Lots of folks have asked me, “Dustin, can I appraise two different properties on the same appraisal report at the same time?”. Now understand I am not a USPAP instructor, I am an appraiser, so I’m going to answer this question as best I can.
The question before us is legitimate, and one which I had to answer recently. The owner of 10 riverfront sites recently contacted me to appraise the individual sites. He was going to donate them to a charity and needed something to submit to the IRS to justify the tax deduction he wanted to take. So, I had to deal with two questions right at the beginning of the assignment. The way you do the appraisal will change depending on your answers to this two-part question: “Are you looking at the value of those parcels together, or are you looking at the value of those parcels separately?”
If you are dealing with those lots collectively, it is probably necessary to apply a discount rate. Some time ago, I had another, similar experience. The question I asked myself was, “What if one investor came along and bought all of these sites in bulk, what kind of discount rate would that investor expect?” In other words, is there a different value to one investor, versus ten sales of ten lots to ten different buyers? I found that, all other conditions being equal, yes, the bulk buyer would expect a discount from the full total retail price of the ten lots.
But, the question remains about appraising multiple properties within the same report. So what this comes down to really is your scope of work? What is it you’re appraising? Are you appraising the retail values of 10 sites to 10 different owners? Are you appraising the bulk or discounted market value of the 10 sites to a single purchaser? Whichever you’re doing, that must be clear right from the engagement letter. You must know the question(s) the client wants you to answer. And the client must know the circumstances under which you answered that question(s).
So, assuming your commission is to appraise the sites under the condition that one investor would purchase them, then there is a different protocol to follow than if your commission called for the market value of each site separately. In other words, to appraise each site, and then merely total the values would be the improper way to answer the question. It’s improper since an investor who buys in bulk expects a discount from retail. Plus, if the market is really hot, then that discount would likely be small since the investor would be taking a relatively small risk making such a bulk purchase.
On the other hand, if the market were slow, if the lots were in an area showing little demand or growth potential, if there were safer investments the investor could make, then a bulk investor would expect a very significant discount to account for all of the risks such an investment carries.
Now, with my recent assignment, the owner wanted a separate value for each of the sites since the owners had no intention to sell them in bulk to an investor. So, under this scope of work, it was totally proper, as well as compliant with USPAP, to form 10 separate value opinions. That’s why it’s important to ask this question up front, so you get the answer up front.
Now we get to the question of if there should have been one appraisal report, or 10 separate, stand-alone appraisal reports. When I went on line (Facebook) to seek answers from my peers, the opinions were varied, with some of the respondents personally taking each other to task over their answers (not unusual for Facebook).
First of all, understand USPAP’s Standard Two has nothing to say on the matter of how you report the appraisal. It merely tells us what we must include in the report so the report is not misleading. Know, as well, there are no Fannie Mae forms to answer such questions (nor any non-Fannie Mae forms, for that matter). So, as long as you develop your value opinion as Standard One dictates, then the reporting of that value opinion, while it must meet the reporting requirements of Standard Two, is pretty much up to you and your client.
In my case, I chose to communicate my appraisal via a Restricted Appraisal Report, since that format was all that was necessary. The IRS accepts this format. Therefore, in one report I had one section of analyses (neighborhood, highest and best use, and so forth). Then, spring boarding from that, I gave the client a separate value conclusion for each of the sites. All of the value conclusions came from the same set of comps since we did not do 10 appraisals, which would have been silly. We found riverfront lot comparable sales and listings, and then used these to value all of the individual sites.
Keeping all of this in mind, it’s my conclusion you can appraise multiple properties as part of one appraisal report. If I’m wrong, since I am a student of appraisal, please show me the flaws in my reasoning so I can learn. But, I do not think I was wrong. Not all reports go to Fannie Mae. So, not all reports must go on a Fannie Mae form. And not all reports must follow Fannie Mae’s report formatting. Every so often we get to make our own decisions relative to the appraisal’s reporting format. The only requirement is how we report the appraisal must conform with Standard Two.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 160 Can You Appraise More Than One Property on the Same Appraisal Form