Appraisals - the dilemma.

[plowhog]

Thank you for the very informative writeup about your situation. I always like real estate deals because there is such diversity in the market. I have not encountered your circumstances before but now I understand them better.

I think you are right about the inability of the lenders to sell the loan into the secondary market (fannie/freddie.) Maybe due more to AG zoning than acreage, not sure.

Sounds like you are on a good track with Heloc-- good luck!!

 

[MoKelly]

Yes - good luck!

I pray the $2500 appraiser is competent and gives you a fair and true value.

MoKelly

 

[drssg]

It seems to me that things would be simpler if you went ahead and split off a few acres to a new parcel for the new house.

The current situation seems odd in that you own the land, you are getting the loan, so you must be the owner of the new house, but your daughter will pay you back for paying the bank, and you consider it to be her house?

If you give your daughter a few acres, then she can get a typical construction loan, where most of the collateral is the value of the house that will be built. This should simplify the appraisal process considerably. This would also assist her in developing her credit rating.

If she can't qualify for the loan on her own, then you could still co-sign. If things somehow go wrong, then the bank should be able to settle the loan with just those few acres.

 

[Fixastuff]

Worst case they build their house on your property, something happens they divorce, now he gets half of entire farm parcel? I have no idea if this is possible, just throwing it out there for thought.

 

[dirttoys]

Yup, couple of things, as above consider splitting off 5 acres and selling/giving to the kids. Let them manage the loan. Honestly if they can't barrow the money, they probably won't be able to pay you back for the note you take out.

Make sure you are all clear on what happens if they split the sheets, or one of them get a great job offer on the other side of the country and they need to sell and move.

Best,

ed

 

[beowulf]

It seems to me that things would be simpler if you went ahead and split off a few acres to a new parcel for the new house.

The current situation seems odd in that you own the land, you are getting the loan, so you must be the owner of the new house, but your daughter will pay you back for paying the bank, and you consider it to be her house?

If you give your daughter a few acres, then she can get a typical construction loan, where most of the collateral is the value of the house that will be built. This should simplify the appraisal process considerably. This would also assist her in developing her credit rating.

If she can't qualify for the loan on her own, then you could still co-sign. If things somehow go wrong, then the bank should be able to settle the loan with just those few acres.

Not so easy. Zoning is AG 160 and our parcel is already nonconforming. Have discussed this with the county. You can apply to parcel off a portion but there is no guarantee and the fee to apply is $8,000, plus if approved, additional fees for surveys and for the 'maps' division. It is also apparently a long process and it seems anyone nearby can object. I asked about ball parking the total costs - not including an attorney (won't need that) they mentioned $25,000. And I asked about the chances of getting it approved and was told there were no guarantees - maybe 50-50. I guess that is what they have to say. I have been told that the County wants fewer parcels - may be due to water issues. We have a legal right to build a second home but no right to divide the property.

Also, they could not likely get a loan on bare land, and from what I have been told the construction loans are more expensive and more difficult to get for property up here - not sure. But however, the reality is that our well-considered succession/estate plan provides that she is only to have a life estate anyway. We all consider it her home (me, wife and daughter) and all are fine with that. We offered to help with a down payment on other property, but she wants to live here where she grew up. We want that as well as she is a great worker- loves living here in the mountains, helps out a lot and we are getting older - so we consider it a win-win.

Both daughters understand that the property goes to grandkids when they are gone. That protects the property from passing out of the family if the daughters pass before their husbands. A trust for that, and many options in case they want to move. There is a lot more to it but too much to lay out here and not related to the appraisal issue.

We have gone over options in great depth before working out a plan for succession. My issue is much simpler - how to get an appraisal for a loan.

 

[drssg]

Not so easy. Zoning is AG 160 and our parcel is already nonconforming. Have discussed this with the county. You can apply to parcel off a portion but there is no guarantee and the fee to apply is $8,000, plus if approved, additional fees for surveys and for the 'maps' division. It is also apparently a long process and it seems anyone nearby can object. I asked about ball parking the total costs - not including an attorney (won't need that) they mentioned $25,000. And I asked about the chances of getting it approved and was told there were no guarantees - maybe 50-50. I guess that is what they have to say. I have been told that the County wants fewer parcels - may be due to water issues. We have a legal right to build a second home but no right to divide the property.

Also, they could not likely get a loan on bare land, and from what I have been told the construction loans are more expensive and more difficult to get for property up here - not sure. But however, the reality is that our well-considered succession/estate plan provides that she is only to have a life estate anyway. We all consider it her home (me, wife and daughter) and all are fine with that. We offered to help with a down payment on other property, but she wants to live here where she grew up. We want that as well as she is a great worker- loves living here in the mountains, helps out a lot and we are getting older - so we consider it a win-win.

Both daughters understand that the property goes to grandkids when they are gone. That protects the property from passing out of the family if the daughters pass before their husbands. A trust for that, and many options in case they want to move. There is a lot more to it but too much to lay out here and not related to the appraisal issue.

We have gone over options in great depth before working out a plan for succession. My issue is much simpler - how to get an appraisal for a loan.

Wow! I guess that's a difference between California and Ohio. My dad gave my sister a few acres for her house a long time ago, and AFAIK it wasn't a big deal.

It sounds like you have done a lot of planning, and I agree that the appraisal sounds simpler for you than subdividing. Good luck.

 

[plowhog]

Have discussed this with the county. ... We have a legal right to build a second home but no right to divide the property.

Maybe yes, maybe no. Maybe I can help-- not sure.

A typical landowner in CA wanting to subdivide visits the local County planning office and asks questions. The County presents information re: a "parcel map split" via the Subdivision Map Act of 1972. The requirements and fees are often so onerous and shocking that the landowner throws in the towel and gives up. It sounds like this also happened to you.

But-- sometimes there is another way. County officials won't tell you about this other process since it gives them almost no control or oversight-- quite different from a parcel map split. This is doing a lot line adjustment on your property. (You will need to verify this is permissible in your County.)

The catch is whether there were EVER any "additional" parcels on your existing land. These could exist without you knowing about them. These might have existed before you were born, for an example. You find whether such a thing exists by hiring a local civil engineer for a small fee to do a "chain of title" search on your property.

I had such a search done on my N. CA property, searching back into records dating to the 1800's. A total of 7 previous parcels were discovered-- none of which we ever knew about. Those parcels are in no way evidenced by the current deed-- you'd have no clue about them without the chain of title search. But since they "did exist" previously, it opens the door to using the lot line adjustment process to "rearrange" the property into the multiple parcels you want now.

Regarding my property, to do a "parcel map split," the County was going to require construction and surfacing of a new road on my property, turnouts for fire trucks, emergency water supply, utility easements, blah blah. But with the discovery of these previous parcels I can bypass all those requirements, and instead do a lot line adjustment for a total cost of about $10,000. The County cannot say no or refuse it.

This might be something to consider for your property. A good start would be to check with a quality local civil engineer. Good luck!

 

[swnoel]

I have mentioned that my daughter and son-in-law are building a 'second' home on our property. We have 90 acres and they love it here, and we are getting older and slower, so it all makes sense. We discussed borrowing $200k to supplement their savings and a bit of help from us. That would be a loan they would be paying on, but as the property is in our names (wife and me) we have to be the borrowers. The cost of the project including well, septic, pad, etc. will be in the $350k range. Anyway, we owe nothing on the property which is worth at least $600k - and I would not sell for less than $900k. It appraised for $450,000 in 2010 or so, and we have since added solar and made other improvements and our particular location is a preferred location in the area.

Our first problem was finding lenders who would lend on more than 10 acres - finally did that - there are very few. So we applied - great net income, 800+ FICOS, no debt, great ratio of loan to value - so we selected a lender who immediately approved the loan - subject, of course to the appraisal.

Well we applied March 4th, had all documents in by March 6th, and since then have been waiting for the appraisal. They kept saying that there were "delays in finding an appraiser in our area" - over and over and over this is the message. In the meantime the construction costs for the home went up by $22,000 due to lumber price increases. I finally pulled the plug on the application with that lender after being told no appraisal was scheduled and they did not know when or if it could be scheduled. I did confirm - by calls to local appraisers - that there is a backlog of appraisal requests. Then I contacted other lenders but none would commit to a reasonable time line for an appraisal. I offered to pay double any appraiser's fee.

I did find one lender who was willing to do a no-appraisal loan (because of the value they saw plus fact that the new home would also be additional security) but they backed out when they saw that the zoning was AG.

Finally, I contacted our own bank (they do HELOCS but do not do conventional loans) and applied for a HELOC - higher interest rate, but interest is only accruing from the draw dates and we intend to pay it off quickly anyway. Last week they called and advised that the first six appraisers they contacted turned the job down but they found one who was willing to do it for $2,500 (the going rate has been about $400-$500), and he could not do it until September (that date is okay).

At this point, we are either going to finance the project ourselves (we can manage that but would prefer not to go that route), or just bite the distasteful bullet and pay the $2,500 appraisal fee. Likely that is what we will do.

Anyway, is this a widespread issue due to hot housing market or a California issue, or a rural property issue? Just wondering. Getting into a first home is an exciting time but it is very frustrating to see our daughter and SIL see the costs go up like this for their first home.

I think the problem is that the lenders aren't interested in loaning money for a project where the land isn't part of the loan. I've never heard of a lender who will lend money to someone for someone elses property. Construction loans occur all the time and it's hard to believe the amount of land has anything to do with them.

 

[mikester]

My experience is that farming is considered commercial and you will pay commercial rates for assessments, not residential.

Banks here say they do not want to mortgage farm properties and will only value the house and 4 acres surrounding it. Getting insurance is even harder as few companies want to insure your residential house because you are considered commercial - farming.

Banks are even less likely to lend if you plan to self build. When I built 25 years ago banks would only lend 30% of the value when you got to lock up stage - fully enclosed with finished roof, siding, doors and windows. Banks will quickly tell you to get financing from the builder to cover the difference between cost and amount advanced.

Lastly go talk with an accountant about tax consequences and future capital gains. You may not want everything in only your name at this point, you may be in a pay now or pay a lot more to the government later situation.

Better yet talk with TWO experienced accountants familiar with your specific situation and tax consequences when you pass away and the kids suddenly have a massive tax bill to settle and nobody wants a farm property with two houses on it. Chances are you will get conflicting answers from both accountants. Be skeptical about what you hear and you may need a third opinion. At the end of the day it's you/your estate that pays the tax bill.

Consider severing the land now before you build. Sever 10 acres, that seems to be the magic number these days. You still can't get a mortgage to build on vacant land but you may have dodged an expensive problem down the line.

Non of this will be cheap. Get over it. If you can't stomach the costs then sell everything and downsize now while you still can. You can't afford your dreams.

 

[s219]

We have some restrictions here similar to what plowhog mentioned. I could not combine/divide parcels, but I could do a boundary line adjustment between them and move the property line to accomplish my goal. Cost about $4K for surveyors, re-filing plat, etc. Not too painful.

 

[beowulf]

Well, the discussion has morphed a bit beyond an appraisal issue. Some clarification to points raised. AG 160 zoning per County means one dwelling for the 160. Also means you cannot sell off or sever (partition) less than 160 acres without getting a zoning variance. The 90 acres is already non conforming but at this time County does not care about that. Initially told I had to go through a DRA process to be permitted to build another home on AG 160 zoned property. I did that - paid the $1,800 fee and had to submit a lot of supporting info and documents. In that the course of that process a supportive County rep found a way to let me build a second home without the DRA process and he refunded the $1,800. I double checked what he told me and rechecked that - an exception - not easy to find that but it was there. Even the local brokers were surprised as they had also told me AG 160 meant one home per 160 acres. So, now we have permission to build a second home on our property and as daughter wants to live here and it helps us out - projects, easier to leave and travel, and more - it is a win win. Just need the appraisal to get a loan, or, finance it ourselves which we can do - just prefer the loan route.

A lot line adjustment - I have been told - would pertain in different circumstances - between me and adjacent properties. Anyway, I can apply for a zoning variance, or can apply to divide the parcel with all that that entails.

HOWEVER, for our purposes - we have a succession plan with options that manage all we can foresee and contingencies for changes in circumstances. All are on board with the plan. No tax issues, gifting issues managed, - all taken care of and puts us where we want to be now and provides for where everyone wants to be in the future - has flexibility, including possibility that daughter and SIL may move to our home (where the amenities are) when we are gone and rent the other home, and/or use the cash part of their inheritance to buy out the other daughter's interest. Anyway - that is not the issue I posted about.

Anyway, there is no desire or reason to downsize or move anywhere (that would be the precise opposite of what we want), and no need to sever. This is where we want to live - living the Blue Zones. All doable if I pay for the appraisal, or self finance the build which is also doable.

Appraisal for a loan is the issue - not a succession plan. We have been able to borrow on the property twice before without any issues at all. And this time immediately after we provided tax returns etc., and credit checked, we were told that the loan was approved subject to the appraisal and any appraisal will be over twice the loan amount requested. So, will likely bite the bullet and pay our bank for the appraisal - the same bank that has loaned on the property before.

 

[plowhog]

A lot line adjustment - I have been told - would pertain in different circumstances - between me and adjacent properties.

Appraisal for a loan is the issue

Understood completely that the loan is the focus.

But if a future split is ever needed, I would investigate to see if prior parcels exist. What you were told with lot line adjustments is generally correct, but it isn't the only use for them.

Good luck with the loan!

 

[MossRoad]

I'm still amazed at the difference in prices to get government services such as zoning done in different parts of the country.

As for appraisals, we have a home equity line of credit as a 1st mortgage. Ours is good for 10 years. It requires an appraisal at the start. The appraisal is a few hundred dollars for us. It's considered a 1st mortgage, so it qualifies us for property tax deductions in our county. Since we rarely have a balance on it, and when we do, it's only a few hundred dollars a year in interest, that interest we pay is actually less than the property taxes we save by having a property tax exemption for a 1st mortgage. It's the only time I feel like I'm getting one over on the system.

I'm not recommending it for the OP to borrow money, but if he's going to borrow money, this includes the appraisal and it's good for years and years (the term of the mortgage) and allows you to pull equity out of your house quickly when needed, and pay it off as fast as you want. And there may be some property tax savings for having a mortgage depending on where you live. And the mortgage interest is deductible if you beat the the standard deduction when you itemize. Whereas, I don't think personal loan interest is tax deductible. It doesn't make a difference to us, as we've itemized for 35 years and never beat the standard deduction. Your mileage may vary, etc.

Good luck in your process.

 

[MossRoad]

....

Anyway, is this a widespread issue due to hot housing market or a California issue, or a rural property issue? Just wondering. Getting into a first home is an exciting time but it is very frustrating to see our daughter and SIL see the costs go up like this for their first home.

As to your particular issue with finding an appraiser, when our home equity line of credit expired a couple years ago, we wanted to renew it. It took about 4 weeks for the appraiser to get to us. That was 2 years ago in South Bend, IN.

From everything I've read and heard over the past 6 months, the housing market is going nuts nationwide, and with so many houses selling, buying, new mortgages, etc., it's probably a nation-wide issue finding an appraiser with an open schedule.

Again, good luck with your process.

 

[beowulf]

From everything I've read and heard over the past 6 months, the housing market is going nuts nationwide, and with so many houses selling, buying, new mortgages, etc., it's probably a nation-wide issue finding an appraiser with an open schedule.

Again, good luck with your process.

MossRoad, thanks for the input and support. I think you are right about it being a nationwide issue - that is what I am being told - and it is much more of a problem getting an appraisal up in the foothills. A local broker up here told me that he is having the same problems closing loans on properties due to appraisal issues - he said an appraiser can do 2-3 appraisals in town in a day, but only one up here. He also said a lot of appraisers are unfamiliar with larger mountain properties and so lack the confidence to do those appraisals. He gave me a name of an appraiser but the lender said they cannot use a borrower's recommendation.

As you say, a HELOC will live for years, and the $2,500 appraisal fee to get it done and over with makes sense - even though it appears to be overcharging and I have a visceral reaction to that - marketplace rules I guess. Another way to think about it is that the HELOC loan fees are much lower than conventional loan fees with points and all that they add in there. So that helps in getting over the distaste of overpaying. I also like the flexibility of only incurring debt (taking draws on the HELOC) when and as the money is needed.

I will be pulling the trigger today. Thanks again.

 

[dodge man]

My daughter just bought a place in the far suburbs of Chicago. She got an appraisal in less than a month and home sales are hot in that area. I can’t remember the exact cost but it was about $450. It was a townhouse so a different situation but it still takes some effort and paper work. It had been remodeled since the last sale so it wasn’t like they could just print the last one and change the dates.

A guess on my part but because of your unique situation that makes the appraisers not want to do it for what ever reason. It could be because of the rural nature and larger property.

I know you have a plan of attack and I hate to wander off course but I am a retired land surveyor and I did 1 or 2 surveys a year where I broke out property from larger tracts of ground for a home build. In a lot of rural areas if it was more than 5 acres there was no approval process. If it was less than 5 acres it had to be approved by the county but that was a formality and they were always approved. It’s frustrating to hear of government regulations that appear to me to be to restrictive.

 

[beowulf]

For all of you who were kind enough to respond, an update:

I talked to my bank just now - great relationship there by the way - she is also puzzled by the $2,500 proposal. I gave her the green light to go ahead. She said she will send a copy of the 2010 appraisal to their appraisal department and ask that that be sent to this appraiser and see if that would help reduce the cost as she said he may think it is a much more major undertaking (90 acres- foothills, etc.) than it actually is and may think he has to value the entire 90 acres/trees/timber/springs/fences/and more. I thanked her and told her that if that even if did not work to go ahead and schedule it. She said it would be in mid-September based on her last conversation with the appraisal officer.

So, unless something changes, we are rolling.

 

[MinnesotaEric]

I have mentioned that my daughter and son-in-law are building a 'second' home on our property. We have 90 acres and they love it here, and we are getting older and slower, so it all makes sense. We discussed borrowing $200k to supplement their savings and a bit of help from us. That would be a loan they would be paying on, but as the property is in our names (wife and me) we have to be the borrowers. The cost of the project including well, septic, pad, etc. will be in the $350k range. Anyway, we owe nothing on the property which is worth at least $600k - and I would not sell for less than $900k. It appraised for $450,000 in 2010 or so, and we have since added solar and made other improvements and our particular location is a preferred location in the area.

Our first problem was finding lenders who would lend on more than 10 acres - finally did that - there are very few. So we applied - great net income, 800+ FICOS, no debt, great ratio of loan to value - so we selected a lender who immediately approved the loan - subject, of course to the appraisal.

Well we applied March 4th, had all documents in by March 6th, and since then have been waiting for the appraisal. They kept saying that there were "delays in finding an appraiser in our area" - over and over and over this is the message. In the meantime the construction costs for the home went up by $22,000 due to lumber price increases. I finally pulled the plug on the application with that lender after being told no appraisal was scheduled and they did not know when or if it could be scheduled. I did confirm - by calls to local appraisers - that there is a backlog of appraisal requests. Then I contacted other lenders but none would commit to a reasonable time line for an appraisal. I offered to pay double any appraiser's fee.

I did find one lender who was willing to do a no-appraisal loan (because of the value they saw plus fact that the new home would also be additional security) but they backed out when they saw that the zoning was AG.

Finally, I contacted our own bank (they do HELOCS but do not do conventional loans) and applied for a HELOC - higher interest rate, but interest is only accruing from the draw dates and we intend to pay it off quickly anyway. Last week they called and advised that the first six appraisers they contacted turned the job down but they found one who was willing to do it for $2,500 (the going rate has been about $400-$500), and he could not do it until September (that date is okay).

At this point, we are either going to finance the project ourselves (we can manage that but would prefer not to go that route), or just bite the distasteful bullet and pay the $2,500 appraisal fee. Likely that is what we will do.

Anyway, is this a widespread issue due to hot housing market or a California issue, or a rural property issue? Just wondering. Getting into a first home is an exciting time but it is very frustrating to see our daughter and SIL see the costs go up like this for their first home.

In my area (rural north central MN) appraisers are running about 45 days out with local banks. Big, national banks take longer because they lack the local contacts.

 

[MinnesotaEric]

I borrowed from a bank that specialized in land loans and keep loans "in-house". I went with a 10 year balloon payment loan and used land as collateral. I think you just need to find the right bank. A handful of states have banned consumer balloon payment mortgages.

Kevin

Sounds like you went to a farm bank. Not everybody has banks that are used to working with people who are land rich, but steady income, poor. Your bank, did they treat your loan as a construction loan, using the land as collateral, and dolling out the money incrementally as improvements happened or did they lump sum lend you everything at once?