SFR On Commercial Zoning

[Fred]

Mike

In my case the zoning was residential with a use variance

Got it.

But in his case

zoning is business

So your solution doesn't work here.

 

[CANative]

Just a thought...

It's helpfull to read the full text of zoning ordinances. Especially the first sections explaining the "intent" of the zoning. Try it sometime.

For example, here is a portion of the C-1 District in Mendocino County.

CHAPTER 20.088 C-1 LIMITED COMMERCIAL DISTRICT

Sec. 20.088.005 Intent
Sec. 20.088.010 Permitted Uses
Sec. 20.088.015 Uses Subject to a Minor Use Permit
Sec. 20.088.020 Uses Subject to a Major Use Permit
Sec. 20.088.025 Minimum Lot Area
Sec. 20.088.030 Maximum Dwelling Density
Sec. 20.088.035 Minimum Front Yard
Sec. 20.088.040 Minimum Side and Rear Yards
Sec. 20.088.045 Building Height Limit

Sec. 20.088.005 Intent.

This district is intended to create and enhance areas where public facilities and services are available. A limited number of retail commercial goods and services are desired primarily to meet day to day needs of local residents. Typically this district would be applied within walking distance or short driving distance of a residential area, would confine the sale of goods and services to within a building and would permit only those uses which do not create, in the adjacent residential area, increased traffic, noise or other such impacts considered incompatible with the residential use. (Ord. No. 3639 (part), adopted 1987)

 

[Jim Bearden]

Originally posted by Richard Carlsen@Jun 23 2005, 03:01 PM
"H&BU is only an issue if land value exceeds improved value."


HBU is always an issue; an issue that must be determined before you embark on any valuation process.

How do you do it before you value it. In order to determine H&BU you must go through the appraisal process to determine it. I did a highest and best use on a property for a potential buyer in LA and the value was different than land sales would indicate because of the small size and limited potential development it also involved air rights.

Bottom line is H&BU is a result of the appraisal not the appraisal is the result of H&BU.

 

[Fred]

Jim and Richard,
You are running around the same flagpole in different directions. I'd say there are multiple valuation process in an appraisal that run concurrent with HBU analysis.

You may dig up two sets of comps SFR and commercial, just to compare one agains the other and then later put subject in one group to get a point estimate.

It's more for narratives, but I call HBU the glue that holds the report together. Sometimes I don't finish the last HBU section until after I have the point estimate.

 

[Richard Carlsen]

If the HBU analysis shows residential (present use) then you are totally justified in using residential comps and in fact must if you are trying to use a 1004. If it appears that the gentrification of the area to commercial will encompass the subject within the next 10 years or less, I would stop and get direction from my client because the loan is most likely for 30 years and the HBU will most likely be commercial during the life of the loan. In that case, I would recommend to the client that the assignment be deferred to a qualified commercial appraiser.

 

[Keith]

Originally posted by Steven Santora@Jun 23 2005, 06:17 AM
If the land is commercial, then you need to be a commercial appraiser. There is no way to determine HBU of the land, HBU of the property as improved or current value without commercial comps.

Do certain states prohibit residential appraisers from doing residential properties with a commercial zoning? Our state does not, as long as the appraiser has competency.

You make a good point about using commercial comps. It goes right back to competency. I was wondering if certain states have more restrictive rules than the federal guidlines:

A state-certified residential appraiser may perform any noncomplex nonresidential property appraisal with a transaction value of less than $250,000 and any one- to four-family residential property appraisal without regard to transaction value or complexity. A state-certified residential appraiser is bound by the competency rule of the uniform standards.

There seems to be a lot of confusion about this. In fact, an USPAP instructor just informed us that certified-residential appraisers can not even do vacant land with commercial zoning. Wrong.

 

[Fred]

Keith,
I don’t know all the state laws. Some only apply the licensing system to FRT’s.

However, if licensing does apply, I would tend to agree with you instructor that a residential license doesn’t cover commercial property: improved or not.

 

[Fred]

If the HBU analysis shows residential (present use) then you are totally justified in using residential comps and in fact must if you are trying to use a 1004.

No disrespect intended to anyone, but sometimes it seems like residential appraisers only know how to do one kind of appraisal and they are going to do it, regardless of what kind of property is involved.

I can remember doing one of these where I thought the vacant commercial land was worth 175k and as a residence the property was worth 100k. Later, I found out, I was second appraiser. The first appraiser did it as a residence at 110k, reported it on a URAR, identified the commercial zoning, but did the usual no-comps land value at 20k in the cost approach. Later, after it sold for 185k, I called the first appraiser to ask if he knew anything about that "comp." He expalined to me that the market is "crazy." Soon after, the buyer knocked down the old decrepit house and built retail shorefronts with a second floor that can be used for offices or even as a "residence."

This goes to Keith’s point about the instructor saying residential appraisers should not do commercial property.

 

[Austin]

This is a subject that has caused me a lot of headaches. There is a local appraiser (Realtors always do the same thing) that has been in business for over 40 years and he is well respected. Everytime he runs into a situation with a residential property going commercial he does that same thing. Say the property as a SFR is worth $50,000. He figures the typical building to land ratio for this type house is 15% or so, therefore, the house contributes $42,500 and is worth that number. Then he figures the site at $4/sf commercial is worth say $80,000. Then he reports the value at $122,500.
Then some idiot signs a contract to purchase it at that price and the bank sends me out to do the appraisal. I come back at $75,000, the site value less demolition costs. I get a call: "What the hell is your problem. We had it appraised at $122,500.
This happened once on a residential street near a PVI intersection. One dude owned about five houses on this street backing up to a commercial strip. The above situation happened with the same appraiser and owner's wife called me up and gave me the treatment. She said her brother owned 20 rental houses and he said their appraiser was on the money. They got mad and went to another bank and got financing. Then they build a huge house that was a gross over improvement in a poor location on a bad lot. I appraised that far below the costs and again got the treatment. The rest of the story? They lost it all to the bank at it sold at my numbers.

 

[George Hatch]

From the Appraiser Qualifications Board's "Real Property Appraiser Qualification Criteria", the following is the description of the Scope of Practice for the Certified Residential Appraiser classification:

II. The Certified Residential Real Property Appraiser Classification applies to the appraisal of one to four residential units without regard to transaction value
or complexity. The scope of practice identified herein represents the consensus of the Appraiser Qualifications Board. The Federal Financial Institutions Regulatory Agencies, as well as other agencies and regulatory bodies permit the Certified Residential classification to appraise properties other than those identified within this criteria. Individuals should refer to Agency regulations and State law to determine the type of property that may be appraised by the Certified Residential appraiser. All Certified appraisers are bound by the COMPETENCY RULE of the Uniform Standards of Professional Appraisal Practice.

Scope of Practice Interpretations:
1. The Certified Residential Real Property Classification includes the appraisal of vacant or unimproved land that is utilized for 1-4 family purposes or for which the highest and best use is for 1-4 family purposes. (adopted, March, 1991)

2. The Certified Residential Real Property Classification does not include the appraisal of subdivisions for which a development analysis/appraisal is necessary.
(adopted, March, 1991)

Note that the AQB does not make the distinction based solely on the zoning, but on the HBU. Im not sure how other states handle this but in California I know that HBU is the dividing line for their scope of practice for licensees - and they have no sense of humor when it comes to competency issues.

According to our professional standards any appraiser who is working on one of these properties should be prepared to explain how they arrived at their opinion of HBU, regardless of who the client and intended users are or what the intended use of the assignment is. A line of reasoning similar to "it's a residential property because the client ordered it that way" is not an excuse for an incompetently developed HBU analysis or the valuation that results from it.

I would say that if an appraiser is not capable of developing a HBU analysis on one or more property types, they should avoid assignments that involve those issues. As an example, I have limitations on the types of assignments that I work on because my competency (including those involving HBU analysis) only extends to certain property types. I feel no shame in sticking to what I know and referring the ones that are over my head on to someone who does know.