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Larry Disney

Freshman Member
Jan 16, 2002
There was a recent post on this forum commenting about the policy of the Kentucky Real Estate Appraisers Board concerning appraisals of small sites severed from larger sites. The information was not totally correct and I offer the following for clarification.

The questions asked the Kentucky Board involve many scenarios, but the following are most typical:

1) I have been asked to appraise five acres with improvements, but the total tract described within the deed of ownership is larger (say 50 acres). The property is selling as a 50-acre tract, but the investor will accept only 5-acres. The client has requested that I use the URAR form and enter 50-acres as site area on the 1st page, but report 5-acres in the cost approach (if used) and in the sales comparison analysis grid site data. Also, the client asks that I include an addendum listing the additional land beyond 5-acres, and assign a total contributory value for the land.

2) I have been asked to appraise five acres with improvements, but the total tract described within the deed of ownership is larger (say 50 acres). The client requests the appraiser list only 5-acres on both the first and second page of the URAR, and not mention the excess or surplus land area or any ancillary buildings that are not for the specific use of single-family residential owership.

There are many other scenarios, but one can easily see that if the report is not carefully written, and the assumptions and conditions noted throughout, violations could possibly be found.

The advice from the Kentucky Board is, and has always been. 1) Make certain that before proceeding you have verified, from a recognized source of knowledge, the approximate location and boundary of the tract to be included in the value opinion. 2) Verify, if possible, the loation (if improved) of all utilities, i.e., septic, water, access, any possible encroachments etc. 3) Verify zoning, and whether the 5-acres appraised will be permitted in the governing jurisdiction. Kentucky has many jurisdictions that require a minimum 5-acres, 10-acres, and in one instance 40-acres site size for single-family residential use. If the required zoning is 10-acres, a 5-acre use would not be legal; therefore not permitted for subdivision. Simply because the appraiser appraised the site as 5-acres would have no impact on the approval of the tract for sale. The URAR requires the appraiser indicate zoning is legal or illegal, and in the case cited the use is illegal. I take this to mean the property described as the subject tract (that being appraised), not the larger tract. In some jurisdictions the size tract also includes a minimum road (highway) frontage for approval. Therefore, a tract having less than the minimum would not be permitted, even with a variance request, if ample land under the same ownership would permit additional frontage. (Again, a zoning violation.)

The Board also cautions the appraiser that any information reported as factual and later proven false will be considered misleading, regardless of the reasons, if hypothetical conditions or extraordinary assumptions are not prominently reported.

The appraiser must identify the intended use, the intended user(s), purpose of the assignment and the scope of the assignment. Also, standards rule "1-2(e) identify the characteristics of the property that are relevant to the purpose and intended use of the appraisal, including (i) its location and physical, legal and economic attributes."

If a client requests an appraisal of a site that is in the northwest quadrant of a 50-acre tract, and the severed tract will encompass 200 feet of road frontage and a dept of 300 feet, rectangular in shape, the Kentucky Board would simply caution the appraiser to proceed in compliance of standards rule 1 and 2.

There would be one very important reminder. The appraiser must verify all information from a recognized source, and use extraordinary assumptuions and/or hypothetical conditions. The appraiser should require the condition of a survey if he/she feels that there is any probability that the data collected and reported is not reasonable or conclusive. You, the appraiser, have the responsibility for collecting, verifying and reporting all information.

The Board also cautions appraisers to read and be famililar with the following USPAP references: 1) Definition of Real Estate, 2) Ethics Rule - Conduct, 3) Standards Rules 1-1(b), 1-2(e)(i), 1-2(v), 1-2(f), 1-2(h), 1-3(b), 1-4(e), 2-1(a)©, 2-2(b)(iii), (viii), (x).

In short the Kentucky Real Estate Appraisers Board has never advised that the appraiser "must" always require a survey. The Board does advise that if the appraiser cannot reasonably identify the tract, verify zoning or other specific site information, and the appraisal is for mortgage lending with the definition of market value appearing in the glossary of USPAP and he/she does not analyze highest and best use, then he/she had best make the appraisal condition subject to a survey. Simply making uninformed comments, not using extracordinary assumptons or hypothetical conditions, and reporting information not verified, is a violation.

It appears that the total problem can be eliminated with total disclosure of what was done, and why. In the cases we have encountered that misused extraordinary assumptions and/or hypothetical conditions, the appraiser failed to prominately state the assumptions and/or conditions, or explain the impact on the final value opinion, and violated the development and reporting requirements.

The above is a summary of the advisory from Kentucky. I hope the information serves as clarification and puts the matter to rest, but if anyone has questions please respond.
Jan 16, 2002
Professional Status
General Public
North Carolina

Nice insightful post, glad to have you back on the forum.

As I read through the post the first time, I was concerned that you were going to fail to make the distinction that lending work requires a higher standard in the description of the subject property, ie, a legal description. Your post later addressed this issue indirectly when discussing the need for a survey. As you are no doubt aware, no specific requirement for a legal description exists under USPAP. The requirement under USPAP is that the description be adequate (for the intended use and purpose.) The function and use of the appraisal (and the related report) drives the determination of what is adequate for the solution of a given appraisal problem, ie, the relevant scope of work.

As an item of discussion, I would note that a survey is not the only way to present a legal description, at least in the Great State of North Carolina. (and according ot Ossie Smith, past chairman of the NCAB, North Carolina is certainly better than Kentucky :lol: Perhaps as a regulatory agency charged with enforcing (not interpreting) USPAP and federal regulations, your comments would provide more clarity if you did not imply a survey was the only way a legal description could be obtained.

Also, I understand that regulatory boards have the right to promulgate policy for their states that is more stringent than USPAP. I note your comment "Make sure you have verified, from a recognized source of knowledge, the approximate location and the boundry of the tract to be included in the value opinion. " This would imply some third party check of the description. USPAP does not categorically require such a level of diligence for all assignments. If that is what you are intending as a standard in Kentucky for all assignments, how can you get a third party verification in the case you cite of the 200 x 300, rectangular lot described only verbaly by the property owner? It sems to me that the description is sufficent to locate the property and allow for proper analysis of the physical, legal attributes if all the client wants the value for is to evaluate the property as a posible gift to a family member.

In my opinion, the question of what is an adequate description of the property in most scenarios (other than lending for which the client has etablished and recognized supplemental standard) should be decided as an issue regarding scope of work, ie, decided by participants in the market and the appraisers peers, (USPAP lines 594-598) rather than regulatory agencies.

This statement cuts to the core of what I think is an essential problem for all appraisers and regulatory agencies, inconsistency in establishing a national standard of practice. For example, Kentucky and North Carolina seem to be in a race to establish some standard that is different than the minimum standard in USPAP. This is a constant source of consternation in the USPAP classes that I teach. Even with the advent of national certification of USPAP instructors, it will do no good to teach USPAP per the ASB quidelines if several states are constantly providing different guidance and enforcing the standards differently.

I really liked your description of the legal/illegal issues surrounding zoning and other such matters as they relate to the highest and best use. May I use the discussion at the next set of USPAP classes?

I do have one question on the topic of highest and best use. You suggest in one paragraph that an appraiser may accomplish a market value assignment for lending use and not conduct a highest and best use analysis. USPAP does provide for this as the highest and best use analysis is an element from which departure can be taken. However, I do not know of a clear cut example of this scenario. My question for you, and I have asked the same question in all my standards classes, please give me a clear cut example of when you would not conduct at least a rudimentary H&B use in a market value assignment. I would love to have a good example to enable me to better explain this element of standards.

One final note, you state ..."reporting information not verified is a violation". My reading of USPAP and in paticular, AO-22 would lead me to believe the ASB position is that the degree to which any data is be verified (if at all) and reported is a matter to be determined as a function of the scope of the work. Again this is a decision for the appraiser/client and for ones peers after consideration of the clients intended use for the appraisal service being requested. One can not make bold statements that one size fits all, and if not done in a certain manner, it is therefore a violation of USPAP outright. Perhaps I am reading too much into the comment, and perhaps you meant this comment to be in the context of the H&B use analysis but I did want to comment on this issue in hopes you would respond.

At any rate, it is good to have you back on the forum. Thanks for a well written explanation of Kentucky's policy.

Stephen J. Vertin MAI

Senior Member
Jan 17, 2002
Professional Status
Certified General Appraiser

I could not have written it better. Larry most informative post.

Steve Vertin


Jan 16, 2002

Great post. You hit it right on the button, but I'd like to offer some additional advice.

In more cases than not, this requiremetn to appraiser 5 acres only stems from the client and some investors' beliefs that Fannie Mae will not buy a loan where the home has more than 5 acres.

This is not the case. Fannie requires only that the appraiser use comps with similar acreage.

In my career, I have been asked to do this many times. When I did, I used a hypothetical. But, the vast majority of the times, the client, after I explained the probable source for the condition, backed right off and said- go ahead and do it to Fannie guidelines.

Brad Ellis, IFA

Jo Ann Meyer Stratton

Elite Member
Jan 16, 2002
Professional Status
Certified Residential Appraiser
I received a copy of some Fannie Mae Guidelines but I haven't been able to locate it on the web site. Does anyone know where to find "Fannie Mae---Fannie Mae Simplifies Rural Appraisal Guidelines" on Fannie Mae's web site?

It has some very interesting statements that would be very handy to fax a client having fits about "rural", acreages, distances, older sales, etc, etc.

The statements:

Fannie Mae will finance properties of more than 5 acres.
Fannie Mae will finance a property that has a barn.
Fannie Mae will finance an atypical property such as a log home, geodesic dome, earth homes, etc..
Fannie Mae will accept appraisals that are older than 12 months; and finally Fannie Mae will allow for fexibility on the number of miles a "comparable sale" can be from the subject property.

"What is the property primarily used for? The appraiser must be able to state that the highest and best use of the property is residential and not agricultural or ranching."

"Is the total site similar in size to typical residential properties in the market, as supported by the appraisal?"

Please email me the address where I can find that document on the internet! Since all of the above describes one of my typical, every day, "cookie cutter" type of assignments.

[email protected]

Thank You!


Senior Member
Jan 16, 2002
Larry & Tom both of you have written great pieces of information, with 1 giving the States opinion and the other giving the Feds opinion. As was brought up in the discussion and is most important is the lack of consistency. And there in part, lies the problem, what was originated (USPAP) for the purpose of consistency has now become a language barrier with a great deal of difficulty surrounding the design of and understanding of this product.

To compound these problems, the Banking industry and their head appraiser's offer "their" understanding & interpretation's, to add to the confusion of these issue's. Therefore, it would be my opinion that we are approximately 20 years away from the acutual explanation, which will have many more "advisory opinion's" as to their explanation and in turn may lead to an additional 10+ years of time, before we get close to some type of "consistency" within the nation.

Just a thought :)
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