Second Home

[Nick Gilbert]

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I received an assignment for a second home purchase. Is it typical to provide forms 216/1007 with this type of appraisal? I have found that many "second homes" turn into rental properties. Thanks for your help.


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[Jerry Bone Jr]

Typical, no, yes, maybe, who cares. The only thing that matters is what your client has requested.

 

[Pamela Crowley (Florida)]

Typical, no, yes, maybe, who cares. The only thing that matters is what your client has requested.

USPAP and your State Laws/Rules/Regulations FIRST and FOREMOST.
Client wants/needs are secondary, always.

 

[Pamela Crowley (Florida)]

Nick,

If the Income Approach is relevant for that property in that market, you should be doing the Income Approach. The IA for mortgage lending often includes a lender client wanting the 216 and/or 1007. Whether or not the client wants anything regarding the property possibly being most often purchased by investors does not diminish what you should have in your workfile, but might make a difference in what and how your write your report.

We would need more information regarding this particular situation to be able to adequately answer your question.

What percentage of the sales for properties like your subject are purchased to rent out?
Are the investor purchasers expecting a positive cash flow and is that really possible with a 30 yr fixed mortgage under investor purchase terms?

There are a few other questions that will probably become pertinent after these are answered.

 

[Mountain Man]

I haven't done a 216/1007 on a second home in a very, very long time. Most in my area are rented out, but the income is negligible. The weekend rental income just helps make the payments, taxes, and insurance. People do not buy these homes for the income, they buy them for a second home and the occasional weekend rental income just helps. Basically, it boils down to the Highest & Best Use.

 

[Nick Gilbert]

Pamela,

The neighborhood consists of primarily owner occupied housing. I don't have a percentage but there are only 6 active MLS listings for rental homes in the neighborhood and the neighborhood is quite large.

An out of state individual is buying the home as a second/vacation home, per the appraisal request, and not as an investment property.

I always include a 216/1007 with an investment property and complete the income approach if there is adequate market information to support it. Since this is a second home, I was curious as to the applicability of rental comps and the OIS. Thanks for your help!

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[Pamela Crowley (Florida)]

I would say that under those circumstances the Income Approach and 216/1007 are not applicable nor necessary.

 

[Nick Gilbert]

Thanks Pamela and good luck to you. I know you fight a lot of battles for appraisers, and we sure do appreciate it!

 

[Mike Boyd]

I would say that under those circumstances the Income Approach and 216/1007 are not applicable nor necessary.

I agree. If you include it, make sure they are the last 3 pages then the client can easily exclude them from the file. That probably would not work. The client would call YOU to exclude them which means you have spent the extra time on your own dime. I always charge more for the 216/1007 and get approval first for the extra fees. In my opinion, daily or weekly rental analysis puts the property in a hotel category and, therefore, should be done by an AG.