Unpermitted Additions

[23Degrees]

Just throwing this out there from a curiosity standpoint - based on the lender response noted in post 18 would it not be a more appropriate SOW to proceed CB3 (HC) subject to the area having been retropermitted and utilizing comparables that did not have a similar lack of permit issue?

 

[CANative]

Just throwing this out there from a curiosity standpoint - based on the lender response noted in post 18 would it not be a more appropriate SOW to proceed CB3 (HC) subject to the area having been retropermitted and utilizing comparables that did not have a similar lack of permit issue?

The appropriateness would be in the eye of the client.

But if they want a permit then all they have to do is make the borrower get one. Why do they need the appraiser to do their dirty work?

 

[23Degrees]

That is a good point but I'm looking at their mandate:

" We must be provided with approval from the City for this conversion to living area."

And maybe they should just stop the appraisal process and have the borrower proceed to attempt retropermitting. And if that can't be done the HC could then be that the conversion was taken back to garage.

By using the EA that he has a subject with unpermitted conversion that is up to code and will pass muster during inspection by the city, what exactly is that to be compared with?

Where is the data for sales with unpermitted construction that are actually up to code and would pass inspection yet remain unpermitted?

 

[CANative]

The appraiser doesn't need to be involved in that. This is a client specific requirement that's popped up after the appraisal report was completed. The OP verified that the use was legal, was not uncommon in the market and that there was a positive market reaction. The OP provided a comparable sale with the same issue.

The appraisal meets the GSE requirements and collateral eligibility requirements.

If they want the permit they can work with THEIR client and get it done. This is not a valuation issue, it's an underwriting issue.

 

[23Degrees]

I see. The EA in post 20 was a proposal after the fact used for leverage possibly. Fair enough. From a valuation perspective the EA itself seemed awkward but its all moot at this point if the appraisal had already been completed.

 

[Ms. Janet]

Governing Municipality?

 

[Mike Kennedy]

[FONT=&quot]Highest and Best Use: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, and financially feasible and that results in the highest value. The four criteria that highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. (The Dictionary of Real Estate Appraisal, 4th Edition Appraisal Institute, Chicago, IL.)
[/FONT]

 

[23Degrees]

Mike

I know you mean well on these threads but hear me out please - I really like this topic but the discussion always gets muddled around the issue of legally permissible as qualified by HBU analysis vs actual issuance of a building permit and C/O. One deals with the actual distinctive "use" of a property in broad terms such as SFR, Duplex, Triplex, Commercial etc. On the other hand the issuance of a permit, while a legal matter, may or may not effect the category of use - the property might still be an SFR with 2 car garage despite it having an addition hanging off the rear that was built without a permit and therefore would still have a "use" that is legally permissible.

Where the lack of a permit really can be pointed out as a legal issue with consequences for appraisers is with regard to the question right after HBU which is currently asked as "zoning compliance" on the forms. Granted I view this as a form defect in terms of how the question is asked but it does have potential ramifications depending upon whether or not building permits are required by zoning, the specificness of data sources in a particular area and how that effects liability with regard to Statement 1, and on whether or not an appraiser wishes to take on responsibility for pages of zoning code as it relates to the construction, setback, and other zoning issues with regard to the unpermitted construction.

This is where interesting discussion can really be had and where the ins and outs of specific city zoning codes can make a real difference. But we never get there because your point is always getting butt kicked by CAN thread after thread after thread. I'm sorry to put it that way because I respect your experience and forum input but on this particular point you are wrong and it is ruining all of my fun.

So think about joining me in picking this apart from the "zoning compliance" aspect rather than endless focus on the permissible "use" aspect of the permit issue where it often has no bearing whatsoever and maybe this topic can become interesting again.

Thanks

 

[Mike Kennedy]

"ordinances" include both Zoning and Building Codes; some municipalities incorporate the building ordinance into the Zoning Ordinance, others have 2 distinctly separate ordinances. "Legally permissable" must be as of an Effective Date of Appraisal. Either a subject properties improvements and occupancy ARE confirmed as Legal under either a combo Z&B ordinance (or separate ordinances), or EA or HC invocation is appropriate. It's really not difficult folks. CAVEAT: the above is applicable in Municipalities which HAVE Zoning and Building Ordinances.

"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."

[FONT=&quot]The above “Case Study” was Issued as an Opinion that the ASB clearly considers municipal verification STANDARD and REQUIRED APPRAISAL PRACTICE (in markets where building & zoning ordinances exist) on Mortgage Financing Appraisal Assignments.

[FONT=&quot]USPAP 2014-15

S[FONT=&quot]R[FONT=&quot] 1-2([FONT=&quot]e) identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal,
(i) its location and physical, legal, and economic attributes; Including:
538 (iv) any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature;[/FONT][/FONT][/FONT][/FONT]
[/FONT]

 

[J Grant]

As far as I know , HUD/ FHA policy on non permitted additions in appraisals is that the appraiser discloses the non permitted area, analyzes impact on marketability, comments on whether it is typical for area, and include comps with similar non permitted area.

Whether or not market returns value is an individual appraisal problem.

That said, FHA does have guidelines re safety, soundness of dwelling and safety can include health of occupants . Garage conversions are in a grey area in this regard due to firewall supposed to be between dwelling and a garage and carbon monoxide fumes from car starting etc. Thus, many lenders, if not FHA itself, will have specific policy regarding garage conversions to living area...so check with lender. They may allow it as is, with disclosures, or require a HC subject to retrofit to original garage function. That would be up to lender and need to discuss with them.

Addressing if it is "Legal" for an area is a whole other topic discussed many times on the board, but not what the OP is asking.