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  #1  
Old 10-19-2011, 10:22 PM
teknekjeff teknekjeff is offline
 
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Default Six condo units

I am being asked to do the appraisal on six condo units in a twenty unit project. All six of the units are under the same ownership. I was told by the client I have to provide an addendum addressing the following issue. with 5 or more units, federal regulations require an appraisal reflecting holding/sellout costs and appropriate discounts. Can anyone comment on this requirement.
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Old 10-20-2011, 07:46 AM
Restrain Restrain is offline
 
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I would not try to argue. Rather, incorporate this in your SOW, and proceed onwards. Look at the probable absorption rate, marketing costs, holding costs, etc, to generate your discount.
  #3  
Old 10-20-2011, 07:50 AM
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Quote:
Originally Posted by teknekjeff View Post
I am being asked to do the appraisal on six condo units in a twenty unit project. All six of the units are under the same ownership. I was told by the client I have to provide an addendum addressing the following issue. with 5 or more units, federal regulations require an appraisal reflecting holding/sellout costs and appropriate discounts. Can anyone comment on this requirement.
Have NOT run across thios before. However, I would suggest consultation with a general partnership in a CondoTel operation. I would bet bthey know what is required as they deal with multiple owners, and likely have sold 5 or more units at a time. I might also suggest that a financial consultant might know what paperwork is required.

To be honest, it sounds more like you need to get that information from the owner of multiple units. Once you know exactly what is required you can likely produce what they want. I have done several units in a CondoTel in the past but no current experience.
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Old 10-20-2011, 08:33 AM
teknekjeff teknekjeff is offline
 
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Thank you for the comments. Have any of you heard of this federal requirement. If so, do you know where I can find it.
  #5  
Old 10-20-2011, 08:36 AM
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Quote:
Originally Posted by teknekjeff View Post
I am being asked to do the appraisal on six condo units in a twenty unit project. All six of the units are under the same ownership. I was told by the client I have to provide an addendum addressing the following issue. with 5 or more units, federal regulations require an appraisal reflecting holding/sellout costs and appropriate discounts. Can anyone comment on this requirement.
Conceivably two different approaches--one acknowledges the discount inherent in the sale of multiple units to a single buyer--the other acknowledges selling them off over time to six separate buyers which would require acknowledging holding costs, costs of sales, and the time value of money.
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Old 10-20-2011, 08:38 AM
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Originally Posted by teknekjeff View Post
Thank you for the comments. Have any of you heard of this federal requirement. If so, do you know where I can find it.
Don't know of the requirement. However, general appraisal theory would dictate acknowledging the discounts or the holding/sellout costs.
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Old 10-20-2011, 01:09 PM
Restrain Restrain is offline
 
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This may be a federal banking reg. We had this a lot in commercial appraisals during the 80's.
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Old 10-20-2011, 04:01 PM
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This may be a federal banking reg. We had this a lot in commercial appraisals during the 80's.
R41-C?...............
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Old 10-20-2011, 04:11 PM
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http://www.fdic.gov/news/news/financ.../fil10082a.pdf

with specific reference to Page 8 and Appendix C

If further clarification is required, FIRREA might be a good place to start.
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  #10  
Old 10-20-2011, 09:01 PM
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Ken B is right on...
Quote:
Tract Developments with Unsold Units
A tract development is defined in the Agencies' appraisal regulations as a project of five units or more that is constructed or is to be constructed as a single development. Appraisals for these properties must reflect deductions and discounts for holding costs, marketing costs, and entrepreneurial profit supported by market data. In some cases entrepreneurial profit may be included in the discount rate. The applicable discount rate is developed based on investor requirements and the risk associated with the physical and financial characteristics of the property. In some markets, entrepreneurial profit is treated as a line item deduction while in other markets it is reflected as a component of the discount rate. Regardless of how entrepreneurial profit is handled in the appraisal analysis, an appropriate explanation and discussion should be provided in the appraisal report. The projected sales prices and absorption rate of units should be supported by anticipated demand at the time the units are expected to be exposed for sale. Anticipated demand for the units should be supported and presented in the appraisal. A reader of the appraisal report should be able to understand the risk characteristics associated with the subject property and the market, including the anticipated supply of competing properties.
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