What are you thoughts on this new guideline

[Chuck Johnson]

One of our members emailed me this information.  I am curious to know what you think about this AMC's new guideline on completing 1-4 lot appraisals when there are multiple lots involved.  Here is an excerpt from the guideline.

"...If the subject property consists of 2 to 4 lots that are similar, and the highest and best use is to sell each lot separately, use the grid to analyze the retail value of one of the lots, and make any adjustments necessary to estimate the retail value of the other lots in the addenda. Total the retail value of all the lots to report the value of the subject property at the bottom of page one..."

 

So what are they doing?  They are getting multiple appraisals for the price of one.  How can I do this without analyzing at the minimum absorption rates as well as probably a discounted cash flow analysis?  My advise was to not complete the assignment with their assignment conditions.  The appraiser also emailed the Chief Appraiser and the Chief Appraiser came back with this. 

 

"...FIRREA required that any appraisal for a federally related transaction where 5 or more similar units are included, appropriate discounts and deductions must be taken (value to a single purchaser) to estimate the value of the collateral.  So, for four units or less, the sum of what I call retail value of each lot does represent the value of the collateral..."

 

I would love to have some Certified Generals chime in and comment on this.  My opinion is this.  Just because FIRREA stops at 5 units does not mean the same diligence on our part, discounts and deductions should not be completed for 4 units or 3 units, etc. The "so" in the chief appraisers comments is the chief appraiser assuming it is okay and just for the record it is no skin off his teeth if you get in trouble for completing an appraisal in this manner.

 

What is the opinion of the Certified Generals that preform this type of work?

[Don Read]

He is correct about the FIRREA requirement and on one to four lots, banks do not have to take into account holding costs, absorption period etc. Is the retail value of the four lots the market value? Most likely not, because often in developments when builders purchase multiple lots at the same time they often get a discount. This is also often the case when banks are holding collateral lots in small quantities. You must be careful not to call it market value because it is a retail value. Even in a subdivision analysis there is a reported retail value, which depending on the market might be two to five times the bulk or market value. They are only getting four appraisals for the price of one if someone charges them a one lot price. Note they are asking the appraiser to grid out one lot and then also adjust the other three in the addenda. Depending on the type of work one does, doing three lots in a narrative format in the addenda might take you longer than doing three separate forms and you might be more likely to miss something. Remember it is not a market value it is a retail value, which is simply the sum of the individual lot values and you are doing four appraisals condensed into one report. There are a lot of questions and additional work needed that must be completed and documented to call it a market value. To get to the bulk or market value the appraiser has to answer all of the questions Chuck, mentioned.