SFR On Commercial Zoning

[Keith]

Originally posted by Steven Santora@Jun 25 2005, 04:49 AM
...I would tend to agree with you instructor that a residential license doesn’t cover commercial property: improved or not.

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.

How many times do I need to quote this? This is the fed guidelines. Read it.

Noncomplex nonresidential....

What is nonresidential? Commercial perhaps?

I called the NC Appraisal Board yesterday and asked this question. The instructor was wrong. The board called back 5 mins later and wanted the instructor’s name. I wasn't trying to file a complaint. Oh well.

 

[Austin]

I have heard it stated many times on this forum that the H & BU is single family residential because it is zoned SFR. Not true at all. The determination that SFR is the H & BU is not an H & BU conclusion, it is just the first step in the process. The ultimate H & BU is the SFR use that yields the most profit or when the value when brought up to market standards less the value as-is results in a maximized profit. I have never seen a residential appraiser that understood that or that knew an SFR property could be zoned SFR and have an H & BU as commercial.
That explains the Catch-22. If you have enough experience to know the above, you are not a Certified Residential level appraiser; you are qualified to be a Certified General. To conform to the law you must be over qualified. The things that distinguishes the dividing line between the two appraiser levels is that in doing residential appraisals someone somewhere has to have made the highest and best use determination that the subject is SFR because as just explained the Certified Residential level appraisers by implication are not qualified to make that determination. That is not my analysis, that is inferred from the law and in practice. You must comprehend complex in order to know complex when you see it.

 

[Fred]

Keith

How many times do I need to quote this? This is the fed guidelines. Read it.

Did so, years ago, understood it. Even read where they defined complex as atypical. I woud also suggest further reading might indicate that "non complex" is independent of "non residential." That is, it coudl residential AND complex and thus requre the services of a certified general.

I would say the property in this thread is atypical (ie complex) – hence the posted question. It would be very easy for someone to find any mixed-use property atypical; or any property currently used as a residence that actually requires a HBU to determine if the market recognizes it as residential or commercial.

Is it remotely possible that the intent of the phrase “non-residential” in those regs is to include certain types of land, like residentially zoned home sites (as opposed to residentially zoned investment tracts)? After all, of the two property types explicitly stated in the regs do not include ANY vacant land.

The words “non residential” are not a blank check to ignore the distinction between licensure levels. Also, those are banking regs that would have limited applicability outside the scope of a federally related transaction - other than as an exmple of how some clients loot at it.

FWIW, my state law is more restrictive. It specifies, for example that residential appraisers may not use income capitalization.

And as Jim pointed out, for the type of situation described in the opening post, it could be necessary to use income capitalization to find the value of the property in commercial use.

Austin
I tend to agree with George and what you say about Catch-22 (or paradox or whatever it is). How does any one of us know when we are competent?

These situations require measurement against multiple standards. It may be that banking law, for example, provides that a residential appraiser might wander off the plantation - but somewhere along the line the appraiser is going to get roped in by USPAP (and competency). I believe that if a residential appraiser takes one of these assignment and misses certain commercial property considerations, be that in HBU or developing an estimate or in final reconciliation – certified general appraisers will not be kind in review.

 

[Austin]

I read Keith’s post a couple hours ago and it has been rolling around in my skull ever since. The key thing he said was that he called the NCAB and they are on the instructor’s case. God help the poor instructor because I think he is absolutely correct.

The reason the instructor is correct is that $250,000 de minimus number came out of the OCC’s 94/96 directive on appraisal and evaluations. Basically what this banking regulation does is that it not only allows certified residential appraisers to do complex assignments, it also allows anyone that the bank feels is qualified to do so too. If the bank board says Realtor John Doe is qualified to do evaluations under de minimus, then on what basis can a licensed appraiser be prevented from doing the same? This is another quirk in the system and or unintended consequence of making a mockery of the spirit and intent of Fierra by the OCC.

Keith seems to be arguing that the reg says a certified residential can do it and that is that. Actually that is not that-that is what you get when you exempt the very institutions from the very regulations that were designed to regulate the institutions. If the NCAB gets involved in this god help us all. It is back to the dark ages and another inquisition.

Speaking of inquisitions, has anyone heard from Tom Hilderbrandt lately or his side kick David C. Johnson. The last I heard from DJC he was in Cuba working on a collective sugar plantation waiting for the Bush Admn to leave office and his capalistic mentor Tom was sailing his yact in the South Pacific. Strange combination those two.

 

[Fred]

Austin,
I think David is likely still in the Lounge section weaving conspiratorial theories.

Also, I think you don't quite have the "complx" issue right. The document you seem to be referring to is FRB 94-35 which says:
"collateral for loans of this size [below the deminimis] do not typically represent complex problems of analysis or valuation."
There is nothing in the law or regs for banking transactions that seeks to exempt "complex" assignment from thorough appraisals.

 

[George Hatch]

Of all the licensing rules and regs, the ones that are the most relevant to this situation are the ones that require an appraiser to adhere to USPAP, because the very root of this question involves appraiser competency. For a licensed or certified appraiser that requirement overrides everything else.

The state and federal regs allow me (as a Certified General) to appraise anything under the sun in my state. However, they don't allow me to render appraisal services in a careless, negligent or incompetent manner.


No offense intended, but I believe that the number of appraisers at the residential license/certification levels who can confidently complete an HBU analysis involving a property with non-residential zoning is pretty small, possibly only about 10% or so. I think the percentage of residential appraisers here on this forum who can do it well is probably a lot higher, but I also think that increase can be fairly attributed to the number of times we've discussed it here. It's not that the process is extremely complicated or involves a secret handshake or anything, but it does take some practice; and most residential appraisers don't get that much exposure to such problems during the normal course of their work. And the basic appraisal training courses certainly don't spend enough time or effort to explain it well at all.

Then there is the question of how many residential appraisers have sufficient access to the commercial databases. I agree with Steven that it's not possible to conclude an existing use is the HBU without having commercial data to make the comparison to the residential data.

I also agree that if an appraiser significantly messes up an HBU analysis on a property, a competent reviewer is going to show no mercy. They aren't going to be hearing excuses like "well, it was ordered as an SFR" or "I didn't have access to the commercial data" or (my favorite) "the fee wasn't sufficient to justify the extra work". I think most USPAP iinstructors would rank the Competency Rule second only to the Ethics Rule in terms of importance in our professional standards. The rest of them would say it ranks first.

I recommend an appraiser not make the attempt unless they know they can pull it off.

 

[Keith]

If the NCAB gets involved in this god help us all. It is back to the dark ages and another inquisition.

The NCAB is not getting involved. I did not file a complaint. I simply wanted clarification on this issue; I was simply asking a question. I'm sure the person from the board simply wanted to talk with the instructor. It's not a biggee.

Finally, thanks for all of the feedback. I learn an awful lot from this forum. We typically get the full gamut of opinions. This thread is no exception.

 

[Austin]

Steven:
I was referring to "OMB Bullitin 92-06 & Circula A-129. Go to page 12 and read the requirements and qualifications to do evaluations. My point is-anyone can do evaluations on properties below $250,000 residentian and 1 million commercial and complexity of the assignment is not a restriction. How can the regulators allow evaluators to ignore complexity and the appraisal regulations require appraisers doing the same assignments to be restricted by the complexity.
I tried to attach it as a pdf but it didn't work.

 

[Fred]

Austin,
You are right about anyone being able to do what some agencies call an “evaluation.” However, if an appraiser does what is called an evaluation, the appraiser is almost surely going to be judged by USPAP and other relevant suppolemental standards.

The documents you are referring to are “non binding” because OMB cannot supercede, reduce or supplant what FIRREA itself tells the five banking agencies to. Not does OMB have any statutory authority over any agency that uses appraisal services. The document itself has a stated purpose to “provide guidance” and makes no pretext to establishing policy. I am unable to think of a circumstance in which an OMB document would be the controlling document.

How can the regulators allow evaluators to ignore complexity

They don't

Complexity is specifically cited in the publications of the five agencies regulated by FIRREA (like the one I quoted above) as an offset to the de minimmis. Complexity found its way into the published guidelines based on the FIRREA requirement that regulated agencies insure that the de minimis level “…does not represent a threat to the safety and soundness of the banking system.”

Complexity motivates the policy of other agencies. For example, condemnation agencies use only certified general appraisers even though the properties to be taken may be “residential.” Even residential takes involve temporary easements which are traditionally appraised by income capitalization.

Complexity is an omnipresent criteria because or the USPAP Competency Rule. Virtually all agencies (and the only exception I know is IRS) have recognized USPAP to one degree or another and all have their own documents that address competency.

Complexity also enters the fray because it is specifically metnioned as part of the AF distinctions between licensure levels quoted here by George Hatch.

 

[Wally Jones]

A timely thread.

I just looked at a property which is on 1.3 acre and fronts a federal highway in a small community. About a half-acre (fronting the highway) is zoned commercial, the remainder is zoned residential. (The residential portion fronts a residential neighborhood on the adjacent block.) The residential improvement is sandwiched between a church and a bank. Retail stores are across the street.

The bank says "no problem", just mention all of that and appraise it as residential. Uhhhh.....no. Research shows four similar properties have sold within the past six months for between $250,000 and $2.1 million. The residential improvements were demolished and retail stores erected.

I'll be calling the bank on Monday to admit my incompetency and recommend a good certified general.