Since the banking crisis reared its ugly head at the end of 2007, a raft of new legislation and regulation has been approved to prevent the darn thing from ever happening again. Among these efforts was, yet again, a crackdown on real estate appraisers. First an attempt was made to weed out the bad actors, which was modestly successful. Next regulators and banks expanded their appraisal standards to include reams of new requirements. I have not been involved with residential mortgage appraisal for some years, but I understand that the next crisis will be averted by photographing bathrooms. But is it meaningful?

In a moment of weakness I bid (something I am generally loathe to do) a competitive fee to pick up a pre-foreclosure project from a major lender. It was just a lot, how hard could it be? It was more out of curiosity than anything else. But we know the history of cats and curiosity….

The lot was deep and narrow, sandwiched between a corporate office campus and some older industrial buildings. An absolutely lovely ten foot high chain link fences surrounded the property. The lot was “improved” with a boarded up house, no doubt standing because the termites were holding hands. Pre-foreclosure? No one had lived there for years, and I doubt a mortgage payment had been made this decade.

And, it goes without saying, the lot is in a commercial zone. And the lot is wildly undersized in said commercial zone. I called the zoning officer. What can be done with the lot? “Well, that depends,” the zoning officer said.

In the end I had to make a judgment call: the Highest and Best Use is the redevelopment of the lot with a single family dwelling with variances for setbacks and whatever the heck else. I scratched and found some sales that would work, confirmed them, took photos and drafted the report. Then I went back and looked at the bank’s specifications….

Identify the flood zone for every comparable? Ok, no problem.

Identify the most probable buyer? I could only reply, “Some guy with a toolbelt.”

Insurable value estimate? Who would insure a pile of sticks?

Broker interviews? No problem, I just have to identify all the brokers who deal in Dilapidated Homes on Wildly Nonconforming Lots in Sketchy Neighborhoods. There must be dozens.

In the end my value estimate was $25,000. Appraisal Fee as a Percentage of Value is not a statistic that is kept (that I know of) but even my meager fee would be off the charts.

Off the charts in a bad way would be Hours Worked and Brain Cells Burned as a Percentage of Appraisal Fee and Meaningful Knowledge Gained as a Percentage of Hours Worked and Brain Cells Burned.

– Bob Gagliano

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