Savannah, GA Downtown/Historic/Carriage/Garden Suite/1025 or 1004

[Kallie]

Hello,
I received an order to appraise a historic home in downtown Savannah. The subject has a main house, a garden suite that is accessible from the main house but has two separate entries, as well as a detached carriage house. Very typical of the market area. The property is being purchased for its income producing capabilities. It is one of the rare properties in this market that has 3 individual short term rental certificates. (Most people are lucky to get one.) The property is legally zoned. Selling for almost $3 million. Not my everyday appraisal but I've appraised quite a few properties like/similar to this.

Here is my problem. The lender has ordered this as a 1025. They are hell bent on the STVR value (understandably). After consulting with local appraisers some see this as needing to be a 1004 and a rent schedule as it is a Main House with a Garden Suite and a Carriage. Other local appraisers said the 1025 can be done. All with lots of comments as to "sticky situation" and "comps." Using a 1025, right off the bat on page one "improvements/units" I feel that I am already in danger of a misleading report because while the subject does have three individual stvrs, it is a SF Main house/garden suite with a Carriage ADU. There's not an option for that. To further complicate, per Fannie definition the garden suite can act as an ADU as it is accessible without going through the primary residence. So how would this property be identified in this section? We all know one unit with two adus is not an option. Misleading concern #1.

For the rent schedule, the purchaser and lender are hell bent on the STVR income. Again, I understand. But as appraisers in this market, we do not have the verification sources to provide a rent schedule based on short term rents. The rent schedule would be based on long term rents which do not fully reflect the market and why this buyer is purchasing the property. Misleading reason #2 ?

This is for one of those larger clients that unfortunately do not have in house appraisers and are not able to advise.

Brass tacks, can this property be appraised as ordered on a 1025? If so, what else do I need to be thinking about? Or what am I missing? Has anyone done this before competently and accurately able to represent the market? So long as I can find comparable sales and rents (which will reflect long term) and I state based off long term in the report can this be done?

Possibly making a mountain out of a molehill?

Thank you for your time.

 

[CGinMN]

The question of which residential form to use is beside the point. The lender is trying to finance a commercial property on residential terms. The only person who can ensure this happens is a licensed appraiser who doesn’t understand or respect the concept of highest and best use. It’s probably happened hundreds of thousands of times in the past decade in tourist communities across the US. Don’t be that person. Decline the assignment and tell them it is a commercial property. Likely they will move on to one of your peers, but at least you will have not participated in mortgage fraud and making your community even less affordable.

 

[Surf Cat]

This question has been asked again and again. This is from an appraiser who asked Fannie Mae directly.

https://singlefamily.fanniemae.com/media/12376/display
I directly asked Fannie Mae about this topic and below is the response I got. I am not one who thinks Fannie Mae/Freddie Mac dictates all appraisal methodology, but they did make the 1007 form, so their opinions matter.


Hello, I was hoping you could tell me FNMA policy on the 1025 form and the use of short-term rental data. Ultimately, I'm wondering if the 1025-form (or 1007) requires the use of annual/long-term leases? Thank you for your help.

Fannie Mae allows for the use of Short-Term Rental(STR) income as part of the qualifying income, when a borrower applies for a loan, however the rental information that is provided with the appraisal report needs to be based on monthly market rent. A residential appraisal is of real estate only, not a business, that is a different type of appraisal report. Form 1007 requires monthly rent. The appraiser can address the potential for STR and the actual rents in the addendum, but the data in Form 1007 should be reflective of the monthly rent. There is currently no Fannie Mae approved form for reporting STR Market Rent. The appraiser should provide their opinion of value for the subject on Form 1004 and provide an opinion of value for the market rent based on a monthly lease on From 1007. The market value of the subject needs to be based on Fannie Mae’s definition of market value that does not include the business or going concern value.

We do appreciate your commitment to professionalism and quality appraisal work.

 

[Joe Flacco]

How much would that property sell for if it did not have the short term rental certificates? With the limited information provided, it sounds like a single family property with two ADUs to me.

 

[Joe Flacco]

We have some properties like that with a single family home and two ADUs but I have never seen one with GRM based on market rent comparable to a 3-4 unit apartment.

 

[Tom D]

Slowly pull your foot out of this bear trap. If there is one unhappy person or underwriter, the state will find plenty of mistakes that you made even with a right value.

Never been hurt by not doing a dangerous appraisal. But, if you are getting paid enough for an attorney fee, march on. I can imagine that you will shoot yourself 1st, when you start getting stips and asking for proof of how you figured dis and dat.

 

[CGinMN]

You mention Fannie guidelines, assuming they are attempting to go that route one possible reason they want this as a triplex is because the loan limit is higher compared to a single family. $1,248,150 vs $806,400. Also a single w/2 ADUs is not eligible.

 

[Dublin ohio]

Very typical of the market area

If the configuration is typical for the market area, what and how are the other similar properties being utilized as

 

[Kallie]

Thank you all for your time and input. After further consulting with local peers and zoning, supported by food for thought nuggets within this thread, I declined the order. In my experience with these and other appraisers in this market a 1004 and 1007 is utilized. The lender's insistent expectation to appraise as a triplex is not accurate. Thank you all!

 

[sputnam]

GP