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Pushing values----the other way

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MARKETVALUE

Thread Starter
Sophomore Member
Joined
Feb 11, 2002
Professional Status
Certified Residential Appraiser
State
Georgia
Hey Gang-

Question for the day I am battling with a lender.

Case study: 20 acres of prime land with highway frontage $20k-$30k an acre easy, with a 1000 sqft site build improvement built in the 50's. THe house is a throw away and this is a commercial gold mine if not tommorow then next week. I appraised for $550k on 1004, property is listed for $999k, which it is no doubt worth it if you are contracting based on a zoning change.

Of course there is nothing similar for a residential appraisal. Take the approach of providing 3 comps of houses just like us and three comps with land just like us, as well as throwing in two land sales to boot for support and good measure. Adjusment percentages are laughable and should be. Lender is scared to death of 300% gross adjustment...........yeah but what about the other sales and commentary provided? Doesnt care just wants the high percentages down. Suggests i lower my acreage adjustments to lower percentage, doesnt care about value....


Calling a property low just as bad as calling it high? I would say in theory yes, but with the right disclosure and addenda what does it matter. Collateral is more than secured....

I know what the answer is, I just found this to be an interesting situation to find myself in. Being asked to push values down than up.......

Another sign the appocalypse is upon us..

Have a great weekend all

MRM
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
In reference to the loan value being secured because of a 'low' value estimate. That may not necessarily be so. Land loans have dramatically different LTVs, interest rates and terms. Not every lender will do a land loan, in fact, there are more who won't than there are who will. Land loans are scary for most lenders because of a reduced secondary market and the speculative nature of land development. As a consequence, land appraisals can, in some ways, be the most risky appraisal assignment an appraiser can take on. There are a lot of things to know about land to appraise it properly, and appraisers are sometimes the last ones to find out about them. Extra caution is certainly the order of the day here.


Regardless of the value, taking a subject property that is basically land and appraising it as residential on a FNMA SFR form just because there is a house on it is going to create a problem. Highest and best use. The definition of market value is based on knowledgeable buyers and sellers acting in their own best interests. If it is primarily land it should be recognized that all the parties would identify this property as land; ergo it should be appraised that way. This is an appraisal problem and they shouldn't be trying to tell you how to appraise the property.

The second problem here is that since the lender ordered it as an SFR appraisal, they are trying to stuff this property into a residential program, probably one for which it is ill suited. That's an underwriting problem, not an appraisal problem.

Just do your thing and let them use the resulting report as they will. Don't allow them to force you to take the responsibility for their decisions; and especially, don't allow them to force you to either push for a higher value or lowball the value.

And next time, appraise land as land or else decline the assignment.


George Hatch
 

George W Dodd

Senior Member
Joined
Jul 9, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
It may be that the lender is afraid that the secondary market will not purchase the loan. Or worse yet, they might me forced to buy it back if the loan is ever reviewed.

My question: Are they trying to lend on commerical property with a residential loan? 8O

What is the estimate of your remaining physical/economic life and how does that relate to a 30 year fixed mortgage?

That's my $0.02 worth :roll:
 

MARKETVALUE

Thread Starter
Sophomore Member
Joined
Feb 11, 2002
Professional Status
Certified Residential Appraiser
State
Georgia
George and George,

Thanks for your input.

George H.--

At what point does a 1004 not become acceptable? Where can you draw that line? I have market activity with homes on large acreage tracts. At what point do you say no, you need a land appraisal?

George D.---

No, the zoning is not commercial at this point.

THe home has 30 years left in it, but will never see it because it will fall prey to a wal mart or home depot at some point.

Heres how I think it should have been handled in everyones best interest.

Two appraisals--

1. 1004-Home and one acre

2. Land-remaining acreage.

But who am I to use rationale in the lending world?

MRM
 

Ben Vukicevich SRA

Senior Member
Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
MV

The excessive % adjustments are the flag to the underwriter and FNMA. Obviously, something is awry. AKA not the H&BU or a subdividable site.

If the zoning is currently residential, what is the minimum site size allowed???

The URAR is basically a one "site" form. If the 20 acres was further subdividable under existing zoning, then the home should have been appraised on the minimum site allowed. The balance of the acreage would be ignored on the URAR because FNMA doesn't do land loans. If your H&BU was not residential, (AKA the house is a throw away as you stated) then the URAR is not the place for a land appraisal as George H stated in his post.

If your site is further subdividable, it becomes the job of another expert to tell you what to appraise (the professional land planner) beyond the improvements and one site.

Ben
 
A

Anonymous

Guest
There are times when you just must tell the client that he has ordered the wrong product. If in your judgement the highest and best use is commercial than you can't use the 1004 form. I know that it is hard to reject an assignment but you must.
 

Verne Hebert

Senior Member
Joined
Feb 25, 2002
Professional Status
Certified General Appraiser
State
Montana
Boy I have seen alot of these over the past ten years here in Kalispell, MT. Few appraisers are ever confronted with the opportunity to compile a technically correct report like this. Condition the report to appraise this property as an SFR. Handle highest and best use. Your are discussing the principal of anticipation-be careful. If you have good land sales this anticipation should be included. Do not forget the principal of consistent use-very important in this report. If the dirt is truly work 20k to 30k, and if compiled technically correct your value may be high (in concept). As an SFR this this is nonconforming and probably should not have been ordered this way; unless by an investor as BC paper.

Good Luck. I goin' fishing
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
MRM,

It is not my intent to criticize how that appraisal was developed or reported, and if it came off that way then I apologize. In regards to where to draw the line, that's going to be a judgment call. None of us have seen this property or know this market like you do. I was only going off of what you said in your original post.

Highest and best use discussions always seem to come off as being so technical when the concept is pretty simple. I like to look at it this way:

Who is the typical buyer for the subject property and what would they reasonably do with it?

So let's apply this to your subject. If the typical buyer for your property is an owner-user looking to live in the house and maybe use the land for their lifestyle (horses, gardening, motocrossing or living as a hermit and shooting trespassers), then you're looking at a residential property with some land. You might have a real limited estimated remaining economic life. In such a case, you would appraise it on the SFR form, tell the truth, and don't look back. If it doesn't fit into a FNMA program that's not your problem as long as you don't make it your problem.

If the typical buyer for that property is a farmer or miner or oilfield guy looking to put that land into production, then appraise it that way. You probably won't be using a form format for that one.

If the typical buyer would convert the house to some non-residential use and then use the land for outside storage or a junkyard or some other open use, then appraise it that way.

If the typical buyer is a developer or investor who intends to hold it for future development, appraise it as land. You wouldn't try to appraise it as an actual subdivision, lot split, or developed use unless you had plans, specs and cost breakdowns, as well as some indication that it could actually happen.

Or, if the property has some public use or is subject to eminent domain, appraise it that way. Obviously, most of these uses other than single family residential are going to require different levels of technical competency.

Making a lot of assumptions is where the trouble begins, whether the assumption is that the existing use will continue in perpetuity just because it's there, or an assumption that the borrower's proposed use is automatically going to happen simply because they want it.

From a USPAP perspective, there isn't anything actually wrong with using the SFR form to report a value on a land deal or any other type of use, so long as you write the report in such a manner that the reader will not be misled. Of course, since the SFR form wasn't designed for non-SFRs, you're going to have a lot of extra writing to do and you still have to worry that someone will misunderstand it. That's why using the right tool (format) for the job usually results in a lot less work and a much higher quality product. Forms and formats don't make the appraisal, appraisers do.

Anyways, I've ranted enough for one day. I'm gonna see if I can't catch some of that south swell coming up from the southern hemisphere. Have a good weekend. Try not to work.

George Hatch
 

MARKETVALUE

Thread Starter
Sophomore Member
Joined
Feb 11, 2002
Professional Status
Certified Residential Appraiser
State
Georgia
George H.

No offense taken. I appreciate the input. I am always looking to learn or improve, and appear to have taken at best a sub par approach to valuating this particular property. Salt in the wound is I did same ppty 8 months ago, much in the same manner and it went through.

I am getting hypothetical now, but for the purpose of this discussion lets see where it leads.......

Say H&BU is not an issue and someone asks you what the most probable sales price of this unique parcel is today.

Do you write a narrative book citing all the different angles? Do you factor in the commercial anticipation? Do you screw the house and just value the land, citing the improvement contribution value is minimal due to the nature of the property? etc.etc.etc.

I have more questions now about this damn thing than i did when i posted this morning. The approach i took is here one i have implemented many times in unique appraisals (redundant, by definiation all appraisals are unique, but you catch my drift). I have always taken the attitude that it is worth something, and if I cover my *** and my bases I can arrive at a legitimate value range.

MRM

BTW--Very embarrassed to say, that I do not know what the specific residential zoning allows and/or disallows. It has been my experience and I ***-U-ME the large parcels in the county if not specifically spelled notated, are not subdividable. They can be, but one much apply for such and is not automatically a given with acreage tracts and would be a superior zoning to a 'non subdividable' tract. Although I dont have a clue as to what makes one divisable and one not.....

My hair hurts.

I know, homework lesson is to attend county commission meeting.
 

wyecoyote

Senior Member
Joined
Jan 15, 2002
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Washington
MV,

Just my opinion on the matter of zoning. We keep copies of the zoning laws here on book for those counties or cities that don't have them on there websites. I have found in the area that I deal in that they usually have specifics about minimum site requirements, subdivision potentials and grandfathering. Anytime that I am unsure of a sitation I call the respective authorities on this. Some of our areas not only have zoning but also have a counter for development and conservation can really be a mess cross referencing things. Not to mention taking into account any wetlands which we have here. My suggestion is call the governing authority anytime you are unclear or have particular questions. Most county/city authorities are pretty helpfull and you can also put in your appraisal the name and number for said individual. I have done that before.

Ryan
 
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