WOOPS, I built on you land??

[Jeff Horton]

Appraising a house with 20 acres of land. It is a foreclosure and being sold by the lender. Property is being sold AS-IS and a right of redemption applies. There is a very large barn on the property that was built on the property line. I was furnished a survey showing the encroachment. It appears 75% of the barn is over the property line along with some fencing. Buyer is aware of the situation according to the Realtor and there is not agreement with the neighbor at the time of the inspection.

Now, how would you handle this?

Make an assumption there is an agreement with the neighbor?
Assume the neighbor has sold some property to the buyer to place the barn on the site?
State the problem and leave the barn out the appraisal? (Its a gross over-improvement and will add little value)

I am leaning toward leaving the barn out of the valuation since its value is minimal. Clearly disclosing the situation and assuming the barn doesn’t exist or perhaps assume it adds no value.

And yes I know I have to very clearly disclose all the facts and assumptions.

 

[JeffMann]

Not only does the barn not add value you have the cost to cure. The simplest cost to cure is the demolition of the barn. The barn has a negative effect on the value of the property. For the barn to have no or some limited addition to value, the owner would need an easement agreement with the adjoining land owner.

Jeff

 

[Ross (CO)]

Is the adjoining neighbor aware of what is now happening ? Did he ever know that the barn was being built ?.....and not say, "You know, that sure does look like you are puttin' that on my place, what do you think ? 20 acres is a good-size piece of ground, yet down in AL there may be so many trees that one loses sight of the distance. Is the barn near the house or remotely located on the land ? You say it is a "very large barn" yet say later that it "has minimal value". Is it about to blow over in the next major storm that blows in from the Gulf ? Since it was put there by the owner of the subject I would consider its value with full disclosure of the encroachment. Your research may just have to include talking to the owner of the other property and finding out what arrangements there may be. He may just say..."Tear that thing down and don't make a mess of my land !" .....or he may just say..."I guess 75% of the barn belongs to me and build a partitioning wall on the true surveyed line which passes through the barn and take it up to the roof. (I'd like to see that after it was done !) He may just say..."To save you guys the cost of tearing down the barn I suggest you survey me out a small wedge (of those 20 acres) of the 25% which remains on your land and deed that land over to me....and I'll just keep that barn, thank you very much". That little survey may be their cheapest way out. Just how big is the barn, anyway ?

 

[Jeff Horton]

Barn is roughly 50 x 100. Dirt floor and a few stalls inside. While it cost a lot to build it is an over-improvement in our market. (Much like a swimming pool) Most people have no use for it and will not pay anymore for it being there.

As for the neighbor I have no idea if he knows. Appears that the barn was intended to be placed along the property line. So he may not know, but since this line was surveyed by itself I have to assume he was aware of it. It could have been built there with a verbal agreement. Neighbor may have been a relative? I decided not to talk to the neighbor, I didn't want to open a can of worms. Realtor said buyer is aware of this and there is no written agreement.

I still have to deal with the issue at hand. The fact is this improvement is not on the site. I am looking for some suggestion on how to handle this.

 

[airphoto]

Jeff,

Here in NY the circumstance you describe is a cloud upon the title of the parcel (20 acres) that you're appraising .. effectively, the owner does not have clear, marketable title. Dunno what AL has to offer in that respect ..

 

[Caterina Platt]

Jeff,

Are they (Realtor/Lender/Buyer) looking to the appraiser to find the most cost/value effective method to cure the problem? If so, this becomes a consulting assignment, not a mortgage lending appraisal. Charge and disclose accordingly.

If it's the typical "hurry up and close this thing", they may be putting the cart before the horse. Is it necessary to have the appraisal in hand now? Can it wait until there is an resolution with the nieghbor? If it must be done now, your appraisal should be done subject to the issue's resolution. At this point, you can't figure a cost to cure until you know how the problem would be handled. There are a variety of possible resolutions. I would let the Buyer and neighbor work out the problem and give them their hypothetical value without the barn. Being that your market sees little contributing value for such a structure, and the fact that it is 75% on the neighbor's property, I believe you have just cause to proceed with valuing the 20 acres and remainder of the improvements.

Be careful to disclose the hypothetical that your report assumes the barn/encroachment does not exist, that the current situation poses title problems, and that a true cost to cure and potential affect on value cannot be determined until the Buyer and neighbor decide how to proceed, ie. the value may change in the end.

 

[Terrel L. Shields]

If the encroachment remains for several years the owner of the barn can go to court and take the land property in my state. I appraised a place this spring where a man encroached upon an elderly man's property and 5 yr. later he went to court and not only got the land under the encroachment (a mobile home), but the right of way to the man's driveway and the right to use that driveway. It amounted to more than 2 acres. The old man was undergoing Chemo at the time and did not feel able to go to court. He would get so sick when he starting thinking about the mess. He died a few months later.

 

[Jeff Horton]

Followup,

I decided to just appraise the property and house without the barn. Addressed the issue, included the survey and tried to make it clear what I did and why.