Unpermitted Additions

[Randolph Kinney]

Another FAQ from HUD on additions without permits: http://portal.HUD.gov/hudportal/documents/huddoc?id=p_mpr_qa_05-22-13.pdf


Q: Are un-permitted improvements acceptable? Can they be given value?

A: It is generally beyond the appraiser’s scope of work to confirm that permits were issued for additions and remodels to existing construction. The appraisal should correctly describe and analyze the conformity, quality, and condition of the improvements, including modifications, so that the appraiser’s opinion of value reflects market acceptance. The appraiser is required to call for appropriate inspections when observing structural, safety, or security issues.

 

[Mike Garrett RAA]

What are we supposed to do as appraisers?

1. Determine if an improvement was done with a permit?

2. Determine if the work that was completed was done to code?

3. Determine if the improvement was done in a work-man-like manner?

4. Consider the affect of the "non-permit" addition on GLA

or

5. Report the market reaction to such an improvement?

 

[Randolph Kinney]

What are we supposed to do as appraisers?

1. Determine if an improvement was done with a permit?

2. Determine if the work that was completed was done to code?

3. Determine if the improvement was done in a work-man-like manner?

4. Consider the affect of the "non-permit" addition on GLA

or

5. Report the market reaction to such an improvement?

According to FHA, your number 5.

 

[23Degrees]

What are we supposed to do as appraisers?

1. Determine if an improvement was done with a permit?

That could be an acceptable assignment condition to be negotiated but the short answer is no. In many areas a readily observable deviation from typical sources would at the very least mandate mention of such deviation and development of an SOW to appropriately deal with it.

2. Determine if the work that was completed was done to code?

No. This is not our job and appraisers that take on this call are outside of their scope of practice and proceeding irresponsibly. We can rely on typical sources in order to assume code compliance if there are no deviations from those sources and prepare limiting conditions (or rely on statement 1 on the forms) to support that reliance.

3. Determine if the improvement was done in a work-man-like manner?

No. Conceding to this common ploy by lenders is arguably just as irresponsible as declaring code compliance.

4. Consider the affect of the "non-permit" addition on GLA

No. If one is proceeding "as is" then a non-permit addition should be evaluated separately from GLA if one wants to avoid a host of possible issues.

or

5. Report the market reaction to such an improvement?

If such data is available then that is a perfectly acceptable manner in which to proceed as long as one understands the responsibilities and potential liabilities with doing so.

In terms of FHA specifically, their answer to that question does make use of some qualifiers and leaves open calling for inspections so if one finds that proceeding "as is" is not appropriate or would not have credible results it would seem that other options can be considered. But their statement and GSE statements on this topic certainly add support to the opinion that the directive in the AI source quoted by MK is way off base.

 

[J Grant]

What are we supposed to do as appraisers?

1. Determine if an improvement was done with a permit?

2. Determine if the work that was completed was done to code?

3. Determine if the improvement was done in a work-man-like manner?

4. Consider the affect of the "non-permit" addition on GLA

or

5. Report the market reaction to such an improvement?

Any or all of the above, depending on how germane to the assignment. The appraiser determines the SOW, and that includes how to treat areas that lack permits. Of course a consultation with client may be in order as well, part of SOW. Appraisers make the mistake of thinking the report is only about the value.

Lack of permit can mean anything from a simple straight forward issue that is of minor importance to one that is complex or has a more substantial impact on value or property condition.

Reporting market reaction is important to assignment results but any of the above can be important to client and assignment results as well.

 

[namaste]

Spoke with a rep from HOC who stated that if there is something on the house that looks like an addition, that we need to verify that permits were pulled for the structure and that we need to complete the report subject to acquisition of proper permits for the addition if there were none. I went through almost all of those things that were stated within this thread and he said it has to do with liability if something happens to the property. That the municipality won't take responsibility because they'll just state that the addition was never permitted and it will fall on HUD.

 

[Mike Kennedy]

"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."

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 (which also require a supported opinion of Highest & Best Use which must be legally permissible on an Effective Date of Appraisal).

"The Appraisal of Real Estate"
Highest & Best Use 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."

Pg 335 "Testing Highest and Best Use
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 possibility
3. Financial feasibility
4. Maxium productivity

In practice, the tests of physical possibility and legal permissibility can be applied in either order, but they 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."

The Dictionary of Real Estate Appraisal, fourth edition, includes the following highest and best use definitions:

"• Highest and best use. The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability.4

4 Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute, 2002), 135.
5 Ibid.
6 Ibid., 135-136."

 

[CANative]

You're always good for a laugh.

 

[Mike Kennedy]

FHA Appendix D
http://www.HUD.gov/offices/adm/hudclips/handbooks/hsgh/4150.2/41502appdHSGH.pdf

"1. Matters of a Legal Nature
The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it, except for information that he or she became aware of during the research involved in performing this appraisal. The appraiser assumes that the title is good and marketable and will not render any opinions about the title.

3. USPAP Compliant
I performed this appraisal in accordance with the requirements of the Uniform Standards of Professional Appraisal Practice that were adopted and promulgated by the Appraisal Standards Board of The Appraisal Foundation and that were in place at the time this appraisal report was prepared.

10. Verification
I verified, from a disinterested source, all information in this report that was provided by parties who have a financial interest in the sale or financing of the subject property.

12. Resources
I am aware of, and have access to, the necessary and appropriate public and private data sources, such as multiple listing services, tax assessment records, public land records and other such data sources for the area in which the property is located.

15. Knowingly Withholding Information
I have not knowingly withheld any significant information from this appraisal report and, to the best of my knowledge, all statements and information in this appraisal report are true and correct.

25. Civil Liabilities & Criminal Penalties
Any intentional or negligent misrepresentation(s) contained in this appraisal report may result in civil liability and/
or criminal penalties including, but not limited to, fine or imprisonment or both under the provisions of Title 18, United
States Code, Section 1001, et seq., or similar state laws."

 

[Mike Kennedy]

USPAP 2014-15

"Ethics Rule, Conduct: must not perform an assignment in a grossly negligent manner."
"Competency Rule, "being competent;"

SR1-2(a),(b),(c), (e) (i, iv) "ordinances, or other items of a similar nature"
SR1-3 (a) "existing land use regulations", (b) develop an opinion of Highest & Best Use"

SR2-3 Certification "....and this report has been prepared in conformity with the USPAP"