One Appraisal/two Parcels

[Charles Cales]

Ok, a refinance appraisal 1004, for sfd home on one 3.5 acre lot. An additional lot of 3.5 acres is directly to the west and is vacant. It is capable of being sold and built on. Both lots owned by one person and I believe financed originally together. existing home sits entirely on one of the lots. Both lots have their own parcel #'s and are taxed separately. I originally told the lender I could only do the appraisal of the home and the lot it sits on and if they wanted value for the other parcel it would be a separate vacant land appraisal. they said ok. Now, a week later, they have sent me a copy of the original 2055 which was used when the property(S) were purchased. The other appraiser has combined both parcel of land. he simple put both parcel #'s in the report and combined all relevant info, added the taxes together, lot sizes, and adjusted for the bigger lot size. He did state in the addendum that he would be combining all info due to lack of space in the form.

Question: is what he did ok?

is the fact that both parcel combined equal to 7 acres a problem. I have been told that over 5 is considered agricultural.

Im in arizona if that matters,

Thanks in advance for your thoughts

 

[Mike Garrett RAA]

Jo Ann can probably answer your question better than I can since I don't know Arizona laws; however, I don't believe combining the two parcels is a good idea UNLESS the borrower needs a higher land value in order to qualify for the loan. I would appraise the property on one parcel and then do a land appraisal on the other.

 

[Otis Key]

Well Charles and Mike, I happen to know that Jo Ann is out of town for a little bit. However, is it illegal to own more than 5 acres, even with two separate legal descriptions and parel numbers? I doubt it. Is what the other appraiser did okay? I don't know! I'm not reviewing that report and don't have competency in your area of work.

You're statement about

I have been told that over 5 is considered agricultural.

is interesting. Who told you so? I, among others, would be interested in that source. [More Urban Legends?!]

If the borrower wants to include all the multiple parcels into a mortgage, there's nothing wrong with that, except maybe a request for an MRI. It's not illegal. However, you can't value the individual parcels and then combine them to make a total.........It might make a wrong presentation about the "TRUE" value of the sites as a whole. Be careful.............

 

[Wayne Tomlinson]

I have often appraised a number of farm parcels in one appraisal. You will not find in the USPAP any place where it discussed such things.

There are a lot or rules that residential appraisers find are etched in stone that are mostly some LO told them too.

I recently saw a 1004 which had more than 80 acres in three parcels. I was sent the old appraisal when the bank wanted a new appraisal just to help me out.

I like to keep old, other peoples appraisals in my archive pile. Some to gather new ideas, some to point out what an appraiser should never do.

I ponder sending some to the state, but haven't yet, and likely never will.

Wayne Tomlinson

 

[Dee Dee]

Hint: think highest and best use.

This is an issue that the mortgage broker needs to discuss with the homeowner.

If the two parcels are combined under one mortgage and the homeowner thinks that they may want to sell the vacant parcel, it will be encumbered and cannot be sold without a release from the lender. In order to get a release to sell the vacant lot, most lenders will require that the home and the parcel it sits on (NOT counting the vacant lot) must appraise for what would make the current loan amount to be no more than 80% of it's appraised value.

You would be amazed at how many homeowners cook up a scheme that they'll refi for the big bucks (house + extra parcel), then sell the vacant parcel and live off of the windfall. Imagine their surprise when they take out the big loan and then find out their plan can't fly.

Of course the lender doesn't care, because if the HO defaults they can turn right around and sell the properties at their highest and best use, which is usually separate. The mortgage broker doesn't care because they've already gotten their fat commission that might have been less if they had only refi'ed the home separately without the vacant lot, and most of the time they're too dull to understand that doing so may not be in their client's best interest.

 

[Lee Lansford]

IF the 2nd vacant parcel has its own separate highest and best use, as you indicate, then an appraiser can not merely "elect" to lump that vacant parcel with the other parcel to form a single entity.

If the 2nd parcel were SURPLUS LAND (land that DOES NOT have its own separate H&B Use), then it could be appropriate to value the 7 acres as one property.

If the 2nd parcel has its own separate H&B Use, then it has to be separately valued. There is nothng to prevent you from combining all into one appraisal, but you would have to be clear that there are two separate properties with two separate H&B Uses. This would require two separate sets of analysis.
Exception: The scope of the assignment is to value the two separate parcels for purchase by a single purchaser. BUT, I don't believe that this is likely what you're client is looking for (fyi: just my educated guess that the client is a mortgage broker and is trying to make the process "easy" for the mortgage broker). And, you would likely (how much market data is in the market with similar circumstances?) have one difficult appraisal assignment.

If the first appraiser CHOSE ("easier, you know") to report and analyze the 2nd parcel as SURPLUS LAND when it fact it is EXCESS LAND (having its own separate H&B Use), then the appraiser has communicated a misleading appraisal.

 

[Ted Martin]

What are you going to use for comps?

Individual 7+/- acre sites or single owner multiparcel sales which total 7+/- acres?

Don't know about your market but in mine there would be a substantial value difference between a single 7 acre site and a pair of 3.5 acre sites.

 

[Steve Owen]

Charles, I don't know AZ laws either, but here in Missouri I run into this situation quite frequently. Hobby farms, horse acreage, etc.... quite common around Joplin. The way this usually happens is that the person owns one parcel and another comes on the market... they buy it, but never get them recorded together, so the assessor leaves the tracts separated. Sometimes the owner intends to combine them, but just doesn't want the survey and recording fees, sometimes there is no intent to combine.

I don't think the appraiser did anything wrong. However, there is one caveat. If the borrower intends to sell off the tract, then the client would probably not want to make a 30 year loan on it. I would inform the client of the situation and ask them how to proceed (unless AZ law dictates a different path).

 

[Jo Ann Meyer Stratton]

My body is back home but I am not sure if my brain came home too! Any way-what is the highest and best use? What is the typical site area in the subject's neighborhood? Why are the acreages split by the assessor's office into two assessor's parcel numbers? Are they split because each parcel is in a different taxing authority--for example one parcel is inside the city limits and the other outside the city limits or half in a fire district and half outside the fire district. If one of those or a similar situation exists that would explain the two assessor's parcel numbers. Or the property owner has previously only encumbered the improvements and three and one half acres and then requested the county assessor to split the two so that the mortgage company would only impound taxes for the encumbered parcel. Or the current previous owner might have bought the two parcels at different times or under different type of ownership (Joint Tenancy for one and Warranty Deed for the other)--so the assessor's office had two separate parcel numbers to indicate that difference in ownership. Or one deed has John Q. Smith as the owner and the other deed has John Quincy Smith as the owner--assessor's office wouldn't combine the parcels until all the property was under one common name. Many, many, many, many reasons for several assessor's parcel numbers. Many, many, many legal descriptions can appear on the recorded mortgage documents--they don't have to be contiguous or even in the same county or even in the same state for that matter.

Anyway, you as an appraiser has to determine the highest and best use and what is typical in the neighborhood. What ever that research and analysis shows will determine on how you handle the appraisal assignment. Lots of discussion with the lender/client is needed before you complete the assignment. Fannie Mae and Freddie Mac don't care how many legal descriptions and/or parcel numbers exist--just as long as the subject site is a bona-fide area for that neighborhood and will be typical for that area.

Famous appraisal advice--it all depends!

 

[CANative]

Here are some comments on an appraisal of a property and 3 additional lots that I'm working right now...

Description of the subject property and improvements:
The subject of this appraisal consists of 4 legal parcels with 4 situs addresses. The parcels have not been merged and each has it's own unique assessor's parcel number and street address. These parcels have been combined in one legal description as Tract One and Tract Two. See exhibit addendum for legal description. All parcels have a severe upslope from the frontage on Highway 20. Tract One, xxxx E. Highway 20, is improved with a modest single family residence and is accessed from a common driveway beginning at Lot 29 (xxxxx E. Highway 20) and runs across and up lots 28 and 27 to the property. Lots 27, 28 and 29 (Tract Two) are unimproved. The residence is 35 to 40 years old and is of average quality construction with 1 bedroom, 1 bath, a kitchen/dining area and living room. A permitted lower level, partially below grade basement area has an additional bed, bath and laundry room and access to the single car garage. The improvement have been well maintained and updated and were in good condition at time of appraisal inspection. The property also features a small storage building and large, plywood surfaced deck with rail. There are very good, elevated views of Clear Lake from the decking and from the interior of the residence.

Specific Zoning & Highest and Best Use:
The specific zoning for the subject parcel(s) is R3/SR. This zoning districted is intended for high density residential use such duplex, triplex, fourplex. Minimum lot size per dwelling unit is 3,000 sq. ft. A single family residence is not a permitted use. The subject was built prior to implementation of this zoning district and is grandfathered (legal, non-conforming) Per the Lake County Planning department, the residence on parcel number 0xx-272-41 can be rebuilt to a single family residence if destroyed, but must be completed within 2 years or the requirements of the R3 district will apply. The subject of this appraisal assignment includes 3 additional lots owned by the borrower and are included as Tract Two in the legal description. These are parcel numbers 0xx-272-24 (xxxxx E. Highway 20) 0xx-272-25 (xxxxx E Highway 20) 0xx-272-26 (xxxxx E. Highway 20) These lots are each approximately 4,792 square feet and have similar steeply sloping topography. These lots have similar R3 zoning and a single family residence would not be a permitted use. Because of the relatively small size, topography and acess, they are likely to be unbuildable lots, but a detailed study would be required to make this determination. Due to relatively low rental rates and less than optimal demand for multi-family housing, appraiser is of the opinion that highest and best use at this time is for these lots to be held as is for their utility as a privacy buffer for the improved lot.