Can an appraiser include two lots with separate parcel numbers in one appraisal? Maybe, maybe not. This might seem like a random issue that almost never comes up, but I’ve seen it twice very recently, and I just finished an appraisal like this. Thus it’s important to know how to navigate the issue when it does arise. I hope this helps give some context, and I welcome your comments below.
Scenario 1: NOT GONNA HAPPEN
John owns a 2200 sq ft home on a half-acre lot, and when he bought the house 10 years ago he also bought a one-acre lot next door so he could have extra space. Each lot has its own parcel number. Now John wants to sell, and he plans to sell both lots together to fetch a premium for having a 1.5 acre lot. Can he do that?
Answer: What John has are two separate lots. He can try to market both properties together, but an appraiser is not going to value them together. Why? Because the lots are not legally bound together. Since each lot can be sold, developed, and financed separately, they will also be appraised separately.
Scenario 2: GONNA HAPPEN
Imagine Anna owns a 2000 sq ft home that technically has two lots that are being sold together. The main house has a lot of 0.50 acres, but there is also a lot at 0.40 acres that legally cannot be sold separately from the main parcel with the home on it. Years ago the neighborhood was subdivided, and this smaller 0.40 acre lot became landlocked. This smaller lot is not buildable, and it is even recorded in the legal description and the preliminary title report.
Answer: In this case it is legit for the appraiser to include both lots in the appraisal because the lots are legally bound together and together they present the highest and best use of the property. An appraiser would appraise this as a home with a 0.90 acre parcel. In short, since these lots belong together, they are sold together, and appraised together.
FYI: Fannie Mae Multiple Parcel Requirements (Seller’s Guide B2-3-04):
- Each parcel must be conveyed in its entirety.
- Parcels must be adjoined to the other, unless they comply with the following exception. Parcels that otherwise would be adjoined, but are divided by a road, are acceptable if the parcel without a residence is a non-buildable lot (for example, waterfront properties where the parcel without the residence provides access to the water). Evidence that the lot is non-buildable must be included in the loan file.
- Each parcel must have the same basic zoning (for example, residential, agricultural).
- The entire property may contain only one dwelling unit. Limited additional non-residential improvements, such as a garage, are acceptable. For example, the adjoining parcel may not have an additional dwelling unit. An improvement that has been built across lot lines is acceptable. For example, a home built across both parcels where the lot line runs under the home is acceptable.
- The mortgage must be a valid first lien that covers each parcel.
Look Mom, CBS did another story with me: A couple weeks ago I wrote about gentrification in the Oak Park neighborhood. After reading my post, a reporter from CBS Sacramento reached out to do an interview. I feel very honored, so I wanted to share. Click the image to view the story.
I hope this was helpful.
Questions: Any thoughts, stories, or insight ? Agents, have you sold something like this? Appraisers, did I miss anything? I’d love to hear your take.
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Great blog post Ryan. I just wanted to add that an appraiser can appraise any two parcels as one that they want, they just cannot (or are asked not to) do it for many lending assignments. A homeowner looking for an appraisal before they sell, who is only willing to sell the lots as a pair, might ask the appraiser to value as a pair, even if they are legally separated. The appraiser would just need to then consider things like the potential for bulk discount, potential difficulty with financing, or potential for other highest and best uses.
Great clarification. I appreciate that, Gary. And once again we see why blog post comments are so valuable.
I had an appraisal assignment for a top 4 Bank ask me to combine two buildable lots in one appraisal for a conventional loan. One had the home on it the second lot next door with its own parcel # and its own ingress/egress road access. The owner thought it would add value to her property, it added very little to the deal but the lender now has Collateralized BOTH buildable lots in one mortgage loan. What a mistake for the owner refinancing when it added less than $6000 in equity she didn’t need. Now if she ever looses the property she’s lost both buildable lots.
Good point Florida Appraisal. Wrapping up that lot in the loan could be a real bummer. Such a low value though too.
It’s funny, I have a lender trying to make me do this right now and I had basically told them this exact thing. I forwarded them this link now. Thanks.
Right on Chris. There is certainly a place for including two APNs in one value, but not in every case as we know. Good luck on this one. Thanks so much.
If someone is taking out a loan that will encumber both lots this statement becomes untrue…”Since each lot can be sold, developed, and financed separately”. The lots cannot be sold, developed or financed separately if one Deed of Trust encumbers them.
Thanks Nobody. I appreciate it. It seems like most conventional lenders are not in the habit of doing one loan for a property in the first example as explained above, so it would be interesting to see what type of loan is being taken out. An appraiser always has to consider if the lots are legally bound together and if they each have a separate highest and best use too. At times lenders will ask appraisers to do things that may or may not be best from an appraisal standpoint. For instance, I’ve been asked to do a drive-by appraisal on a 4000 sq ft custom home on 5 acres. That’s probably not a good idea from an appraisal standpoint – especially since I wouldn’t even be able to see the home from the street. I realize that is far away from the issue we are discussing here, but I bring it up because just because a lender is willing to cover both lots in one loan does not absolutely mean an appraiser will render just one value. In other words, the lender’s loan is not the trump card for the appraiser. Any thoughts?
It seems to me that you have to ask yourself, why? When I dealt with this that’s what I kept coming back to, why would I appraise two lots as one? There are any number of valid reasons to do so, but if the only answer you can come up with, is that’s it’s what the lender wants, then it’s probably not a good idea.
I also had presented to me that the loan and deed would encumber the new owner from dividing and selling, however, that is something that will occur after the appraisal is completed. I think that the appraisal would have to be subject to verification of that restriction.
Just my thoughts.
Thanks Christopher. I think your comment is important. Just because the lender wants it doesn’t mean the lender gets it (from an appraisal standpoint). There are of course perfectly good reasons to include both lots in one valuation though as I hopefully tried to illustrate above. I believe you are right though to really question it and be sure we are dealing with one of those situations. It would be nice if every residential property only had one lot, but that’s just not the case. Thankfully this is not a scenario that is extremely common (at least in my area), but it definitely does come up.
I am dealing with this exact scenario on a home I’m trying to buy. The Seller has two lots into one loan currently and the realtor advertised it as such. We’re a week from the closing date and the appraisal just came in. They gave Zero value to the adjacent lot (beautiful and maintained side yard .2 acres) and the appraisal came up short. “my only option” is to now have two separate loans which adds 5K to my closing costs…that is a deal breaker. I’m all ears if there is anything I can do 🙁
Hi Alan. Thank you for reaching out. I’m sorry to hear about your situation. It sounds like these two lots have to transfer separately if the appraiser and lender indeed made the right call. If they are not to be sold together as I talked about in this post, it makes sense that the appraiser did not include them together. It would be ideal if they would transfer together of course, but this sounds like a situation where they’ll need to sell individually if the lender has told you two loans are the only way to go. Unless the appraiser made a mistake and the lender is not seeing things correctly, I don’t know if there is anything you can really do in this situation. I wonder if the seller would sell it to you privately and let you pay off some of it over time? If the seller would agree to a 5K sale, that might be reasonable to pay off over time instead of with one lump sum if you don’t have the cash. Obviously if the seller has buyers lining up, that’s probably not going to be an option they seize, but if they don’t it might not be a deal-killer. Realistically if the seller cannot sell both lots together too, they have to realize they’ll need a buyer who can pay cash for the second lot. I wonder if there is another lender out there who would be willing to lump in both lots into the loan? That seems light a fat chance, but maybe it’s worth asking a couple loan officers if they have a different take on the situation?
On a side note: A properly completed appraisal NEVER comes up “short” or “low”. I always say that the appraisal isn’t “low” , it’s that expectations are too high! 🙂
Thanks Mike. Sounds reasonable to me. 🙂
EXACTLY !!
So glad I found your blog on my Google search. These properties just don’t come up often and after reviewing Fannie Maes site, seeing what my peers have to say was next. I really benefited from your post and the comments to follow. Thank you.
Right on Judith. That’s great to hear. You are so right that these don’t come up too often (thankfully). I just actually had another one recently. The two lots were bound together, though the rear lot could not be legally separated and developed apart from the front lot with the main house. Technically the rear lot could be built on, but it was only an accessory dwelling that could be built. In other words, the rear lot was still dependent on the main lot with the house and could not be developed separately technically.
Shout out to everyone here for the valuable comments.
Very helpful. Thank you so much.
You’re so welcome. 🙂
Is it too late for me to ask you a question about this, Ryan?
Sorry Elyse, you are too late. I’m kidding. 🙂 Please ask away.
HELP! I am doing an appraisal on a .26 acre parcel with a dwelling on it. They also own a 1 acre parcel behind the property that they are selling with the .26 acre parcel. The 1 acre parcel can be sold seperately and built on per the municipality. Can I make a hypothetical condition that it is 1 parcel? Or do 2 seperate appraisals need to be completed?
Hi April. Thanks for reaching out. I think this really depends on the needs of the client. If it is for a loan, I highly doubt a hypothetical condition is going to fly. I would personally not even consider this for a loan. If it’s for a private client, I think you can potentially consider doing this as long as everyone is clear. Though will the results be credible? I’d really consider the end-user of the report too. If the client just wants to save money, but it puts you in a bad position, it’s probably not a good idea to do something like this. I think I’d probably feel most comfortable with two appraisals. Anything can be done, but should it be done? That’s my question.
Good afternoon, I was wondering what to do when one parcel # has two lots that have been subdivided and platted. The dwelling and attached garage are on one lot and the other lot is vacant and legally and permissibly able to be sold. When I do the land value in the cost approach, the value is the total of two separate comparable lots, but then in the sales grid, I am unsure how to value the site differences since the subject has an additional lot?
I guess I just wonder why both lots would need to be included in the appraisal in the first place. Why not just appraise the improved site that has the garage and house? If this is for a lender I can imagine them wanting it that way anyway. If that’s the case then your site value in the cost approach would only include the one lot that actually transfers with the home itself. If this is not for a lender, I suppose it’s going to get interesting. So is this for a lender?
Thank you for your response. We love your blog. In this appraisal the lender has stated appraise all acreage. The two lots and house are on one deed with only one parcel number. Any help would be much appreciated. Kind regards
I don’t know that I have any definitive answer here, but I would say it’s up to you to exercise judgement as to whether these should be valued together or not. Lenders ask appraisers to do stuff all the time, but should we do it? That’s another question. If these lots are not bound together legally and the other one has a separate highest and best use, I would be prone to maybe not do this. That’s me though. Honestly, this could be a complicated issue. I might bring it up to many appraisers and ask what they would do. If you are a member of a good appraiser forum on Facebook or somewhere else, I might suggest asking there too to see what others might say. In my mind it sounds like the other lot just happens to be a lot the owner owns and they are asking you to appraise it lumped in with this house. If this is a portfolio in-house type loan, then maybe that’s fine. If this is a typical conventional loan though I would probably recommend looking up the Fannie Mae Seller’s Guide to be sure there is nothing written about this subject. Should I do this? That would be my first big hurdle / question even before beginning to think about how to value this one… Thoughts?
All our adjustments are to be supported by the market reaction $$ to the difference, whether it’s dollar for dollar, less than that or more than that in ie; a bidding war or sold above list price. Land sales show the value of land per acre, and per Sq Ft breaking it down. If you have land sales do the math then compare that per acre/per Sq ft price to a comparable sold with two lots and ask the listing agent what the value buyer has attributed to the second lot. Find another comp and do the same thing. Support whatever adjustment you make with the answer you derive from the sales. You can even search land sales in a competitive area if there are none in your subject neighborhood. Historical land sales help to find a Point, or successive land sales transferring more than once in a measurable period of time 1-2 yrs (regression analysis) ie; “$ price increase / prior sale =% increase. Divided % increase by # of months of time gives you a % per month” It should give you some idea whether land is stable or increasing in the subject market or competitive market nearby.
Thank you Florida Appraisal.
Hi Ryan, I am in contract for a home that includes a parcel behind the home. The two parcels are being sold together and the parcel fronts to a different street. The two parcels are encumbered by each other and must be sold together. I was told by the seller that they were told by the City of Sacramento that you can split them….buyer to verify. Not sure where to start in verifying. It is not my intention to split them, as I like the privacy. Your blog here has me curious as to the appraisal and loan side. I don’t want to run into complications as time is of the essence for me to get into a replacement home. Do you foresee this as an appraisal issue?
Hi Deborah. Thanks for reaching out. It’s so hard to say here. Do me a favor though. Since this is local, please email me the address (lundquistcompany @ gmail dot com). If I can give you a quick off-the-cuff take, I’m glad to do so.
I’m a Realtor in Anchorage AK and I have sold many properties where the a home has an adjacent lot that was sold with the property. There are three criteria. 1) Lot must be adjacent. 2) The deed must cover both lots to prevent the lot from being sold without payoff of the lien. 3) There must be comparable sales with similar lot sizes equal to the combined footage of the sold property with the extra lot.
Thank you so much Kevin. I appreciate it.
Quick Question. I have a 2 unit property(2 adjoining townhomes) that are parceled separately. The property is under contract as both parcels are to be sold and closed as 1 transaction. The current seller purchased the property this way as well back in 2009. It sounds like the lender will allow it but no appraiser is willing to appraise this as 1 property. What are your thoughts?
Hi Brad. I appreciate the comment. Can these properties be sold separately? If so, then it’s proper to have them valued separately. I completely understand why appraisers would be hesitant. Keep in mind lenders and others sometimes ask appraisers to do certain things, but that doesn’t mean they should be done. If the lender is really okay with doing one loan on two distinct properties, then why not allow an appraiser to value them separately? Then if the lender wants to only do one loan, that’s up to the lender.
Thanks for this blog…
I have an appraisal where there are 2 separate lots with 2 separate folio numbers. Lot 1 has the house on it and Lot 2 has the driveway leading to the house. The appearance is that it is one large lot. Lot 1 has bay frontage. The Lot 2 backs to common area owned by an HOA. The borrower stated to me that if he can purchase the HOA lot he would eventually move the driveway to Lot 1, Combine Lot 2 and HOA lot and sell them. Do I appraise Lot 1 and 2 together subject to them being on one folio?
Thanks!!
Hi Carol. I appreciate you reaching out. It’s interesting to hear you say folio too as that’s not something we look at in my market. In my area we look at the APN (Assessor Parcel Number). I just wanted to clarify for any onlookers. We’re talking about the same thing basically probably (or correct me if I’m wrong).
This is tricky and I can’t really give an answer. The key comes down to whether Lot 2 can legally transfer with Lot 1. In my area it’s okay that they have separate assessor parcel numbers. That’s fine. In fact, when that happens the appraiser can simply put both parcel numbers in the report (and then I would explain that in the addendum). I believe the Fannie Mae Seller’s Guide might address this too, though I don’t have a reference since it’s been years since I’ve looked that up. But the point is it’s okay for multiple parcels to belong together in one appraisal. The real key is whether this should happen or not though. In my mind one of the most important things is whether Lot 1 is able to legally transfer with the subject and whether it can be sold separately or not. If Lot 1 and Lot 2 cannot be sold without each other, then you’re looking at a situation where the highest and best use is them selling together. Yet if they can be sold separately and have their own separate highest and best use, it starts to sound like an adjacent lot rather than a lot that should be lumped into with Lot 1.
These issues are complicated. I usually call the planning department and talk with them about the lot so I understand what use is possible. That’s my starting point. I also look up past sales to see what has transpired. It helps build more confidence to see a property has sold like this a few times in the past. Yet I take that with a grain of salt too because what if this sold in an improper manner? That’s always on my mind too. But there is sometimes something to be said about how a property has been perceived and transferred. That’s definitely supplementary for me, but I do look at it and mention it in a report if I choose to use two parcel numbers in one appraisal. The most important thing though is analyzing the zoning and highest and best use.
Yes, folio and APN are the same. Thanks for your quick response.
Hi Ryan,
Thank you for this article from many years ago. This all resonating with my current situation. Need your advise. I am refinancing my home loan here in CT that I purchased just in December. I own three different parcels of land totaling 52 acres. The house sits on the 5.5 acre parcel. The other two parcels, even though have their own ingress/egress road accesses, are not developed – (In fact they are designated as forest land for tax purposes). I purchased them (just like the seller) only to protect the views.
At the time of purchasing, the appraiser at that time included all three parcels in their valuation. The property appraised for higher than what I bought. As I am refinancing now, I was hoping that the property would appraise even more to the point that resulting “equity” would relieve me off PMI. But alas, that does not seem to be the case – the report just came out and the appraiser only appraised the one lot with the house in it. She excluded the other two lots from the appraisal. I am only 3% shy now of making the 80/20 mark. I disputed the appraisal citing “factual error” in the report around acreage. But the appeal got “rejected”. Should I continue to fight? Or I do not have any recourse? Its frustrating as I have to go through the processing officer who “does not understand how appraisal works”? If I let it stand where it is right now, what does it mean? – I am only collateralizing just the one lot? Or by the virtue of the deed/title does the lender still get to collateralize all three? Thank you!
Hi Shrey. Thanks for sharing your story. What does the lender have to say? I would imagine there is a review appraiser working for the lender too. If this is a case where the appraiser made a mistake, it seems prudent for the lender to maybe order another appraisal. Will they do that though? I’m doubtful. If this is a situation where the appraiser did what needs to be done though and was correct, then there is no arguing about it. Can you sell the other parcels separately if you wanted to? If it’s only forest land, is it worth much? I don’t know your market so it’s hard to speak into these issues, but those are my initial questions when hearing about your situation. There is a place for continuing to fight, but if the lender isn’t giving you any hope then there might be nothing you can do with this current lender. You can always feel out another lender and maybe explain your situation. I think it would be prudent for an appraiser to know about these multiple lots up front in order to maybe feel things out whether it will be an issue for the appraisal or not.
Hi Ryan,
I had a question about contagious lots to my house here in Colorado. I bought my home in 2005. The previous owners split two lots ( it takes two to build one house) off the property. In 2006, they decided to sell these lots and we purchased them. We used a Heloc on our home to purchase them. We bought them to protect our views with the added bonus that if we wanted to add on to our house, we could build up to 3100 sf instead or our current 2190 sf limit. Since we purchased them separate, they are deeded separately. The county considers the two lots for tax purposes as our yard as it is fenced in as one property. We own the lots outright ( value approx. $200k) and have a mortgage on our home. We are going to try and refinance and wondering if an appraiser would consider it as one property or would I have to legally join the two together. With the survey, the costs might total $2k. I do not need to have them joined to get the loan, I just thought it might be nice to tap the equity in that property if I needed to as land loan interest rates are higher.
Thanks,
John
Hi John. Thanks for reaching out. To me this sounds like multiple lots instead of a situation where all the lots are going to be considered in one valuation. However, I would defer to your local market. If the contributory value is much higher when you legally join the lots together that could be a good move. However, that is again something I would defer to your local market on because I don’t know value for your area. This all comes down to the comps though. What area properties with a larger lot size selling for compared to smaller lots? That’s the real key and the answer may help guide you on what to do if anything.
Sorry I couldn’t be more help.
I have just had this situation where the prior appraiser included 2 3+ acre sites. The west parcel is built to its highest and best use. The adjoining east parcel, is a separate transferable parcel with its own highest and best use and it has been brought to being a building site so it clearly is eventually going to be brought to its highest and best use.
I notified the client that I couldn’t appraisal these 2 parcels as 1 because the vacant building site can be sold separately as it isn’t legally bound to the other parcel. USPAP says that when estimating Market value the site/s would be appraised as if vacant and available to be brought to their H&B use and then what contribution to the whole property value the improvements make.
I notified the client and created an uproar when I said that I could appraise both parcels as one if the client wanted me to use a hypothetical that they were. I could do 2 appraisals, or the parcels could be legally bound and then the east lot would be excess and still be a hard stop for the lender.
Well the plot thickens. The Chief Appraiser for the AMC sent me an email with the FNMA lending requirements and condescendingly said that I was supposed to be familiar with their guidelines. The only problem here is that those guidelines are for the lender when making a loan on multiple parcels. They have nothing to do with the appraisers H & B Use decision. I then had a 1/2 hour back and forth with him and it ended with him saying that if I didn’t appraise it as 1 parcel, he would be cancelling the assignment and paying me a trip fee. He literally demanded that I appraise it as one based on the lender guidelines.
Wait for it, they are not legally bound to each other!!!!!! The word adjoining simply means that the 2 parcels share a property line. I also stated that it was not appropriate to cancel the assignment based on me refusing to violate USPAP.
Simply put, if the 2 parcels can be separately sold, and each has its own H & B use, they each would need to be separately appraised.
The 2nd parcel, if legally bound to the other one, must have documentation that shows that is not buildable. Well both parcels are buildable.
I am flabbergasted that a Chief Appraiser, that has a national reach to inexperienced and new trainees, is perpetuating the misuse of Lender Guidelines. I believe that most Licensing entities would prohibit this kind of unethical conduct and this goes all the way to the ASC and regulated financial Institutions.
Thanks so much for taking the time to share. How about including this appraisal with the house next door the owner also owns? Or what if the property owner had a vacant lot down the street? Can we lump that in there?
I’m always open to evolving standards or critique, so if anyone can show this is okay, I’m open ears. For the time being I would have handled it just like you did.
Thanks Ryan,
I am most concerned with the misinformation that this Chief Appraiser is putting out, and forcing appraisers to violate the USPAP. You and I know our stuff and have been around the park a few times, but what about the inexperienced and new trainees. They are being bullied by this guy, and he did the same with me. I started in this profession in 1983 and I have had this discussion so many times with appraisers that work with AMC’s so I tried to help him get with the USPAP and be ethical. It was clear that he was not going to budge from his position on appraisal standards and practices. I believe that at this point, he will need to walk back his cancellation and follow proper appraisal standards and practices. He also needs to stop bullying all appraisers that he has power over.
I don’t know where or how to start this process. Any suggestions?
It concerns me too. The threat of a fee can be very compelling for some also. I wasn’t exactly sure what you are asking with your question, but maybe talk to the appraiser about this when the time comes. If the assignment is not cancelled, make it a point to have another conversation and share your concerns about how the appraiser came off. I think it’s really important for people in positions of authority to be careful about the way they talk and flex. It matters.
I logged in to the portal a bit ago and the assignment has been yanked, even from the cancelled list. That presents a more nefarious possibility, me thinks.
Hi-
I am currently in the same position with a lender/AMC. Property was purchased 3 months ago -newly subdivided and listed as 2.3 mil for house on 10 ac and $600,000 for the adjoining lot closing at 2.9 mill encumbered under one adjustable rate loan. The link in the prior listing takes you to the original 20 acre tax record, so very likely the original appraiser used that old legal and tax ID#. I got the refi request in Sept. It was a 2055 and Lender/AMC was not forthcoming with the title, sending me one page snip-its at a time. When I asked for the contact info for the owners I was expressly told I was not to contact the owners- this is an exterior only. Because of the lack of info and the full title i was forced to do extensive research to find out if/when the sub-division took place and if was ever recorded.
I found the new tax records showing they were legally two lots sharing a driveway easement. I explained this repeatedly via the AMC portal that it would two reports 1004/land appraisal. There response back was “Please ask the appraiser to appraise the property as it currently stands” So i competed the 1004 with just Lot 1. I even spoke to a Sr Appraiser with the AMC who was very versed with FNMA and USPAP guidelines and she fully supported this and she “had my back”. A week later 95% of the AMC was laid off including my Sr Appraiser. Like you, I received an email then a phone call from the remaining Sr Appraiser insisting that I CAN and WILL appraise both lots under one report. I held my ground and this has now been escalated to “management”. Still waiting on the outcome of that. Even if they legally combine the lots back together the second lot would not be worth $600K. Plus there are no comparable sales of a similar configuration (2 buildable lots sold with one lien). This is the same lender and most likely the same loan officer that got them into the Adj Rate Mortgage in the first place. So, Im sure the LO is desperate to get this loan done their way and putting pressure on the AMC. My concern, because of the lack of communication between the homeowner and myself that they will turn me into the state because my insubordination killed their refi and possibly losing their home. I know what i did was right and my adjustments are supported but its never good when the state fine tooth combs a report. My thought is if they sent this appraisal request to a less experienced appraiser (I have been appraising since the 80’s) that they might get what they want. Not sure they would get the value they need – but they could bully someone into doing their way. (the old tax record is still available on line showing the original 20 acre parcel). Bottom line – I appreciate your story and Ryan’s article. Your experience helped me to solidify my decision.
Hang in there Jodie. It’s tough to worry about being turned in for something like this. It sounds like even the Sr. Appraiser was on board with your decision too.
Thank you for answering comments so many years later!
Question: We just had a lot split. It’s a bit complicated – it was always two parcels, but not official with the county – so we filed paperwork to make it official (new maps, etc.).
Can we get the lots appraised as separate before we get our new parcel numbers?
Hi Lyn. Sure thing. It’s my pleasure. It really depends on the situation. If you are trying to obtain financing or do something for legal purposes where the properties are going to transfer then you may have to wait. Though technically an appraiser can use what’s called a hypothetical condition. This is where an appraiser knows the lots have not been made official but assumes that to be the case for the sake of the valuation (this is made extremely clear in the report itself so as not to be misleading). I do appraisals like that at times. The key is what the end-user really needs though and will allow. Like I said, a lender may not be okay with this, but if it’s for a private matter this might not be a big deal. Hope that helps.
Thank you for such a quick reply! Yes, that’s exactly what I needed to know.
Hey Ryan, seems this issue keeps popping up. I have a property: Two parcels, two parcel #s. House is clearly on one; there is a pond/lake that is halfway on both parcels, and their septic drain field in on the other lot. Can these be appraised as one lot; should they be combined into one. TIA-Chip Baine
H Chip. Thanks for reaching out. You know, I don’t know that I have anything new to add other that what I have written in my post already (as well as the comments). It’s hard to speak into this exact situation without being in tune with your property and local market. Can these two properties be sold separately? If not, that is a pretty compelling case for them to be appraised together in my opinion.
I just had to step out of a job because of this. Two seperate lots , seperate taxes , not defer together , home on each lot
. The agent wrote the purchase contract fir both on one . I told them it’s fraud to proceed with this when I knowingly see the true data . I even talked to an appraiser at the county assessor who says they are two separate parcels . The lender tells me to just proceed and we will figure it out when the report is done ? I says it’s ok , I’ll pass , I already figured it out . You don’t have to give me a penny , I don’t complete fraud appraisals . The homes are worth more seperated as well so I believe the the agent is misleading the sellers who are old people , or he is super uninformed/not experienced on the true process .
I may stop by the home and tell the owners he’s trying to scam you but … can of worms!
Yikes. Sounds like quite the situation. Lenders are famous for telling appraisers that everything is all good. This is one reason appraisers need to have thick skin. Just because they say it can be done doesn’t mean it should be. Years ago I recall a hard money lender saying he was cool with me doing a drive-by appraisal on a total fixer triplex. Hard pass.
Sounds like you were correct to walk away. I purchased a home that included a vacant lot that faces a street behind my house. The lot has its own APN, as well as separate property taxes. The lot is not part of my mortgage but is identified in the county assessor’s records. I talked with my local jurisdiction about building a rental property on that lot. I asked what I could do with it. I was told I could build on it, sell it, or leave it vacant. I was looking at all my options. Since I have a large lot I asked about building an ADU and was told I could request to consolidate the lot to my property and recommended that I put the entry facing the other street. That would mean I would have to sell it as one property should I decide to sell in the future. I decided against doing that because the value is greater selling the properties separately.
Thanks for sharing Deborah.
USPAP Standard 1-4(e) states…
“When analyzing the assemblage of the various estates or component parts of a property, an appraiser must analyze the effect on value, if any, of the assemblage. An appraiser must refrain from valuing the whole solely by adding together the individual values of the various estates or component parts.
Comment: Although the value of the whole may be equal to the sum of the separate estates or parts, it also may be greater than or less than the sum of such estates or parts.”
If the highest and best use of the second parcel is “excess land” it should not be included in the value as it could have 1 value if sold separately and another value if sold/bundled with the main parcel and mis-leading report could be completed.
If there are two parcels deeded together and the HBU of the 2nd vacant parcel is a separate buildable lot, it appears the HBU would be to deed the two parcels separately and not include in the value. FNMA states the opposite and to include 2nd parcel if deeded together.
Aren’t we suppose to value the subject as if unencombered?
If there are two adjoining lots, one with a house on it and one without, but part of the garage encroaches on the empty lot, do they have to be appraised together or can they be appraised separately? The empty lot (call it lot #2) is completely buildable, has street frontage, etc but 0.03% of the lot has part of the garage from lot #1 on it. Both lots are owned by the same person. I am being told that they have to be appraised as one big lot, but that is not nearly as valuable as if they were appraised separately, so it is hurting the chances of a cash-out refinance.
I would have to defer to local rules and expertise that understand this situation, but whenever someone quotes a rule or tells me something has to happen, I like to ask for the basis of the rule being quoted. To me it doesn’t make logical sense to be required to value these parcels together due to encroachment unless the encroachment somehow legally ties the properties together and changes the highest and best use. Here’s the thing. Will the lender do the loan with the encroachment? If not, then maybe they are asking for these lots to go together. But backing up, I think it does create an appraisal problem in that it becomes a complicated appraisal now due to the encroachment. It would presumably be easier to just lump the lots together. But just because it’s easier doesn’t mean it’s required. My advice? Dig further to try to find out why these would need to be appraised together. Is it a lender issue? Would the underwriter allow a loan to happen with encroachment present? If an appraisal rule is being quoted, what rule is it? Or is there some other issue at hand? Please follow up if you hear more. Good luck.
I came across this today. Better late than never :).
Anyway, an appraiser can value two adjoining independently marketable real estate entities (lots/parcels/sites) on the same appraisal, and it can be sold to FNMA. The key as discussed is H & B use. To satisfy the requirement a hypothetical condition may be used when the value of the two separate real estate entities has an economic benefit that is higher than the combined value of the two real property entities under the hypothetical. However, one can’t have it both ways, and in most instances, this will result in a diminished value. So, it can be done, but doing so may have “consequences.”
Thanks Mike. I always like to hear from other appraisers (assuming you are an appraiser).
Good morning. I am in VA and have an appraisal order with four adjoining lots (all have road frontage) located within a rural subdivision. The sales contract includes all four lots. They each have statements from 2004 that they are suitable for septic systems for 3 bedroom homes. Highest and Best Use would be sell as individual lots. How do I approach this as an appraisal?
Are you being asked to appraise them together? Lenders seem to ask for this all the time, but the appraiser has to decide if that can be done on a typical URAR form. I’m guessing one it’s one house and the rest of the lots are vacant, though maybe I’m wrong. I would personally be very hesitant to move forward appraising all four together, but maybe talk to peers in your local market, post on some appraiser Facebook groups, and/or talk to a point of contact at the VA if that is available (I am not on the VA panel).
These are all VACANT lots
any advice?
Hey, I’ve been wrapped up in deadlines. I’m not a huge fan of appraising them lumped together since it sounds like they may have a separate highest and best use (I could be wrong). I would probably bounce the ball back to the client to say these are four separate appraisals instead of one, and explain my rationale. There may be a fee discount here if you are using all the same comps, but I’m just hesitant about lumping them all together for VA unless for some reason they realistically need to go together legally. I would reach out to peers, ask what other VA appraisers would do (maybe a Facebook post in an appraiser group), and talk to your client about this issue. I would also look at the form this is requested to go on and see if there are any immediate conflicts to including multiple parcels together like this. From a value standpoint, this could get very complicated though because are you going to find comps that are already divided and ready to go (that sold as a total package)? It sounds like a more difficult value to support in light of a potential issue with true comps, so the credibility of the value could be scrutinized. Those are my thoughts. If anyone on this thread thinks differently, speak up.
Thank you. It is a conventional loan located in Virginia. Your comments are greatly appreciated. I have been conversing with the client about the issues.
Haha. I clearly interpreted VA as something else. But good for you to have conversations about this.
For anyone who is searching related to a #VAloan and multiple parcels, here’s a link to the handbook. It states multiple parcels are fine, and there is no limit to acreage, as long as the parcels are continuous and there is a home attached. Confirm with your VA lender to be certain.
https://www.benefits.va.gov/WARMS/docs/admin26/m26-07/Ch12_Minimum_Property_Requirement_NEW.pdf
Thank you.
Highest and best use is always the key. VA and FNMA have their guidelines for surplus land situations on multiple parcels, but they cannot be applied to excess land where there is separate highest and best use without stating that the highest and best use for both lots is not the current use. Notice that none of the GSE guidelines refer to ignoring highest and best use.
Hey Ryan, your blog is awesome! Thank you for being willing to share your opinions. I am working on a mountain property in Utah that has two lots, like your scenario 1. One lot has a cabin on it, the lot next door has nothing on it, both have road frontage. I’m reading the FNMA guidelines for when “the security property consists of more than one parcel” The requirements are:
1) Each parcel must be conveyed in its entirety (yes)
2) Parcels must be adjoined to the other… (yes, the lots are side by side, adjoined)
3) Each parcel must have the same basic zoning (yes)
4) The entire property may contain only one dwelling unit (yes)
5) Mortgage must be a valid first lien that covers each parcel (yes)
It would seem to me that your scenario 1 meets all the FNMA criteria to include both parcels in the valuation. I’m guessing I’m missing something, any help would be appreciated.
Hi Kelton. Sorry I missed this comment. It has been an insane two days in my world between deadlines and a big presentation. Thanks for the kind words. I mean, based on what you are saying, it sounds like you’ve covered your bases. It’s hard for me to speak definitively to your situation obviously. I no longer do lender work, but I would bounce this idea to the lender also just to see if they have any input. I know chief appraisers can sometimes give some great insight (and other times we can hear terrible or incorrect advice from the AMC / lender side of things). If anyone in the comments has two cents, please pitch in.