USPAP Standard 1-3(b) and Standard 2-2 (a)(xii) question

[OG80]

Received this in a revision "The USPAP standards is required for all assignments, justification and analysis must be conducted and shown for each of the 4 principles".

Anybody have some examples of what they are asking for on this?

 

[Mike Ault]

Received this in a revision "The USPAP standards is required for all assignments, justification and analysis must be conducted and shown for each of the 4 principles".

Anybody have some examples of what they are asking for on this?

They don't like your "highest and best use analysis", apparently. Discuss these principles in greater detail for them – "the most profitable, legally permissible, physically possible, and financially feasible use of a property".

 

[George Hatch]

Most SFR appraisals I've seen have zero commentary on HBU. Of the ones that do have any commentary, ~80% add a 1-paragraph of what the 4 elements of the analysis are (basically an explanation of what HBU analysis is), and zero analysis that applies to the subject.

The 1004 itself doesn't address HBU analysis at all except for this:

Even if that was enough analysis, that question doesn't even belong in the site section. It belongs in its own section after the subject improvements analysis, as is done everywhere else in appraising outside of the residential forms.

The GSEs are correcting this oversight in their new UAD, by limiting the analysis to "HBU/as improved", relocating the analysis to appear between the improvements analysis and the market analysis leading into the Sales Comparison, and by simplifying the question in a manner that most confuse most readers.

This is a sample of both the form and the level of detail the GSEs expect. They're not asking for a complicated and detailed explanation. Just a summary.

 

[Terrel L. Shields]

Point - don't confuse the HBU 'as is' with the ideal improvement as if vacant.

 

[George Hatch]

(I know you know this, but to expand a little for the OP)

Point - don't confuse the HBU 'as is' with the ideal improvement as if vacant.

That's where probably most appraisers get hung up when getting into HBU analysis. The reason we're considering the question in these appraisals is to figure out whether the property in its "as is" is worth more for land value or in the existing use as an SFR.

If it's worth more as land value then the typical buyer will be a land buyer and it will be the attributes of the land that they're comparing to their alternatives (also being purchased for land value).

If it's worth more in the existing use then that's an entirely different set of buyers, and an entirely different set of attributes which will be dominant in their decision making. As well as an entirely different set of comps.

Most of the time the "HBU/As Is" will be the existing use. Most SFR appraisers will only rarely run into a property that's worth more for the land value than for the existing SFR.

 

[Joe Flacco]

They should change the question to as improved, is there a different use that is legally possible, physically possible, legally permissible, and maximally productive. Doesn't make sense to ask if the subject property as improved passes the four tests. It should be asking if there is something else that passes all four tests as improved.

 

[George Hatch]

For an improved property there are only 3 alternatives:
- worth more in the market as land
- worth more in the market in the existing use
- worth more to a buyer who will convert the existing use to another use (which will be a *really* rare outcome)

If the property is worth more than the land value in its existing use then the land buyer will simply choose a land sale as their alternative. Why pay more for S#1 (with a house) than for S#2( without the house)? We assume that as a group they won't pay more than their alternatives.

 

[Joe Flacco]

Yeah. It is either as is, vacant for HBU, or conversion. But they ask if what exists is financially feasible and asks if what exists is physically possible.

 

[Joe Flacco]

In the rowhouse neighborhoods in DC, it is more likely 2-4 unit condo conversion than vacant land. If the HBU is not as-is.

 

[Joe Flacco]

I think Denis used to say that if a renovation passes all four tests, then the HBU as improved would not be as-is. Does anybody recall him arguing this?