Two Adjoining Lake Parcels On One Deed- How Do I Value?

[Vermonter]

Run into this quite often with waterfront lots. Usually one lot will have the camp and the other a driveway, garage, boat ramp, septic, etc....some feature that ties the lots together. I would do more digging before claiming a separate HBU. Just because a property is broken into different "lots" doesn't mean it can be divided easily.

We have one lake that has most of the lake broken into 50' waterfront lots....but shoreline zoning requires 75' of frontage to develop. So any new development requires a minimum of 2 lots.

 

[KHS445]

Let me start off by saying I am not a lawyer and I didn't stay at a Holiday Inn last night. However, the mere transfer of multiple properties via one deed does not combine said properties. Many times multiple properties are transferred using a single deed. It is much simpler if the properties are located in the same recording jurisdiction (County's in Michigan), but a deed can be recorded multiple times in multiple jurisdictions. The act of combining multiple adjoining properties is generally handled by the local taxing authority or planning/zoning department.

If these properties have separate tax identification numbers they are separate parcels which are owned by a common entity. If they are indeed two separate parcels the owner can legally sell either one of the parcels independent of the other. In most cases if the lots were legally created prior to the passage of zoning or changes to the existing zoning restrictions the substandard size (width) would be grandfathered. Conversely if they were combined into a single parcel the local authority would most likely not allow a split which would create one or more substandard parcels. You need to read the specific ordinance and talk with the local Zoning Administrator to verify the status of these lots and what can and can't be done. This is why in many instances it does not make any sense to combine adjoining parcels into one tax parcel. I fully understand there are circumstances where combining adjoining parcels makes sense, especially in a place like Michigan that has a homestead property exemption.

My inclination would be to prepare two separate reports, one for each lot. I would value the improved property using similar comparables and then value the unimproved site using vacant waterfront comparables. Depending on topography, public road location, etc. you may have to make adjustments for the lack of direct public access to the improved parcel, the location of the access on the unimproved parcel, the estimated cost of providing direct access to the improved parcel, the impact on value to the unimproved parcel if an permanent easement is granted, etc.

Don't overthink it. You have been asked to value what turns out to be two separate parcels of land. Complete your H&BU study and value each parcel accordingly, or together if you H&BU study indicates the greatest value would result from combining the two parcels. The value of a McMansion lot may be greater than two smaller lots. If the lender wants to add the two values together that is their decision or they could ask you if considering the two parcels as one would result in some sort of discount.

 

[Michigan CG]

Value the property with both lots since it's deeded together.

NO!!!!!

 

[Michigan CG]

If this is for a loan the parcel is probably being encumbered by both lots and that's why both are on one deed. If the property is currently encumbered by a loan the owner could not sell off one of the individual lots unless he paid off the mortgage. 95% of the time this is the case so if your client says both are encumbered or being encumbered by a new loan you appraise it as one parcel and that is fine with FHA, VA,Fannie etc.

NO!!!!!

 

[gregb]

Didn't the duck answer this question back in 2006?

https://appraisersforum.com/forums/threads/2-houses-on-one-deed.102942/

 

[Ron Patton]

Appreciate all the responses from everyone. Even though the gravel drive is on both properties, both properties can be accessed directly from the main road and each property leads directly to the water. One property has 77' of frontage while the other has 85' of frontage. Neither site is land locked. This appraisal is not going to the secondary market and is staying in house. I can find water sites that sell as high as $320,000 for 215' of frontage on slough water. However, most sites sell for around $190,000...$190,000 plus $190,000 is $380,000. The highest and best use is one lot with a house that's worth approximately $250,000 to $280,000 and another separate lot that could sell for $190,000 or so ($470,000 total). Since the loan is staying in house and not being sold off, do I just state that the highest and best use is not currently as improved and just value the lots as one big parcel valued around in the mid to high $200,000s based off other similar sized lakefront lots of similar acreage when combined (1.61 acres and 215' of frontage when combined). If I simply do this, it is just following the directions from my client which seems to be the easiest way around this since it's not being sold

 

[The Warrior Monk]

If the lots are single and separate, the issue needs to be discussed with the client. Various lenders handle this situation differently (blanket mortgage, one conventional loan and the other portfolio, etc.), which will guide how the appraiser develops and prepares the report(s).

 

[Michigan CG]

People need to STOP with the thought of parcels being on the same deed. Just because multiple parcels are on the same deed does NOT dictate their Highest and Best Use.

There are two Highest and Best Use exercises. The first one is AS VACANT land which is what you are dealing with.

1. Are the lots legal (i.e.) do they meet minimum site size and frontage?

IF SO, proceed to #2.

2. Is it physically possible to build on the lots separately?

IF SO, proceed to #3.

3. Is it financially feasible to improve the sites? You have stated yes.

Go to #4.

#4. What is the maximally productive use of these lots? In other words what would get the most $$$.

You have stated that it is common for people to build on the lots and one could sell each lot separately therefore resulting in a Highest and Best Use of selling them separately.

You have two appraisals unless your client wants you to hypothetically appraise them as ONE parcel that cannot be divided.

 

[J Grant]

member: 78212"]Appreciate all the responses from everyone. Even though the gravel drive is on both properties, both properties can be accessed directly from the main road and each property leads directly to the water. One property has 77' of frontage while the other has 85' of frontage. Neither site is land locked. This appraisal is not going to the secondary market and is staying in house. I can find water sites that sell as high as $320,000 for 215' of frontage on slough water. However, most sites sell for around $190,000...$190,000 plus $190,000 is $380,000. The highest and best use is one lot with a house that's worth approximately $250,000 to $280,000 and another separate lot that could sell for $190,000 or so ($470,000 total). Since the loan is staying in house and not being sold off, do I just state that the highest and best use is not currently as improved and just value the lots as one big parcel valued around in the mid to high $200,000s based off other similar sized lakefront lots of similar acreage when combined (1.61 acres and 215' of frontage when combined). If I simply do this, it is just following the directions from my client which seems to be the easiest way around this since it's not being sold

HBU is NOT determined by whether a loan is staying in house or not. Consult with your client of course to discuss what you find, format etc, but HBU is determined by the market/analysis. The client handles it on their end with borrower regarding deed, title, blanket mortgage etc that might need to take place to get a loan/accepted.

"not being sold" ...Do you mean the property is not being sold, or the loan is not being sold? In house loans can be sold . As far as the property, we appraise it as if it is a hypothetical sale for Market value purpose even if the owner is not "selling it"

 

[KHS445]

What does Highest & Best Use tell you? To me it sounds like two separate parcels, one with improvements and one without. You yourself indicated that separate and valued as such that you are looking at $470,000 versus $380,000 if both lots are considered vacant and mid to high $200,000's combined as is.

Not trying to be snarky, but easiest is not the criteria by which we are retained to value property. A full and proper valuation is the standard we should and must always work towards. We have to go wherever the information leads us. Now if you want to say H&BU is separate and as such the estimated value would be XXXXXXX and if the property were to be valued as one parcel the value would then be YYYYYY. Whatever you do fully document and support your conclusions.