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Sub divided site

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Bemis Pownall

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owner has 1, 2 acre site,he has plans to subdivid it into 4-5 buidable lots. He has the water and sewer on them. Waiting for calls back from county/city.

Now the question.
Im apprasing the home on the 2 acres. I am not including the potential for developement as then the subject would currently not be at highest and best use. RED FLAG, Sum of the parts and all that. This is an "as is" apprsiasal. I am mentioning the plans the home owner has and why Im not including it. Im comparing the home to homes on acerage similar as the subject. But they are not divideable. I am not giving any credit for the possibility of development for the subject's site, it gets real fuzzy. To attempt to give credit for future subdivision and value for this messes up the works, and the fee does not reflect the brain surgery. The home is on 2 acres period.

Waiting for planning to call back but if he has water and sewer taps wouldnt the subdivision be done and now his home is on say 7,000sf lot??

Im confused at the least hope this make sense.
Anyway am I on the right track??
 

George Hatch

Elite Member
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Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
a) The amount of the fee is not relevant to the amount of work required to fulfill the due diligence requirement. If an appraiser is completing their engagement, it must be completed properly, even if the extra work causes them to go broke. It might be time to either renegotiate or withdraw. Or eat the loss.

B) If the borrower has a pending subdivision or lot split that is in play, it should be considered in both the Highest and Best Use analysis and the "As Is" value. It isn't a subdivision yet, but some of the steps apparently have been completed. These elements may have an influence on who the typical buyer is and what they would use the property for; so these elements may impact the "As Is" value as well as the exposure time.

c) The property's existing use may represent an interim use, in which case there would be a limited remaining economic life. Regardless of the final conclusion of value; this element will probably have an impact on how a lender would view the property and what kind of financing would be appropriate. The final value may not even be the most important aspect of the appraisal.

d) There may have two values; an "As Is" value and "Subject to" value based on the completion of the lot split or subdivision. I would suggest that an appraiser would have to competent in appraising the property under both conditions in order to properly appraise just the one. On the other hand, I'm sure there are those who would disagree with this.


George Hatch
 

larryhaskell

Senior Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Nevada
Bemis:

What if the borrower had said they were planning to do a number of things to the site that could impact the value? Maybe a pool, barn, etc. It seems to me you were asked to appraise the property as is recognizing you need to complete a H&BU analysis. In addition, once you've finished the appraisal and the loan goes through (maybe) the whole two acres is encumbered and the borrower can't do anything with the site without refinancing anyway. I would certainly mention the present plans of the borrower to the lender as part of your due diligence.
 
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Bemis Pownall

Thread Starter
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Larry

Thats my approach at this point, and the local board concurs. I am just waiting on city/planning to call back to make sure he hasnt subdivided his 2 acre site..

The new loan will encumber the entire 2 acres and he will need to refi once he starts chopping up his site...I have reviewed REOs were the loans were made to individual units which were never legally divided. what a mess(worse case).
Sometimes we earn our fee and sometimes we dont.
 

Ben Vukicevich SRA

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Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
Bemis,

Use a "hypo' condition and appraise it "subject to" the final subdivision being obtained by the owner from the municipality. So your value would be based on the 7,000sf site with the home that you mentioned in your post with the "subject to" subdivision condition.

That's it. As you said, no brain surgery required with the bonus of no excessive time wasted in completing the report.


Ben
 

George W Dodd

Senior Member
Joined
Jul 9, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
I agree with Ben. In this case it sounds as if the highest and best use is to subdivide the site. The 1004 ( I assume this is the report type) is viable only on a home and single site. When there is excess buildable land it should not be part of the appraisal. By seperating the home and individual site you are appraising the property to its highest and best use and avoid confusion.
 
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Bemis Pownall

Thread Starter
Guest
thanks for the help everyone,
seems theres more than one way to skin a cat.

Completed it as home on 2 acres(1004), with mention of homeowners plans to subdivide. Explained that client ordered "as is" etc etc.
But when the phone starts ringing I have some alternatives to over the client, "subject to 7,000sf site anyone?"

Thanks again
another day gone
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
I don't think you can do it as split unless you do it as a hypothetical appraisal as the split is not yet approved and one of the criteria for highest and best use is that it is legal.
 
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