Jo Ann: wrote:
If a lender requests an appraisal of any property for lending purposes, the lender is asking "What will this property sell for if I have misjudged the borrower's credit and ability to pay back the loan and I have to sell the property to get my money back?" (Purpose and intended use)”
Reply: Jo Ann, if I am not seriously mistaken, that is not the question being asked, because if it is something is terribly wrong. The question asked of the appraiser by the lender in a federally regulated transaction is: “If the subject property had been exposed to the open market for the normal marketing period for comparable properties existing as of the date of appraisal, what would be the cash equivalent market price of an arms length transaction as of date of appraisal.” If that is not the question being asked, then we should be using listings and offerings tempered by market conditions to make predictions. If I am wrong, the person that told me that was a former president of the AI. The definition you gave is of a prospective appraisal as of some future date.
Second: I am playing devils advocate, or maybe to be more precise since I am seeking the Truth, the Lords advocate, but I have asked four times for some one to tell me how to appraise custom-built homes constructed on lots already owned by the property owner and no one has offered an answer.
The answer is that the reason for the rule we are discussing is that there may be obsolescences in the property that are not apparent because the property has not been offered or exposed to the market. In other words, the land to value ratio could be out of kilter with the market creating gross obsolescences in the improvements or there could be creative financing (how is that different from FHA-VA financing influence on price?). The point I am trying to get across is uniformity and consistency in appraisal regulations. If appraisers cannot use this type deal as a comp when the entire market segment falls into this category, or if the subject property happens to be one of these package deals, then these properties cannot be appraised because there is no method of measuring the obsolescences that may exists. These deals are the benchmark for the measurement. You cannot have it both ways. You cannot claim custom-built is not a sale because it has not been exposed to the market and then turn around and take an assignment to appraise one because the existing assumption based on the existing rule is that obsolescenses may exist that can’t be measured. If you are going to take an appraisers license to practice for using this type deal, then by what logic can you not take their license for appraising a property that based on your principle or rule may have huge obsolescenses that cannot be measured? Isn’t that a violation of USPAP?
Then too, this rule flies in the face of the theory of substitution and the theory of the cost and sales comparison approach. If I know what the price for a manufactured package deal is, and I know by using normal market transactions what the incremental difference is, then how is that different from any other market adjustment? Why can’t I use package deal comps and adjust them for the difference? Appraisers make adjustments, like time, design and appeal, view, etc, so explain to me the difference? How does this measure up to the residual method of site valuation? It is totally inconsistent and contradictory with other rules and principles. Principles have to apply all of the time and not some of the time and there has to be consistency in theory.
