Should the appraisal note any unpermitted construction?

[realbiz]

When you purchased the home the seller should have provided a Disclosure, in the disclosure the current owner should address the work done without permits. Then you stated the city did an inspection, I doubt if it was a certificate of occupancy. However, the city inspection should have picked up the garage. I know a lot of cities in southern CA that would have addressed this. I recently ran across presale reports in Lynwood and Carson that had many issues with unpermitted work. Good luck, and I am glad the city allowed you to get the permit.

 

[The Warrior Monk]

thanks for your reply David,

Here in Pasadena the city's certificate for occupancy inspection is mandatory. In theory, it is not possible to sell a house without this certificate by the city.
Does this change anything the role that appraiser has in the entire process?

I am surprised that somebody in the queue didn't catch this. Between the field inspection by the title company and simply looking at the required documents it would be an easy catch.

With regard to the appraiser, it's not possible to give and all-encompassing answer, since availability of data and the common practice of appraisers vary widely from area to area. I personally check when it's reasonable to do so. For example, in one town where I do the majority of my work, these documents are ready available online (GIS subscription service). In other towns or village, it might require filling out FOIL documents, paying a fee, and might require several weeks to locate the documents if they are not recent.

 

[bavajose]

Guys,
thanks all for you comments in the first place.
Second, half of you did not even read my question correctly to be honest, but whatever
Third, I have no idea what the role of the appraiser really is, I do not think I can get a valuable role of any appraiser after all I read, to be honest with all of you.
If a property has non permitted parts in a any city, the value of the property goes down obviously because as a buyer you have to deal with the entire mess someone else did in the past, which sometimes is not even fixable, like in my case.
So... again... what is the appraisal for then in these cases?
I posted my question because I thought the appraiser was a different thing, not just one more that gets a bit of many out the entire process. I was trying to clarify that so I would not blame the appraiser for nothing, now I have it clear.
My apologies to all of you that are appraisers. Last comment I post, promised!

 

[Mike Kennedy]

The following is part of the conditions every appraisal (blue added for emphasis:


STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS: The appraiser's certification in this report is subject to the following assumptions and limiting conditions:

1. The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it, except for information that he or she became aware of during the research involved in performing this appraisal. The appraiser assumes that the title is good and marketable and will not render any opinions about the title.

"Subject: USPAP AO-28 / Due Diligence is Required
5. A real property appraiser accepted an assignment to appraise a three-unit residential property. The intended use of the appraisal was for mortgage financing. The client requested that the appraiser not verify the legal status (e.g., compliance with zoning, building codes, use permits) of the three units with municipal officials.
The appraiser withdrew from the assignment because she concluded that the client’s assignment condition limited the scope of work to such a degree that assignment results are not credible in the context of the intended use. The use of an extraordinary assumption about the legal use of the property would not produce credible assignment results in the context of the mortgage financing use."


The above “Case Study” was Issued as an Opinion that the ASB clearly considers municipal verification STANDARD and REQUIRED APPRAISAL PRACTICE (in markets where building & zoning ordinances exist) on Mortgage Financing Appraisal Assignments.




[FONT=&quot]i.e. those who subscribe to the notion that such verification is NOT required and THAT is "standard" - are dead wrong. [/FONT]

 

[Mike Kennedy]

The Dictionary of Real Estate Appraisal, fourth edition, includes the following highest and best use definitions:


"• Highest and best use. The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability.4

4 Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute, 2002), 135.
5 Ibid.
6 Ibid., 135-136.


• Highest and best use of property as improved. The use that should be made of a property as it exists. An existing property should be renovated or retained as is so long as it continues to contribute to the total market value of the property, or until the return from a new improvement would more than offset the cost of demolishing the existing building and constructing a new one.6

In analyzing highest and best use, consider legally permissible uses, then physically possible uses, then financially feasible uses. Finally, of those, determine which use is maximally productive (that is, brings the highest economic return). Another way of analyzing highest and best use is to examine which of the three following possibilities makes the most sense for the subject property:
1. Demolish the existing improvements and redevelop
2. Remodel, add on, or otherwise modify the existing improvements
3. Keep the improvements as they currently exist"

 

[Papoua Jose]

IMO, appraiser's who came of age after the advent of the internet think if property data is not available online then it's outside the normal course of business.

I wonder how many appraisers actually know where the deed vault, tax assessor, zoning and permits offices are located in their coverage areas let alone have ever visited same for research purposes.

 

[George Hatch]

Guys,
thanks all for you comments in the first place.
Second, half of you did not even read my question correctly to be honest, but whatever
Third, I have no idea what the role of the appraiser really is, I do not think I can get a valuable role of any appraiser after all I read, to be honest with all of you.

You apparently didn't understand what the real role of the appraiser is, what is expected of an appraisal by the parties who - unlike you - are actually using the appraisal for their decisions, or what comprises the normal scope of practice for an appraiser when performing an appraisal for a lender's use.

How you came to your initial misconceptions is immaterial, the fact remains that you had unrealistic expectations about what an appraisal report is and how appraisers typically develop those appraisals. But now you know.

As for "I do not think I can get a valuable role of any appraiser" that's obviously going to be a matter of opinion, but as far as this appraisal assignment is concerned it's not your opinion that counts. The lender doesn't care what you think about the appraisal because it wasn't done for your use or for your benefit.

Had you engaged your own appraisal for your own use prior to making an offer on the property you could have spelled out exactly what extras you wanted - like verifying all building permits in person. Sure, it probably would have taken that appraiser a lot longer to complete that assignment with those extras and they would have charged you more for the additional time and effort, but you could have gotten exactly what you wanted had you asked for it.

But you didn't. You operated under the mistaken assumption that the appraiser was working for you and was addressing aspects of the property that are important to you.


If a property has non permitted parts in a any city, the value of the property goes down obviously because as a buyer you have to deal with the entire mess someone else did in the past, which sometimes is not even fixable, like in my case.

You're making an assumption here that is basically untrue, and the actions of you as the buyer and of both of the realty agents in your deal demonstrate that it's untrue. You never thought to inquire about permit status - you saw a feature onsite that had obviously been onsite for a long time and could be assumed to continue onsite for the foreseeable future, and you considered it's value in that context. There's an extremely high degree of probability that at least some of the comparable sales used in the appraisal also have "permissible" structural improvements that don't have permit status, and those buyers operated off the same assumptions you did so in that event, there wasn't a significant effect on value in the market.

You need to understand that the opinion of value in the appraisal is not intended to reflect what the property is worth to you as the buyer, but what it's worth to the typical buyer operating off of the typical assumptions that buyers normally use. So it really doesn't matter if you say you would have paid a lot less for the property had you known you'd have to spend a few hundred dollars to get the structure permitted after the fact.


So... again... what is the appraisal for then in these cases?

It's for the lender's use in deciding whether or not to grant you a mortgage on this property. It's for their underwriting uses, not for your purchase decisions. Nobody cares what you think the property is worth. If they did then they wouldn't need an appraisal from an outside party.

I posted my question because I thought the appraiser was a different thing, not just one more that gets a bit of many out the entire process. I was trying to clarify that so I would not blame the appraiser for nothing, now I have it clear.

The question at hand here is how you came to this mistaken assumption in the first place. My guess is that it wasn't an appraiser who asserted these unrealistic expectations.


My apologies to all of you that are appraisers. Last comment I post, promised!

No need to go away or to apologize. You obviously didn't know anything about appraisals so you asked a question. And then we answered it. Feel free to ask any other questions because we'll be happy to answer those, too. It's in our best interests for more people to have a better understanding of what these appraisals are all about.

 

[TRESinc]

I did not think the same as you.

I thought the OP was someone that did not understand how something like this happens and was wondering about the process.

here is what the OP asked:

What I am trying to figure out is this, shouldn't the appraisal report indicate this discrepancy between city and county records and the real thing?

and the answer is no, the appraiser is not the permit police nor are we responsible for researching for permits (unless that is part of the sow and clearly defined prior to accepting the assignment, which typically isn't the case with a purchase or refi on a residential property).

 

[BRCJR]

here is what the OP asked:



and the answer is no, the appraiser is not the permit police nor are we responsible for researching for permits (unless that is part of the sow and clearly defined prior to accepting the assignment, which typically isn't the case with a purchase or refi on a residential property).

Re-read your post # 6 and tell me you were just being helpful.

 

[Mike Kennedy]

here is what the OP asked:



and the answer is no, the appraiser is not the permit police nor are we responsible for researching for permits (unless that is part of the sow and clearly defined prior to accepting the assignment, which typically isn't the case with a purchase or refi on a residential property).

Is HABU "as-improved" part of the SOW on residential purchase or refi appraisal assignments when utilization of the GSE appraisal report forms (including the Limiting Conditions and Certifications). If so see, Post 15.