an owner now has lost value because of this apartment complex. They can not go back and sue the agents in the transaction, because the seller's disclosure, which they signed put them on notice that it was up to the buyer to verify anything that might impact their use, utility and quiet enjoyment in the future. So, let's witch hunt the bank's appraiser who obviously had no similar notice in their report, but who none-the-less, has no obligation to a buyer. The obligation was to the lender. If the lender cared about future value, it needed to be part of the letter of engagement, which, the buyer has no right to have or know either.

The appraisal may be relied upon by the buyer. The appraisal is the opinion of value, as of the effective date. The appraisal for lending does not forecast future value, nor future events, nor future markets.

There are plenty of places in NJ that might have a view of mountains if other buildings were not blocking that view. So what were the comps in the report, what was the possibility that those comps have "protected views" that will not change?

and here is a biggie for me,

How old is this report?

If construction was not started prior to the purchase, but now there is a wall of apartments in the face of the owner, why did the owner wait until those view blocking walls existed, before he decided there may be "damages" to his value?

It's BS.

Through the entire construction process the owner could have sold off the property if the value was in the view. That did not happen, so let's look at the entity less able to defend themselves, and blame them.


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[hastalavista]

Here is the original post with the question (my bold for emphasis):

An attorney that we work with on occasion asked my associate the following question, and I'd appreciate your thoughts and input:

"I have a potential case where the home purchased had a panoramic view of a mountain. There was a big condo development planned for the space between the house and the mountain that was not yet started at the time the home was purchased. After purchase, the condo building is built, my clients entire view is destroyed, they now stare at the back of the condo complex, house is worth far less.

If the appraiser knew of the coming condo development, should that have been noted in the report and also taken into consideration in that value even though the condo building had not yet been constructed. Or do you only have to report on the existing conditions and existing value?"

Thanks in advance for your thoughts on this.

Jerry Bodenstein

The question isn't about appraiser liability to non-intended users. I take the position that the appraiser doesn't have liability to non-intended users. Again, that isn't the question.

The questions are:
1. If the appraiser knew of the coming condo development, should that have been disclosed and considered in the report?

My opinion is "yes". Of course. Without a doubt.

2. Do you only have to report on the existing conditions and existing value?

My opinion is "yes" again. But, the vacant parcel is an existing condition. I said in my prior post that the condition should be identified and researched. So, ideally, the report should have identified the vacant parcel and its potential use and should have done some cursory investigation if anything was in the works. Then, the report could have considered that condition as it existed. The consideration may be (a) it has no impact; (b) development is uncertain at this time, however chances are likely that the site will be developed in the future and its impact cannot be measured now; (c) It likely will have some impact but that impact cannot be quantified at this time; (d) or any number of possible conclusions.

If I do not identify the condition at all, I'm on weak ground with my client/intended user.
If I identify the condition, I'm on much more solid ground.
If I identify the condition and attempt to analyze its impact (even if I'm wrong) I'd say I'm on very solid ground.
As long as I identify, disclose, and discuss, my client and intended users are not misled or important facts are not omitted/withheld from them. They can read the report and determine if they want to rely on my analysis or not. If my report doesn't satisfy them, they can tell me why and ask me to provide some more support. I can accept or decline that request. From there, the client gets to decide if it wants to rely on my appraisal or obtain another.
But everyone (with whom I have an obligation with) knows what the issue is. And only those who are supposed to rely on my results will make the decision to accept it or get another opinion.

 

[Meandering]

Here is the original post with the question (my bold for emphasis):


The question isn't about appraiser liability to non-intended users. I take the position that the appraiser doesn't have liability to non-intended users. Again, that isn't the question.

The questions are:
1. If the appraiser knew of the coming condo development, should that have been disclosed and considered in the report?

My opinion is "yes". Of course. Without a doubt.

2. Do you only have to report on the existing conditions and existing value?

My opinion is "yes" again. But, the vacant parcel is an existing condition. I said in my prior post that the condition should be identified and researched. So, ideally, the report should have identified the vacant parcel and its potential use and should have done some cursory investigation if anything was in the works. Then, the report could have considered that condition as it existed. The consideration may be (a) it has no impact; (b) development is uncertain at this time, however chances are likely that the site will be developed in the future and its impact cannot be measured now; (c) It likely will have some impact but that impact cannot be quantified at this time; (d) or any number of possible conclusions.

If I do not identify the condition at all, I'm on weak ground with my client/intended user.
If I identify the condition, I'm on much more solid ground.
If I identify the condition and attempt to analyze its impact (even if I'm wrong) I'd say I'm on very solid ground.
As long as I identify, disclose, and discuss, my client and intended users are not misled or important facts are not omitted/withheld from them. They can read the report and determine if they want to rely on my analysis or not. If my report doesn't satisfy them, they can tell me why and ask me to provide some more support. I can accept or decline that request. From there, the client gets to decide if it wants to rely on my appraisal or obtain another.
But everyone (with whom I have an obligation with) knows what the issue is. And only those who are supposed to rely on my results will make the decision to accept it or get another opinion.

None of which relieves the buyer from not doing THEIR due diligence, PRIOR TO signing a binding legal document to buy a property. The appraiser is not engaged to do the appraisal prior to the buyer's doing their due diligence and then binding themselves in a legal document to purchase the property. The appraiser then has the data for market exposure and market acceptance, once the contract is signed. Only the lender has a beef.

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[hastalavista]

None of which relieves the buyer from not doing THEIR due diligence, PRIOR TO signing a binding legal document to buy a property.

What part of my post below doesn't address the above?

The question isn't about appraiser liability to non-intended users. I take the position that the appraiser doesn't have liability to non-intended users. Again, that isn't the question.

The questions are:
1. If the appraiser knew of the coming condo development, should that have been disclosed and considered in the report?

2. Do you only have to report on the existing conditions and existing value?

The appraiser is not engaged to do the appraisal prior to the buyer's doing their due diligence and then binding themselves in a legal document to purchase the property. The appraiser then has the data for market exposure and market acceptance, once the contract is signed. Only the lender has a beef.

What part of the rest of my post doesn't address the above?

From there, the client gets to decide if it wants to rely on my appraisal or obtain another.
But everyone (with whom I have an obligation with) knows what the issue is. And only those who are supposed to rely on my results will make the decision to accept it or get another opinion.

????

 

[glenn walker]

Mr Planner :
I'm appraising a single family home and the agents informed me that a condo project was being developed below the house located at zzz-Street. I will need a full copy of the builders plans including information on site elevations ,soil tests, slope easements and anything that can assist me in determining what negative impact the project could have. Mr Planner to Appraiser - Sorry building plans are paid for by the developer and cost thousands of dollars- but you seem like a nice fellow so stand here and take a gander but you understand you cannot take these out of this 8' X 8' cubicle. That's great except I don't read blue-prints and I failed architecture and engineering in college, that's why I decided to become an appraiser. Gee now what **

 

[J Grant]

Mr Planner :
I'm appraising a single family home and the agents informed me that a condo project was being developed below the house located at zzz-Street. I will need a full copy of the builders plans including information on site elevations , soil tests, slope easements and anything that can assist me in determining what negative impact the project could have. Mr Planner to Appraiser - Sorry building plans are paid for by the developer and cost thousands of dollars- but you seem like a nice fellow so stand here and take a gander but you understand you cannot take these out of this 8' X 8' cubicle. That's great except I don't read blue-prints and I failed architecture and engineering in college, that's why I decided to become an appraiser. Gee now what **

To estimate an impact on value we don;'t need blue prints, engineers plans etc...just a working knowledge of what kind of building / size is proposed. If planning says a 10 story condo is approved for construction, that tells you it would block the view of your ranch house subject ..

 

[glenn walker]

Quote: To estimate an impact on value we don't need blue prints, engineers plans etc...just a working knowledge of what kind of building -general size is planned for the site : Okay so your analysis consists of Billy- Bob telling you the project will consist of X-amount of units- What's the height of the building and will it impact the view. Lets go out there and look around -looks fairly flat and since I can barely see over that sycamore tree down yonder this project could really screw the view. Hell let's grab my pool cleaning pole it's 24' in length, hang a red-flag on that the pole and walk out 40 to 50 feet.

Billy-Bob based on my extensive analysis of height and the use my handy pool cleaning pole and my new Regression-Viewology-Meter now we have scientifically proven the view will be toast. Now let's extract that view adjustment * No worries this is simple common-sense we just make a few assumptions ** I just wish I could remember which to use ( Extraordinary or Hypothetical )

 

[Mr Rex]

It is a good subject of discussion for appraisers. With the growth in the Triangle area appraisers here have to stay on top of potential future highways that will have dramatic effect on residential property values (negative if too close) and potential exponential increase in value for commercial properties near intersections etc.

https://www.ncdot.gov/projects/projectsstudies/default.html?Counties=*&Region=*