Unpermitted Additions

[CANative]

Legally permissible in this context = Legally authorized. A family room addition is just a larger house which is authorized in the R1 district. So it's a legal use of the land. If a building permit is required then not getting a permit is illegal. That's on the property owner, not the property.

 

[Mike Kennedy]

"The Appraisal of Real Estate"

HABU Analysis Pg 334
"legally permissible uses would conform to the land's current zoning classification and local building codes along with any other relevant regulatory or contractual restrictions on land use."

Testing HABU Pg 335
"To test alternative uses for the highest and best use, an appraiser usually applies the four criteria in the following order:
1. Legal permissibility
2. Physical permissibility
3. Financial feasibility
4. Maximum productivity

In practice, the tests of physical possibility, and legal permissibility can be applied in either order, but the both must be applied before the tests of financial feasibility and maximum productivity. A use may be financially feasible, but this is irrelevant if it is legally prohibited or physically impossible."

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.

 

[hastalavista]

"The Appraisal of Real Estate"

HABU Analysis Pg 334
"legally permissible uses would conform to the land's current zoning classification and local building codes along with any other relevant regulatory or contractual restrictions on land use."

Testing HABU Pg 335
"To test alternative uses for the highest and best use, an appraiser usually applies the four criteria in the following order:
1. Legal permissibility
2. Physical permissibility
3. Financial feasibility
4. Maximum productivity

In practice, the tests of physical possibility, and legal permissibility can be applied in either order, but the both must be applied before the tests of financial feasibility and maximum productivity. A use may be financially feasible, but this is irrelevant if it is legally prohibited or physically impossible."

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.

I'm going to borrow a much used quote from my good friend CAN: What's this got to do with anything?

 

[CANative]

What does that have to do with anything?

Edit: lol...

 

[Mike Kennedy]

"The Appraisal of Real Estate"

HABU Analysis Pg 334
"legally permissible uses would conform to the land's current zoning classification and local building codes along with any other relevant regulatory or contractual restrictions on land use."

Testing HABU Pg 335
"To test alternative uses for the highest and best use, an appraiser usually applies the four criteria in the following order:
1. Legal permissibility
2. Physical permissibility
3. Financial feasibility
4. Maximum productivity

In practice, the tests of physical possibility, and legal permissibility can be applied in either order, but the both must be applied before the tests of financial feasibility and maximum productivity. A use may be financially feasible, but this is irrelevant if it is legally prohibited or physically impossible."

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.

I'm going to borrow a much used quote from my good friend CAN: What's this got to do with anything?

Self-explanatory. Clearly your fight is with the authors of the recognized Industry tome and the stated definition of "legal status" and the requirements for verification of both zoning and building code compliance (or not) stated above. Let us know when the ASB, APB and the authors of the Appraisal Dictionary and the Appraisal of Real estate revised the existing, and binding, requirements stated. Thanks.

Unless, and/or until the requirements above are revised or deleted from accepted appraisal practice standards, failure to adhere to them represents at the least an Error of Omission, or worse an Error of Commission.

(*caveat as always- IN municipalities where local, county, or state Laws governing both zoning and building exist).

 

[CANative]

Who is suggesting we should not verify information? What are you talking about?

I can see and sympathize with you for not wanting to admit an error. It's embarrassing. But to go on and on an on about it is weird.

 

[hastalavista]

Mike-

You quote a FAQ that has to do with a client limiting the SOW for an assignment.
That has absolutely nothing to do with this discussion.

In the H&BU, as-vacant, your ideal improvement is going to be fully permitted (I think we can agree on that).
In the H&BU as-improved, the question is, is the improvement consistent with the legally permissible use? I gave the example of the gas station (clearly not) and the addition to a home (clearly it is).

When you do an appraisal for a residential (or any other) kind of property where the improvement is under construction and the assignment calls for an as-is value, do you check "illegal use" since the under-construction improvements have not been fully permitted? (some of the work might have been signed-off by the inspectors, but there is a large possibility there is work-in-progress which, by definition, has not been signed-off because it still is in-progress)
If the property is 98% complete and habitable (but not finaled yet), do you check "illegal use" in an as-is appraisal? Or do you refuse to do such assignments?

 

[timd354]

Mike-

You quote a FAQ that has to do with a client limiting the SOW for an assignment.
That has absolutely nothing to do with this discussion.

In the H&BU, as-vacant, your ideal improvement is going to be fully permitted (I think we can agree on that).
In the H&BU as-improved, the question is, is the improvement consistent with the legally permissible use? I gave the example of the gas station (clearly not) and the addition to a home (clearly it is).

When you do an appraisal for a residential (or any other) kind of property where the improvement is under construction and the assignment calls for an as-is value, do you check "illegal use" since the under-construction improvements have not been fully permitted? (some of the work might have been signed-off by the inspectors, but there is a large possibility there is work-in-progress which, by definition, has not been signed-off because it still is in-progress)
If the property is 98% complete and habitable (but not finaled yet), do you check "illegal use" in an as-is appraisal? Or do you refuse to do such assignments?

This argument has been going on with Kennedy since I started participating with the AF in 2008 and will still be going on10 or 20 years from now if he still posting on AF

 

[Randolph Kinney]

Wonder why the heading is, "Zoning, Planning & Developmental Services"?

Developing raw land is different than modifying an existing structure as to the permitting process and which agencies have the authority and whether the modification of the structure can be legal as to land use. Legally as to being able to obtain a building permit to modify the existing structure does not change the land use nor would it change the land use without a building permit.

For example, having a building code does not always mean a building permit is required to repair or replace elements of the building. See the attached.



However, if you are building new structure, you are required to haves building permits and CO.

 

[23Degrees]

I think I might be able to end this long standing argument. The zoning compliance section has no special language tied to it on the form other than some possible broad strokes within the certs. Within the guidelines the language indicates a certain minimum level of scrutiny be applied but Fannie yields to zoning regs and municipalities' classifications of use, at least as I read the guidelines- someone can point out if Fannie goes beyond this in defining "use" or with regard to its expectations of the expansiveness of "zoning compliance". On the other side I don't think a reading of the guidelines includes language prohibiting someone with Mike's point of view from taking it to an absolute or exhaustive level either.

So the reality is that Mike can go above and beyond in defining "zoning compliance" for all his reports and take on that added level of responsibility and label things "legal" or "illegal" based on his definition. And that would make him right on his own reports. If his clients appreciate that then I suppose its all good but I can't imagine that being the case for GSE bound appraisals, never mind what some borrowers might think of being subject to the added scrutiny.

So Mike is right - on his own reports - if he has properly defined zoning compliance to fit his exhaustive view. The rest of us can still stay within fannie guidelines, follow the more typical scope of practice, and proceed under normal course of business within our market areas based on the zoning codes that are in place. But the lack of language tied to that section on the form behooves us to be clear as to how we are defining "zoning compliance" and how we are determining which box to check IMO. Otherwise it is completely possible that some third party will do it for us in the event of a problem. And be completely sure that if the no permit feature or addition really does result in a change to a use that is illegal per how zoning classifies uses within the code that you proceed properly from that point because a use that is not legally permissible cannot by definition be HABU.