Modernization Should Only Be Determined by the Appraisal Profession

When Things Don’t Go as Expected

Like so many others, I have learned the hard way not to accept any assignment without a little due diligent research first. Make no mistake I do not shy away from difficult assignments. I am under the firm belief the more difficult, the better. I actually enjoy the challenge.

I recently accepted a private assignment over the phone for a lot in the City. I was driving and did not have access to MLS or locality records. I knew the area well and knew there were unimproved lot sales in the area. I accepted the assignment on face value. I had never worked with this client before, but we had spoken in great length a few months back about the dangers of hybrid appraisals.  She got the education of her life from that conversation! The client emailed me the appraisal request and the purchase agreement.

Once at the computer I knew I was in trouble. The parcel is ten times larger than average and the aerial imagery showed the street was nonexistent, meaning the street was on paper only; it never was built.  This was extremely odd as the neighborhood was developed in the early 1900’s.

Once at the property, it became clear there were major issues. The topography has steep slopes and the street dead ended just prior the subject.  There was nothing between the metal guard rail and a significant drop off; a cliff.  Red flags were flying high and I started asking myself a bunch of questions that I did not know the answer to.  Back at the computer, the topography map on the GIS showed about a 160 foot drop at the end of the street.

The history of the parcel raised even more red flags. The parcel was donated to a non profit years ago and then sold to an investor 15 years ago. The parcel has been on and off the market since with numerous contracts; none of which closed. There were numerous zoning letters issued on this property to different individuals and companies, none of which were listed as ever owning the parcel. However, it seemed simple enough, all the zoning letters stated pretty much the same thing; the parcel could be subdivided into 7-10 residential parcels depending on the type of improvement.

Upon further research, the master zoning ordinance for the City, not the district ordinance, stated all improved parcels, residential and commercial must front a public paved street. There was no street. It was a cliff!

My experience is zero on street development costs, so I reached out to one of the engineers at the City. The exact words I was told. “You can’t build a house on a bridge.” I laughed a bit, but then realized he was very serious. You see the parcel is close to a creek that feeds into a protected body of water, so no soil can be brought in to raise the elevation to build a street. The only way to extend the street is to build a bridge. This in and itself could be tricky because of the environmental impact of disturbing the soil. The highest and best use of this residentially zoned parcel is not what I initially thought, nor what the investor thought.

Every one of us complains about some aspect of our job. A common complaint is driving the comparables. Well what if this parcel was a comparable sale you were using? Would you know the limitations? What if this assignment was a hybrid appraisal? Would the inspector relay necessary and appropriate site information to the appraiser? Would the appraiser even suspect an issue with the topography? What about an AVM? Waiver?

None of these “modernizations” would provide an accurate assessment of the parcel, let alone an accurate opinion of value. How many of us take for granted an assumed highest and best use? Does appraisal “modernizations” help of hinder the highest and best use determination?

This is a prime example of why appraisers need to view the site and the comparables as well as do the necessary research. These rabbit holes come up more often than you think and we must investigate each of them. When the highest and best use is not accurate the opinion of value is wrong. Anyone want to defend themselves against this type of liability claim? No amount of modernization will be a viable defense against the wrong highest and best use.

FHFA wants comments on their plan to move forward with modernization utilizing hybrid appraisals and appraisal waivers. In essence they want a stamp of approval by way of public comments. The GSE’s are users of appraisal services. USPAP, as long as I can remember clearly states the appraiser determines the scope of work. Nowhere that I can find where FHFA has the authority to modernize or change our professional practice. The appraisal professions should be the only ones to determine any modernization; whatever that is.

There are 70,000 +/- appraisers in the United States. Let’s give FHFA exactly what they are asking for. Do you think 70,000 +/- comments on their absurd modernization would be enough?

Please make your comments here.