Is This Something You’d Do?
An AMC for a lender contacted a residential appraiser with the request that the appraiser “appraise only the second floor residence” in a two story Live-Work building within a commercial district, where SFR’s are allowed by zoning.
Ground floor area of this Live-Work building is an ice cream & gift shop. The second floor is a fully finished & functional residence. Entire property is being sold.
There are numerous legitimate Live-Work buildings in Seattle (and likely elsewhere also). They are properly zoned as such, are listed that way, appraised by using similar type sales – and mortgaged. Typically these are 2-3 story buildings, with the commercial use on the ground level.
The case study property is NOT zoned for Live-Work. It is a commercial building which just happens to have a residence up top.
Is this something that you’d do?
I received numerous responses from colleagues.
A Certified General appraiser who has appraised that property three times in the past responded. The building is ‘grandfathered’ in terms of its dual use as a commercial storefront, and an upstairs residence. This appraiser has not, and would not, appraise only the second level residence – in this present configuration. The appraiser said that the jurisdiction is semi-lax on code/zoning enforcement and may or may not allow the building to become ‘just’ a residence with main level rec room, etc., without any commercial use, due to where it is located in a popular commercial area.
Many folks said if the building was a ‘condominium’, then the second level could possibly be appraised separately. The case study building is NOT a condominium. There is no known effort to convert its ownership to that type.
Other folks said that if the property had two separate parcel numbers, had separate utilities, and was taxed as separate entities, then it ‘might’ be possible to appraise only the residence portion. But there is only one hunk of dirt to apply to the structure, so that scenario is questionable.
The majority of opinions were, since the structure has two uses: 1) a commercial ‘mixed use’ appraisal would need to be done, and 2) a separate appraisal of just the residence should NOT be done, especially by a Certified Residential appraiser. An appraiser mentioned that if done, this would be a good way to lose an appraiser license when a state appraiser regulatory Board found out about what was done!
No amount of hypothetical conditions or extraordinary assumptions can alleviate the problems with the proposed assignment! And if for regular mortgage financing, an hypothetical condition in the report would be rejected by the GSE’s, and likely the ‘investors’ also. A Lender who portfolios their loans might allow this, but I suspect most would not. They would want the entire building encumbered by any loan against it – not just the top level.
One more key important point, at least three Certified Residential appraisers, who responded to me, were contacted about this assignment by the AMC. They all rejected the grand opportunity they were given. Kudos!
But you have to understand that it’s not “the AMC” who tries to place screwy assignments. It’s a low level clerk (in many cases) at the AMC who probably doesn’t know squat about real estate, let alone the responsibility appraisers have when doing assignments for lenders. All the clerk cares about is getting the Lender’s requested assignment off their desk, by finding the fastest and least expensive appraiser who’ll dance over hot coals just to earn peanuts, so that another case of Top Ramen can be bought at wally world for next week’s dinners.
The next thing to understand is Lenders just want to ‘sell’ loans to borrowers. The loan officers (salespeople) often don’t know everything about a property. Yet, they’ll process a loan request for nearly every borrower to fog a mirror. As one other appraiser commented: “Lenders are often very uneducated, and then appraisers turn reports into pretzels just to appease them.”
It’s up to appraisers to dig out the details, and to do reports correctly.
So there you are, your case study education for the day!