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  Often, appraisers are on time pressure to complete their reports and deliver them to their clients. Sometimes they may be tempted to cut corners or take "small shortcuts." One such "small shortcut" I have often seen other appraisers take has to do with the property's zoning. However, a mistake in this area can cause big problems for the appraiser and the client, and cost you both big time.

  On the Fannie 1004 form there are several fields related to zoning. The first two are "Specific Zoning Classification" and "Zoning Description." "Specific Zoning Classification" would be the zoning code such as "PUD" and the "Zoning Description" would explain what that means such as "Planned Unit Development." The other fields are under the heading "Zoning Compliance," and the choices are: Legal; Legal Nonconforming (Grandfathered Use); No Zoning; and Illegal.

  Under the "Specific Zoning Classification" an appraiser may be tempted to simply enter something like "SFR" and a description of "Single-Family Residential." Even if this description is wrong, the mistake may never be discovered if the subject property is, in fact, zoned for single-family use. However, if the property is zoned differently, this simple mistake may become a huge liability.

  In our area finding out what a property is zoned for used to be a huge hassle. Zoning codes were kept from the public like military secrets. A call downtown to the Planning Department might have gotten a response such as, "Why do you need to know?"

  Zoning codes tell a person what they can and cannot do with their property, so communicating this information carries some liability. In recent times, as more information is available online, finding a property's zoning information is getting easier. You can usually get it from the County Property Appraiser's website or the County Planning Department's website. It may still take some digging through web pages.

  If you can't find it yourself on the Internet, you may call an appraiser colleague and ask if they know the website address. If you have to, you can call the County Planning Department. If the information is available on the Internet, they will be able to give you the website address. In case it's not available on the Internet, have the real estate parcel identification number, the subject property's street address, and the property owner's name handy when you call. It is not a good idea to rely on the real estate agent for this critical piece of information.

 Far from being a minor detail in the report, the zoning data is very important, and determining the subject property's zoning should be one of the first things an appraiser does when preparing a work file. There are several issues related to zoning that the appraiser should be aware of.

  The first has to do with the property's highest and best use. The property's zoning is directly related to its highest and best use. One of the criteria of determining highest and best use is legal use. If the use of a property is not legal under its current zoning, then that use is not highest and best use. So if a property is used as a single-family residence but zoned for office, commercial, or industrial use, then single-family residence is not highest and best use.

  Another issue relates to the appraiser's certification status. If you are a certified residential appraiser, you are legally qualified to appraise vacant lots for single-family homes and single-family residences from one to four units. If a property's highest and best use is something other than a single-family residence, you are not legally qualified to appraise it at its highest and best use. Even if a property is a case of legal non-conforming use, its current use as a single family residence may not be its highest and best use, and you may not be qualified to appraise that property.

  If the zoning compliance is anything other than legal, most lenders will decline the loan, even if a property is a case of legal non-conforming use. This is because local governments have a variety of methods for correcting cases of non-conforming use.

  For example: a property owner may continue to use his home as a single-family residence and may even be able to sell it as such, but if the home is ever damaged or destroyed and the cost of repairs is greater than 75 percent of the pre-damaged value of improvements, a building permit will not be issued to rebuild the property as a single-family residence.

  So check the zoning first. If you find you have a case of illegal or legal non-conforming use, contact the client immediately. They will most likely thank you for your diligence and for looking out for their interests. If the use is illegal and you appraise it anyway, using the wrong zoning classification and description, you may end up defending yourself in court from financial liability and defending your certification before the Appraisal Board. 

  The client may ask you to proceed with the appraisal anyway. What should you do? If it is a case of illegal use, I would definitely decline the assignment. Remember, a certified residential appraiser is not legally qualified to appraise this property.  A certified general appraiser may be qualified to appraise this property for its commercial use but is taking a risk appraising the property at its illegal use as a single-family residence.  

  Even if the property were a case of legal non-conforming I would most likely decline the assignment, depending on the intended use and the intended users of the report.  If the intended use was for lending purposes, I would definitely decline the assignment.  After the client realizes how much trouble they have funding the loan because of the zoning issue, they may call the appraiser and ask him or her to alter the report.  No appraiser wants to be put in that position.  Also remember, it may be argued later that single-family use was not the property's highest and best use at the time the appraisal was done.