Picking Comps for a Manufactured House

[Jo Ann Meyer Stratton]

HUD 4150.2, Protocol, USPAP Conformity:
"The appraisal was conducted in conformity with the Uniform Standards of Professional Appraisal Practice. An estimate of reasonable time for exposure in the open market is a condition in the definition of market value and is consistent with the reported estimate of Exposure Period on the URAR."

Definition of market value on the Statement of Limiting Conditions (Fannie Mae form 1004B 6-93)
"The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale----(3) reasonable time is allowed for exposure in the open market;---

Some comments in a letter I have from the Appraisal Standards Board:

"--the purpose of the assignment is to develop an opinion of market value, with the intended use of the assignment results being to identify collateral risk in a loan transaction, and the subject property being a site with improvements and a manufactured home, as a WHOLE property."

"In summary, an appraisal developed by using a sales comparison approach that relies on "comparables" that are themselves the result of adding together the cost of the property components is NOT consistent with the purpose of the assignment. ---those comparables are not market sales of the property unit that is the subject of the appraisal."

Ethics Rule, Competency Rule, Standard 1 and Standard 2 are applicable.

"--the "comparable sale" is not the result of a whole property unit being sold by one party and bought by another. Rather, it is the "comparable cost" of an assembled property. As described, it is the sum of the cost a buyer incurred in assembling a property." (land/home package)

"--a new manufactured home is not the subject of the assignment. The subject of the assignment is a whole property unit that includes an improved site with a manufactured home in place."

Regarding Standards Rule 1-3(B)---"--while USPAP does not preclude development of an opinion of market value by a cost approach, in completing such an analysis Standards Rule 1-4(B) requires an appraiser to--analyze such comparable data as are available to estimate the difference between the cost new and the present worth of the improvements. Even though the subject property---is new (actual age is zero), recognized cost approach methods and techniques include analysis of market data to support a conclusion that there is no depreciation. In this context, the most comparable market data would be sales of similar property units. (whole properties)

Standard Rule 1-4(3)--An appraiser must analyze the effect on value, if any, of the assemblage of the various estates or component parts of a property and REFRAIN FROM VALUING THE WHOLE SOLELY BY ADDING TOGETHER THE INDIVIDUAL VALUES OF THE VARIOUS ESTATES OR COMPONENT PARTS.

"This response is based on the entire subject property being real property.

 

[Caterina Platt]

Well put Jo Ann!!

I was just going to pop back with the fact that FNMA basically outlawed using 'assembledge' comparables. Must be an arm's length transaction.

Ok, 'come clean' time here. I have used site builts only in very exceptional cases. Once when my subject was an incredible, large, Solitare on 4.7 irrigated acres with a 2400 sq ft. shop and horse facilities. The other time when the subject was again, high quality and full brick exterior on 15 irrigated acres. Again, a killer shop and no manufactured POS's on a single acre with a storage shed held a candle. Big disclosure, the site builts were #4-6 comparables, of average quality at best, and I do make a quality design adjustment. A somewhat hefty one. The site builts were provided merely due to the similarity in land and site improvements. Had to provide similar equestrian/workshop and site size comparables. Typically, your manufactured buyer can't afford $90,000 in land, much less see them transfer within the past 6-12 months.

Only in rare instances is it warranted and you must adjust for quality/design of the site built. The market sees it. We must report such.

Further disclosure. I'm not looking down my nose at MH's with storage sheds mind you. I myself live in a excessively over remodeled '85 DW with a mere storage shed. These dwellings have a purpose and this appraiser knows from personal experience just what it is. Affordable at the time. We all dream of the big nice 'un. Some of us just can't afford it until later dates. It's just a very rare instance that warrants site built comparison.

 

[Jo Ann Meyer Stratton]

Fannie Mae Guidelines effective 6/30/2002

Section 102.02 - Unacceptable Appraisal Practices
Selection and use of inappropriate comparable sales or the failure to use comparable sales that are locationally and physically the most similar to the subject property.

Creation of comparables sales by combining vacant land sales with the contract purchase price of a home that has been built or will be built on the land.

Use of adjustments to the comparable sales that do not reflect the market's reaction to the differences between the subject property and the comparable sales, or the failure to make adjustments when they are clearly indicated.

Section 304 Factory Built Housing
The appraiser must not "create" comparable sales by combining vacant land sales with the contract purchase price of the home (although he or she may use this type of information as additional supporting documentation).

Fannie Mae guidelines may be accessed at:

http://www.adfinet.com
you have to register but it is free


http://www.allregs.com/efnma/index.asp


2003 USPAP
http://www.appraisalfoundation.org/html/US...PAP2003/toc.htm

 

[Tim Hicks (Texas)]

Roger said:

The reason that this was not done is that the appraiser was doing a bunch of these and they were his cash cow. If he starting saying what the market was actually doing to manufactured homes (they lose money as soon as they roll off the lot), he would lose his income stream.

Roger, there is a large misconception in the appraisal community with regard to this. These homes actually don't depreciate. Take it from me. I have performed over 20 field reviews on these properties. They were over sold in each instance. My definition of over sold: The buyers paid more for the manufactured home bought through the developer than if they were a cash buyer buying it separately and they paid more for the lot than if they were purchasing a lot off the open market. The "drive off the lot" depreciation is not depreciation at all. It is a "false" sales price to begin with. I have appraised many a manufactured home where the borrower has purchased the lot themselves and the home themselves and the value could be supported by open market transactions. The reason there is so many foreclosures on these "land/home" packages is because they were not worth what they paid for them in the first place.

This is the most supreme of all appraisal fraud. These land/home packages would not exist if there were not plenty of appraisers around that are willing to "make the deal work" to provide themselves with that "cash cow". Not one of the appraisals I reviewed utilized open market transactions, most never verified the sales as most were re-finance values, owner financed properties and "contract for deed" sales. Many times the same false sales were utilized no matter what the distance. The one determining factor and most damning fact is that if the properties were truly worth what they paid for them, then somewhere there should be re-sales to support it. There never are. Plenty of foreclosures though. The typical $120-140,000 manufactured home sale can now be bought for $30-60,000 on the open market because the market is so saturated with foreclosure properties that it is the only way for the mortgage companies to unload them. Oh, my field reviews revealed an average of $40-50,000 below the original appraisal and right about the actual cost of the homes should have been.

 

[Jo Ann Meyer Stratton]

2003 USPAP, page 19, lines 664 -673

Standards Rule 1-1
(e) An appraiser must analyze the effect on value, if any, of the assemblage of the various estates or component parts of a property and refrain from the valuing the whole solely by adding together the individual values of the various estates or component parts.

Comment: Although though the value of the whole may be equal to the sum of the separate estates or parts, it also may be greater than or less than the sum of such estates or parts. Therefore, the value of the whole must be tested by reference to appropriate data and supported by an appropriate analysis of such data.

A similar procedure must be followed when the value of the whole has been established and the appraiser seeks to value a part. The value of any such part must be tested by reference to appropriate data and supported by an appropriate analysis of such data.

 

[Farm Gal]

Joann:

I appreciate your pointed post re: assemblage, BUT I see also Rogers point with regard to oversold or 'false sales price'.

I believe there is SOME entreprenural profit which can be applied to the process of placing a manuyfactured home on a lot and taking charge of the 'general contracting' which is effectively all the hookups, permits and 'hasslefactor'.... The 'typical buyer' just doesn't want to do that part of the work!

The trick with these things is at what point does the market tip from having a few REO's which would be considered by SOME FEW 'prudent buyers' into a situation where the market is saturated and ANY prudent buyer would consider looking at used and heavily discounted stock before even thinking of paying the price for new?!?!? ....which after applying the Principal of Substitution...

I have a real problem with this whole issue: We have recently had one of those postage stamp lots "PUD" subdivisions on a main drag with big billboards announcing the "OWN for LESS than RENT" theory of home sales! No suprise the buyers are NOT brain surgeons... I did a review on the original appraisal of one of the first units sold which had recently gone REO... Given the scarcity of sales and the proximity of goods and services and the situation as a whole, the appraiser appeared to have done a legitimate job of estimating market value. And so I told Fannie Mae who was seeking to do whatever process they do to make the lender (and possibly the appraiser) liable... I mean they want a review of the market.. they got it, it wasn't pretty and may in the longer term wind up unreliable! But they got a reasonable analysis at the time and in my later 20/20 as of the date of the review... review~!.

I threw two more rural sales at the issue, which adjusted out. I also told them that the subesequent sales which occurred AFTER the date of sale also appeared to support the value (although thsoe sales were not 'considered in develping an opinion of value as of the effective date' :roll: )

SO in the few months since my review there are now two additional REO listings in the subdivision which is not yet sold out... 8O I am sooo shocked and surprised (NOT)

Naturally the original sellers have been contracted to attempt to move these REOS...since they own the subdivision and have an on-site sales staff.....

I think they are making a bit more than a 'fair profit'... buyers are stupid.

SO at what point does Entreprenural Profit. and Prudence and and buyer and such DEFINE a NEW market :? :?: ... Jury is still out on what buyers are willing to pay for these (purportedly good condition) resales and what effect will this have on new sales and ...

Geee I guess we will just have to report the market?!?!?

An' I do any new construction appraisal in THAT area, it is going to have some serious addendum and discussion of current market events... 8O

At what point does a willing buyer acting in his own best interest say Gimme a DEEEP discount, and redefine the market? :idea:

 

[xm39hnu]

Lee Ann said...

I think they are making a bit more than a 'fair profit'... buyers are stupid.

SO at what point does Entreprenural Profit. and Prudence and and buyer and such DEFINE a NEW market :? :?: ... Jury is still out on what buyers are willing to pay for these (purportedly good condition) resales and what effect will this have on new sales and ...

Knowlegeable buyers, Lee Ann. This problem is similar to my recent posts about the nice house with the lousy foundation. The rednecks don't care, so long as it keeps out the rain. But neither the rednecks nor the ignernt trailer dwellers are the well informed or equally well advised market participant to which your definition of Market Value refers.

I submit that a knowledgeable buyer wouldn't put up with the kind of crap being pulled on them by these guys who are too sleazy to get a used-car dealer's license. Jo Ann's references are clear: you can't do assemblages on these things, regardless of whether the rednecks are drunk or ignorant. Informed buyers establish market value, not stupid ones.

 

[Pamela Crowley (Florida)]

Informed buyers establish market value, not stupid ones.

Pondering....

IF the percentage of 'typical' buyers that are 'well informed or well advised' goes lower than 50%..... does that mean idiots are in charge and 'market value' becomes whatever an idiot will pay???

:rofl:

When the percentage of idiot buyers goes over 50%, is that when appraisers will become obsolete? Seems to me that almost all other participants in the real estate arena are pushing to make sure that most buyers are kept MIS-informed.

 

[xm39hnu]

IF the percentage of 'typical' buyers that are 'well informed or well advised' goes lower than 50%..... does that mean idiots are in charge and 'market value' becomes whatever an idiot will pay???

You know better, Pam.

If 98% of the buyers are idiots, the other 2% are indicators of market value, by the definition. And that 98%/2% breakdown may be a conservative estimate. Our definition presumes a perfect market with perfect participants, all buyers paying cash.

So we try our best to reach a conclusion of value based on perfection of the market and its participants which doesn't exist. Q: Are we in the final analysis to be considered fiction writers?