Residential Appraiser & Commercial Zoning...

[ExplainDNA]

Hi,

We recently had to step away from an appraisal when about halfway through we discovered that the property was zoned commercial (we're residential only). At first - that is, at the time of the visit - it wouldn't have appeared to be the case, but when looking at the zoning map it was most definitely zoned commercial/business. (Perhaps anyone from Illinois that has appraised in Stickney has run into this same problem.)

So, we notified the client and were promptly told by one of their review appraisers that we could still finish the report, as all we had to do was state what the H&BU was. This stunned me, as I thought you had to be a CG to even determine what H&BU was on a commercially zoned property. In this case the honest truth is that it was really was residential at this time, but we didn't feel safe about saying so. Clearly Stickney thinks it's commercial, anyway.

I was then told by the firm's chief reviewer that these days Fannie and I think FHA would take an appraisal with commercial stated by a residential appraiser even WITHOUT a rebuild letter! (I can't recall if Freddie does, or if I'm getting one mixed up here, sorry.) This stunned me, as for years & years getting that rebuild letter even for any non-conforming zoning was likely, let alone a residential property ZONED commercial but currently used as residential.

Anyway, I'd love to hear from you folks on this issue. Would any residential appraisers here complete a report for a property zoned commercial. We didn't, and I like to know if that's correct or not.

Thanks in advance,

Dave...

 

[glenn walker]

Use not Zoning. We have thousands of homes and small 2 to 4 units on Commercial Zoned lots but their existing use is their H & B use.

 

[George Hatch]

I agree with the reviewer and here's why:

I don't think you need to appraise the property in order to figure out in your HBU analysis whether it's worth more as land value vs it's existing use. In order to do that you would be looking as sales data for each, same as a CG would have to do if they were appraising it.

Before you even get to your HBU analysis you will be doing your neighborhood analysis and taking note of any trends for redevelopment in that area, the land sales for which would commonly consist of other properties with existing improvements but which were purchased for land value, generally without any financing or with max LTVs of 50%. And, the brokers will usually be including comments about the redevelopment potential or "value is in the land" when they're marketing these properties. Assuming they understand what they're selling.

When you're looking for sales you'll be looking for land sales with same/similar zoning and improved sales of SFRs. You might get lucky and find some recent SFR sales with the same non-res zoning. Either way, you're literally comparing this set of sales (as a group) to that set of sales to see which prices are higher.

Where it gets more challenging is if the brokers in your area aren't active with anything other than the SFR market. Where the commercial sites aren't being marketed through the MLS. The you can work around that by using a zoning map and searching for sales in the public records by street/block. That's time consuming but its doable.

If you can see that the SFRs are selling for more than the commercial lots then "existing use" is obviously the thing. If there's some overlap then it might still be the existing use albeit with perhaps a limited REL.

TLDR, it doesn't take the license to find the data and make the group comparison prior to deciding which types of properties are directly comparable to your subject and upon what basis they're being valued. But it does take a certain amount of familiarity with how non-res land is valued.

 

[George Hatch]

The caveat I'll add is that underimproved properties that are zoned for multi-family can get tricky due to the variables in multi-family zoning. If one is zoned for 2 units/lot and the other is zoned for 3 units then there's likely an adjustment to be made for those.

Not all CGs do it this way, but I use price/unit as the unit of comparison for multi=-family land. How many units a buyer can expect to get on this sized lot under the current zoning. I do not use the sales price itself as the unit of comparison the way SFRs and SFR lots are commonly analyzed. Nor do I use price/sf the way commercial and industrial zoned lots are valued. These days and depending on the local development criteria you might have to consider bonus densities that are available depending on participation in affordable housing or dependent upon proximuty to mass transit. The point being that it might pay to spend 1/2 hour reading through a jurisdictions zoning section for that zone in order to get an idea of what a developer might be looking at when they're shopping for development opportunities.

All RE is local, but in our region it's more common for SFRs on non-res land to be on lots zoned for office/professional or multi-family rather than industrial or light comm or heavy comm. Your mileage will vary

 

[Zoe]

There are different levels of commercial on what is allowed and what is not allowed.

Are you saying it could not be rebuilt as single family residential in case of a fire? If you are, then the H&B use is likely "as is" until it burns or something. If the land is worth more that the house and existing lot to be sold for other than single family, then you have a problem

If single family can't be rebuilt due to zoning if something happens to the stucture, you have a different problem.

 

[Zoe]

How much was fee? $200? LOL

 

[ExplainDNA]

Are you saying it could not be rebuilt as single family residential in case of a fire?

We don't know. According to the Stickney zoning code, which was quite nebulous, we didn't think so. But since we knew that we weren't going to finish the job we didn't call them to see what they had to say. But clearly, if they rezoned this portion of Pershing to be commercial, including 5 SFR residential homes, they have plans, don't they?

Also, George, I'm going to think about what you said, but to be honest I have some concerns. My instinct on these things usually saves me, and my instincts tell me that the great state of Illinois, Brian Weaver to be specific, would NOT be impressed if he say a commercial zoning on a CR's appraisal.

 

[George Hatch]

I think that as long as you understood the zoning and can find sales of properties with the same or comparable zoning, that would be the new-to-you part. You already understand the other half of the appraisal problem (SFRs).

 

[Zoe]

We don't know. According to the Stickney zoning code, which was quite nebulous, we didn't think so. But since we knew that we weren't going to finish the job we didn't call them to see what they had to say. But clearly, if they rezoned this portion of Pershing to be commercial, including 5 SFR residential homes, they have plans, don't they?

Also, George, I'm going to think about what you said, but to be honest I have some concerns. My instinct on these things usually saves me, and my instincts tell me that the great state of Illinois, Brian Weaver to be specific, would NOT be impressed if he say a commercial zoning on a CR's appraisal.

I don't blame you. It saved you some headaches and fee probably wasn't worth it.

I have accepted assignments in my life that I wish I never would have accepted. Don't worry about it.

 

[sputnam]

Zoning is only one piece of the HABU puzzle. The fact that a particular property is zoned commercial doesn't automatically mean that the Highest and Best Use is commercial... especially, the as improved HABU.