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Value of land over 5 acres in addendum

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ross

Freshman Member
Joined
Jan 18, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Folks,
Need your feedback, I don't get a lot of requests like this and I am trying to improve my report writing skills. Contract price $600,000.... 3500+ SqFt. custom house with equestrian facility (horse farm) on 24.85 acres. Lender wants appraisal with home and 5 acres. They want to make sure the land is not overvalued. There are plenty of comps supporting just the home and 5 acres within a 15-20 mile radius, but only 1 or 2 within a 5 mile radius
How do I best explain this by putting the excess value of land ( using the hypothetical protocol) in the addendum?
I know this is probably rudimentary for some folks, but I am still trying to learn more about it.
Thanks for your input!!
Dan
 
The first question to ask the lender is to define the 5 acres they want you to include in the appraisal? Once they stammer around the issue for a while, hopefully they will come to the appropriate conclusion that the appraiser can't arbitrarily split up a parcel to satisfy their lack of knowledge. Appraise the property as it is.
 
You may wish to base the appraisal of the home and five acres on a hypothetical situation. That is similar to proposed construction when you do not have anything to appraise except a dream.

The hypothetical situation would be that the home and five acres, as you determine to be most similar to comparative properties in the area, would be valued in your opinion as $zzz. The appraisal should also be based on a new survey reflecting only the five acres and the residence.

It is a relatively easy process and does not violate guidelines of the various entities that promulgate them.

Good luck.
 
Dan:

I agree with AC.

Just brushed up my USPAP (and sat with many of my state board members while doing so). Our state previously had an attitude that one SHOULD not perform that service even as a hypothetical without a legal survey. New blood, new attitudes prevail, now it's 'O.K.'

You *may* wish to explore with your state board what their attitude is about this matter.

Cautions: if you do the appriasal without a survey be VERY careful to you include such phrases as "Legally permissible (meeting all current codes, setbacks, and minimum frontage requirements) and encompasing all (carefully specified) improvements within the boundaries of the hypothetical 5 acre site...."

And then don't do like the guy did on one I reviewed just last month: included the perimeter fencing on the entire 160 acre site :roll: , and the barns located at the far side of the property 8O.

You may need to toss in a few extra comps, (larger sites adjusted down within close proximity, similar sites les proximate but oh well...)

You can DO it!
 
In some cases, the lender will not loan on a parcel larger than 5 acres. In other cases, the lender will sometimes make them survey out the home and 5 acres. However, you have been given good advice above - make THEM tell you which 5 acres and you can't give value to improvements not on that 5 acres.

There is nothing wrong with appraisal a different size parcel that is presently deeded - just make sure you cover everything with detailed explanations.
 
Just completed one similar to this a couple months back. Actual holdings are approximately 60+ acres with 5 acres portioned off to include the home, some pasture, and the majority of the breeder barns and stalls. Be careful that the access from the road is also included in this hypothetical 5 acres. I have had instances where the owner has the home in the back, portions off an acre, and thinks he's good to go. Problem- the mortgaged parcel is technically land locked if the bank ever gets the home and acre back. Solution- either the road is included in the encumbered land, or the owner provides a permanent easement.

Then there's that aspect that your subject is always significantly superior to your comps. The barns, stalls, round corrals, etc. are all on the 5 acres. The barn and stalls are ample to support approx. 100 head. This large facility is exactly what the buyer is interested in, and the supporting pasture lands (excess land in the lender's eyes) is what makes the whole place able to handle 100 head. Without the necessary pasture to turn these animals out and graze, and a few fields for raising hay crops, the place would only be able to handle a smaller number of animals. The additional expense to purchase all the hay, and not have room for the horses to graze and get a bit of excercise on their own leaves you with cramped quarters, hiring several people to excercise the animals, and a big feed bill. Thus, your true 5 acre parcels are going to have significantly smaller facilities, and smaller capacity.

I know this is just a dance required to get around lending guidelines and banks not chartered to have significant land holdings. What we are left with is comparables that 9 times out of 10, have inferior equestrian improvements and huge adjustments on the appraisal. This aspect of appraising these properties always gives some underwriter heartburn. The adjustments are commonly in the 50-60% range, some even higher. I have explained this in my addendums, and it generally helps them to understand. Once in a blue moon, you actually get a comp that went through the very same situation, but usually that's when your competition gets the appraisal order, not you. :roll:

Good luck, these are fun!
 
USPAP requires you to adequately identify the property being appraised. Without a survey, you cannot know which 5 acres are being appraised. How can you adequately identify the property unless you are also a registered surveyor? Also, I agree with Caterina and further expand by simply stating that the value of the whole is not necessarily the value of the sum of the parts.
 
5-15 miles, you are the appraiser if 10 miles is best go with it. you could go farther if it makes cents,
 
Don't forget to charge them for the second appraisal. The one on the remaining undeveloped and possibly land locked parcel that might or might not conform to county zoning regulations after the split. The house and five is a hypothetical appraisal, and even if you only report a value on the remaining acreage in the addendum section of the that report, you will need to determine the value of the remaining land and maintain in your files a full land appraisal. You might questiion the lender on how much of the land they are going to secure the loan with, probably the entire 24+/- acres. I've gotten mean in my old age and tell them that unless I get survey which has been approved by the zoning board, an unapproved survey is NOT acceptable, that I will appraise it as it exists.
 
5-15 miles, you are the appraiser if 10 miles is best go with it. you could go farther if it makes cents,

Exactly! Remember back in appraisal school when they were talking about the subject market? The concept of shopping malls as the subject, the market for comparables could be a several state region? Unless you are in the middle of race horse country, your market could be actually a 50 mile radius. Horse folk do not all live in the same subdivision. When we are talking about such a special use property, some of the guidelines have to go out the window.
 
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