Personal Property included in purchase price

[Beth Stevens]

Jeremy,

I am also from Washington. Just yesterday, there was an article included in the newsletter of the Seattle Chapter of the Appraisal Institute written by Richard Hagar. Near the end of that article, he addresses the need for appraisers to stop accepting deals that include personal property, as well as several other things. If you are not familiar with Mr. Hagar's work, he is a real estate professional and appraiser that is becoming nationally-recognized for his seminars regarding mortgage fraud.

I would encourage you to contact Richard regarding the pitfalls of working a deal with personal property included in the contract. He is a busy man, but quite good about returning emails. He can be reached at: rh@americanappraisals.com.

Best of luck!
Beth

 

[Jeremy Bair]

So here is the scenario...

The purchase is a new construction condo, and all of the furniture / personal property included is brand new. The purchase and sale specificially states the purchase price is $X,zzz with $X,zzz allocated to the purchase of personal property.

All of the sales in this condo are new and all of them are furnished, and from the seller I could get the exact dollar figure of how much personal property was included in each of the comparable sales.

My theory was to remove all personal property value from all comparable sales used, thus to only appraise the real property in question.

After talking to the seller, I found out that there are 3 specific "lenders" who were "letting" these be appraised with the personal property included in the final value.

After communicating all of this information to my client, who was not one of the 3 lenders mentioned by the seller, the order was cancelled as she had someone else who didn't give her this much "trouble" about appraising these. I was not trying to give anyone trouble, or lose business over it, but I do want to do things the correct and legal way!

Thanks for all of your advise, I guess for now I do not have to worry about it...

 

[hastalavista]

After communicating all of this information to my client, who was not one of the 3 lenders mentioned by the seller, the order was cancelled as she had someone else who didn't give her this much "trouble" about appraising these. I was not trying to give anyone trouble, or lose business over it, but I do want to do things the correct and legal way!

Thanks for all of your advise, I guess for now I do not have to worry about it...

I'll tell you a quick story:
I reviewed for a lender who had a deal where personal property was included in the sales price but not disclosed in the appraisal; without going into details, the deal didn't appear legit from the desk and when I upgraded it to a field review and spoke with the sales agent, the truth came out.
Needless to say, my client (the lender) turned down the deal because making a loan on personal property was not part of their lending strategy. And the original report (with my review) was forwarded to this lender's fraud department for further action.

Your original question and concern was legitimate. Clients who do not want the appraisers they engage to follow correct and appropriate appraisal practices are clients I can do without.

I'd say sorry you lost this client, but losing them may be a blessing in disguise.

 

[Pat Butler]

Jeremy- your strategy was definitely sound in that you ingore the PP for the subject and only adjust if the comparbles included it. In any event, the lender could use your appraisal of the subject property by itself then add in any PP that they want subject to whatever guidelines they have.

The agents allocation of PP versus the unit price is most likely an attempt to influence your appraisal, but that estimate of PP could certainly be used by the lender if the loan guidelines allowed for it. But of course we all realize that they were just trying to roll all of the PP into the value so that it can be ignored.

 

[stefan olafson]

Send the info to the 'Paminator', she'll see it gets to the right person/agency.

We are real property appraisers, we appraise property not property with couches and chairs and beds and clothes in them!

You did the right thing, now send it on to Pam!

 

[Jeremy Bair]

I don't think that it is an issue of her intentionally trying to do anything illegal... I just think it is a missunderstanding between what she thinks I can do as a real estate appraiser, and what I actually can do. I have talked to someone else at her place of work, and they assured me that I was right, she was wrong, and that they will clarify to her how these things work so that we don't run into this issue again.

Thanks again for your help/advice!

 

[Terrel L. Shields]

You are licensed as a real estate appraiser, not a personal property appraiser.

Then why does USPAP have std 8? And why does Std 1 require you to identify PP & the impact of it on the subject and further, you are to identify (std 1-2e(v)) "partial holdings". The sale is of both furniture and real property...(BTW, Condos are a PARTIAL (fractional) interest not a fee simple interest. an upper level condo has air rights not surface rights and is identified in 3 dimensions.)
Condos sell with furniture more often than not. Furniture has a value, and you should be able to identify and adjust for that value (If you do your homework then you ought to be able to locate the personal property contribution of the comps and adjust accordingly) Under the Unit Rule, you appraise the whole then apportion the value to the Real property and the non-realty items. Ag appraisers do this all the time in farms where equipment may sell as part of the transaction.
Further it is not true that

it has no value to the bank in foreclosure proceedings.

If the bank knows there is personal property they take a mortgage on it under a UCC filing.
and

It cost more to remove the furnishing than it could possibly sell for.

That's a sale and not the contributory value of furnishings. You need to go to better auctions. I have seen a lot of furniture sell and good furniture sells well in many places. I have seen estates sales of $10,000 and more for furniture. The question in a time share you have to have furniture or you cannot rent the condo out. If you are leasing a condo for the weekend or a few months, you generally expect to not have to sit in the floor.

So? How much more will you pay in rent to get a furnished condo over an unfurnished one? I know a person who rents condos and long term renters often have they own furniture. But because she had to move the furnishings to storage, she actually charges MORE for an unfurnished one than a furnished condo. Complicates things doesn't it?

 

[Mztk1]

To complicate things more:

Personal property is a gray area. I see a lot of appraisers include "ceiling fans" in their reports as though they are real property. And many will argue they are.

Several years back, my parents purchased an historic property, built in 1854 I think, that had a chandelier of crystal they had separately appraised at over $10,000. Very happy to be getting it in the sale, they closed on the property, started to move their stuff in, only to find a $20 light fixture from the local hardware store in place of the chandelier.

They called their lawyer and the lawyer said any light fixture not specifically noted in a contract can be removed, it merely has to be replaced with another light fixture so the wires do not show, creating a hazard.

Another item that is considered personal is an electric stove. It is a plug in, just like the refrigerator. Yet most of us do not separate it from "real property" when doing an appraisal. Of course, if the range is gas, it is generally considered a permanent fixture.

I've appraised areas where furniture is necessary in order to sell. If the property is unfurnished its value will be affected by more than the market value of the furniture. This was in resort type communities. I've also done appraisals in communities where the furniture was routinely left behind as a convenience for the seller. Whether it is there or not makes no difference on the price (mostly retirement projects). In the former, the furniture was included in the appraisals as a necessary component of the sale. In the latter, it was disclosed as being there and that is had no measurable effect.

Every neighborhood, every market is different. You have to analyze what is typical for that neighborhood, disclose it to your client, and proceed.

 

[tjvetrone]

in addition; per USPAP, you can accept an assignment eventhough your not "fully competent" with all aspects as long as you take the proper steps to make your self competent for aspects of the assignment while appraising the property and disclose it in the report. Basically, you are saying that you didnt know how to appraise furniture, etc... but through the process of the appraisal assignment you did learn or had assistance determining the value of the personal property and dislcose it on FIRREA or additional page etc... Its not fun or worth doing but can be done and i definately dont recomend it.