House and Five Acres
Five acres where?
.
A house and five is a typical rural/agricultural assignment throughout Illinois. Appraisers who perform these assignments are quick to point out that, “I get these assignments all of the time.”
What does USPAP state in the FAQ?
178. APPRAISING PHYSICAL SEGMENTS (5-ACRE PORTION)
Question: A local lender has asked me to appraiser only a 5-acre portion of a 62-acre parcel. Am I permitted to comply with this request?
Response:
Standards Rule 1-2(e)(v) states that the subject of an assignment may be a physical segment of a property.
However, appraisers must also comply with any laws, regulations, guidelines or other assignment conditions that might apply.
If the assignment requires compliance with published assignment conditions, the appraiser must be aware of the current guidelines (or regulations, if applicable). Failure to recognize applicable assignment conditions would be a violation of the ETHICS RULE or COMPETENCY RULE.
Let’s unpack this question for Illinois appraisers.
Physical segment
It’s true that 5 out of 62 is a physical segment and that appraisers should be able to value this. However, the question becomes, “which five?”
Merely imagining a floating five-acre parcel where none exists isn’t enough. Appraisers must utilize a hypothetical condition.
Five acres where? What are the dimensions? Where’s the well? Road access?
A hypothetical condition is defined as:
a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.
Laws, regulations, guidelines
Aside from assignment conditions or guidelines imposed by the bank (client), the appraiser must recognize laws and regulations.
What if the county or township only permit a minimum of 20 acres per dwelling unit?
There goes the imaginary 5 acre tract.
“The bank ordered it like this,” is not sufficient justification for providing a misleading report.
Consider the consequences when taking on such assignments.
By Lee Lansford – Illinois Appraiser Newsletters – Volume 7, Issue 2
- Hybrid Assignments, the Consequences - February 7, 2019
- Bankers Concerned About Appraisals - October 18, 2017
- Third Party Blues - July 19, 2017
An appraisal MUST also include the legal description of the property being appraised. It CAN be done, but almost never in the way I’ve see them ordered.
Secondary market guidelines?????
Excellent explanations Lee. Nicely stated.
An additional concern not already noted; lets assume its done and the SW most 5 acre corner was described (where the house is). The other 57 acres are mainly east and north of the described parcel. As is the main highway access and driveway. Is the bank ONLY encumbering the lower 5 acres? Doubtful. In which case no easements need be created. But it raises another issue. They have said they are lending 80% LTV and encumbered everything. But they only loaned on the 80% value of 8% of the total property. Isn’t THAT consumer fraud? Does the investor of the bundled security over in France or Germany know abut this improperly described parcel where the legal description in the appraisal does not match the legal description of the property encumbered?
What is MY liability? I described only five acres and wrote an appraisal saying that is what THAT segment is worth. Now the seller comes back and says the bank encumbered everything, including the 57 acres outside of the ‘site’ described in my report! The owner thinks I should have to pay of the loan or whatever it takes to clear the remaining 57 acres.
I don’t see how this can be legal for a GSE (except as a hypothetical exercise); OR for an appraiser to prepare for a GSE. We cannot knowing prepare a misleading appraisal report.
I think we have focused on a dirty little secret of the lending industry where the rules and circumstances have been parsed beyond all reason to turn ‘hypotheticals’ into something they were never intended for, nor are they legally suitable for (except maybe for non GSE, private portfolio lenders).