Splitting Parcel

[Brian Dutcher]

I had a request to appraise a home that sits on a three acre parcel. Tax records and title info indicate and confirm this is a three acre piece of land. However, the owner is selling the home and only 1.5 acres of the land. He is going to split the three acre parcel into two, seperate 1.5 acre parcels.

I say no problem. I'll be happy to appraise the home on the 1.5 acre parcel but I need documentation of the split. The owner seems to have failed to do this yet and now the mortgage company is giving me heat to finish the appraisal.

I thought of completing the appraisal as if the home sits on a 1.5 acre parcel like they need and want, but to make the appraisal subject to completion of the documentation I need to show proof of the split. Otherwise, I'd just rather waite until the split occurs.

Any suggestions? I feel comfortable with it (I think). They get their appraisal and I cover myself. Woudn't you agree?

Thanks.

 

[Robert Dunkle]

You can HC and EA the heck out of it and PROBABLY be OK if you cover yourself for the house to be on the parcel that you are appraising. You sure need to cover the legality of the split, the dynamics of it (is the house on one end of the lot). Make sure you require that all of the land be contiguous and of a reasonable shape with road frontage, blah, blah, blah ad nauseum and includes that prize tree over by the pond, and the property line is at least zzz feet from the house in all directions.

You can probably CYA if you do enough HC's and EA's, but I think I would want to wait for, at the least, a survey to show what I was appraising. It might not matter too much if all of the land lays the same and there were no superior or inferior areas, but it would take out one pretty large variable! Any HC's you inject, might not work out when they actually split the thing. They are going to have to have the survey and split done before they close the loan, so what is the hurry?

 

[hastalavista]

I agree with Robert in general, but making it "subject to" may create a lot of grief for you later if the actual split does not occur exactly as you outlined in your Hypothetical Condition.
If you choose this route, make sure that you get as much info before hand, and explain to the client that if there is any deviation from what is assumed, a new appraisal may need to be completed rather than just a 442.

I don't see where an EA (Extraordinary Assumption) applies here: i.e., what is assumed to be true, but would have a significant effect on valuation if not true? Per your post, the split has not taken place yet, so an EA that the lot is already split wouldn't be appropriate (IMHO).

Unfortunately, it has been my general experience that the LO/processors involved in such “deals” don’t understand what they are asking for and why they “can’t get what they want”. Maybe you’ll be luckier, and you can explain the choices better than I have when faced with similar circumstances.

 

[Jerry Lieb]

Brian - It appears to me that what you have here is a Hypothetical Condition. (USPAP defines a Hypothetical Condition as "one that is contrary to what exists, but is supposed for the purpose of analysis".

Even though Denis said that he didn't consider this to be an Extraordinary Assumption, I would be inclined to use that EA in addition to the HC, because if it turned out, for some reason, that the governing agency would not allow the lot to be split as planned, you have protected yourself even further.

Read the definitions of the HC and EA on page 3 of the 2005 USPAP.

 

[VolcanoLvr]

Brian....

The LO is itching to close the loan quickly so that the commission will be earned! I doubt the LO really cares about what you are facing. + has 2 potential loans!

Get a signed written statement from the seller as to the intentions of the property division, and include it in the report. (Scan it into a separate page.)

Then use the Subject To provision, coupled with an Extraordinary Assumption and Hypothetical Condition based on the seller statement.

Take lots of photos and include appropriate ones in the photo pages.

Good luck!

 

[Stone]

If zoning allows the split (min. lot size, road frontage, set back issues, past splits accounted for, etc.) and you get a legal description of some sort, you are all set. You do not need an EA or HC to appraise part of a property, you just need to be able to define the boundaries. The legal description can be written, a CSM, preliminary plat or merely a sketch on an air photo or tax map.

Zoning is important, because if it cannot be split, than you could not produce credible results. The legal is necessary to know what you are appraising, and to assist in zoning issues.

It really isn't a big deal if you have those things. You do not need to wait until the parcel is legally split. You do need to describe what you are appraising, as well as what the entire tract is.

 

[KD247]

...but I need documentation of the split

Why? If the letter of engagement adequately defines the hypothetical parcel being appraised, that should be enough to state your hypothetical condition. "Per the Clients instructions, this opinion of value is based on the hypothetical condition that the Subject property includes the site identified as..., or as shown on Exhibit..." I would consider an adequate description of the parcel to be one that generally identifies the area, so that you can tell when you're looking at it, and is precise enough that any ambiguities wouldn't affect on value. (How often do we determine "exact" legal boundaries on any property we appraise? We are not expected to engage in surveying.)

Because there are unknowns involved in this future lot split, you might also want to make the extraordinary assumption that the split will have no reasonably unforeseen impact on the subject's value or marketability. Even if the split was fully documented, there could still be hidden defects, which might include reduced building allowances, accessability, drainage, access to utilities, blocking of views, loss of privacy, etc.

Also, the description of the scope of this appraisal should probably also be changed to incorporate any deviations from the norm, including the issue of a rough survey of the land, and a rough estimation of the impact of future neighboring properties.

Whether the appraisal needs to be "Subject To" the split will depend on the Client's requirements. Just in case this goes in front of an inexperienced underwriter, you might want to bold type something like, "The Subject is not presently a legal separate parcel".

But, as others have implied, the answer probably will be found by making contact with someone on the lender's side who knows exactly what they need and has some knowledge of what you're legally and professionally able to deliver.

 

[Couch Potato]

If this appraisal is for a sale, the contract should indicate which acre and a half the person is buying. Unless the house is located on the land to in such a fashion to make the split difficult or you know that zoning or other regulations would prevent the split would think an EA would be in order given that the person has sold the house and 1.5 acres and another person has agreed to purchase it, I would think it logical to assume the process of splitting the land has occurred.

 

[David Bodtcher]

I think you've got it right, Brian, and you seem to know what you're doing. Tell us how it goes.