The outside Condo Comp

[J Grant]

The answer to your question is that it depends on the market and it depends on the project. I have definitely appraised condo units located in some projects for which the typical buyer of a unit in that project would likely not consider purchasing in any other project. I have also appraised units in project where typical buyers would consider purchasing units in many other competing projects.

This is true, and in the former case, an outside unit would be weighted and in the latter, an outside comp would have little wieght.

Still, even in a report where an appraiser could claim the typ buyer would ONLY buy in that building, it is good for the client to have the perspective of an outside sale.

Condo buildings are vulnerable to the way the complex is run. Unit values can be affected in the case of building repair, a condo board rule change, rental activity , an investor buying or selling a block of units, litigation or financial problem, etc.

If you were lending 300k of your own money for someone to buy a unit in X building, would you want to at least know what a similar unit in Y building is selling for?

 

[mark hurlock]

If you were lending 300k of your own money for someone to buy a unit in X building, would you want to at least know what a similar unit in Y building is selling for?

J,

I agree, and what most arguments on this thread fail to address is that FNMA guidelines are minimum requirements that do not prohibit the client from supplementing those standards with additional scope of work. Nor does it prohibit the appraiser from providing it to the client.

If you accept an assignment that requires a sale from a competing complex, you need to address that client's concerns. You can not simply say FNMA doesn't require it.

The fact that you compare a sale from outside the complex does not discredit your opinions and the reasoning for your value conclusion.

 

[sandpiperapp]

J,

I agree, and what most arguments on this thread fail to address is that FNMA guidelines are minimum requirements that do not prohibit the client from supplementing those standards with additional scope of work. Nor does it prohibit the appraiser from providing it to the client.

I was not talking about requirements.

I was trying to discuss appraising without regard to any GSE requirement or lender required assignment condition.

It is MY opinion as an appraiser, and as evidenced by the posts that agree, that 5 model matches inside a mature development by different sellers and different buyers is proof enough to establish market acceptence.

The model matches offer an extremely narrow range of differences in the physical characteristics of each comp used. The less I have to adjust, the better the quality is of each comp used. This also reduces the chance that the adjustment list I got from residentialguy , or the one you use is inaccurate.

Whatever the 800 lb gorilla(fannie or freddie) want, from an appraisal theory standpoint, in an existing community with an adequate amount of sale history, in my opinion there is no compelling reason to go outside of the community.

By the way the list from Resguy was a joke. Well I thought it was funny

 

[timd354]

This is true, and in the former case, an outside unit would be weighted and in the latter, an outside comp would have little wieght.

Still, even in a report where an appraiser could claim the typ buyer would ONLY buy in that building, it is good for the client to have the perspective of an outside sale.

Condo buildings are vulnerable to the way the complex is run. Unit values can be affected in the case of building repair, a condo board rule change, rental activity , an investor buying or selling a block of units, litigation or financial problem, etc.

If you were lending 300k of your own money for someone to buy a unit in X building, would you want to at least know what a similar unit in Y building is selling for?

As an appraiser, I have no issue with providing an outside comp that is truly a comparable and usually did exactly that. However, when there are no comparable units that are outside of the project then including a unit that is not comparable to the subject property is misleading.

 

[Gregory Beck]

I had a condo in a neighborhood all the same development name, but 74 stages over a 10 year period there were dozens of MLS sales in the neighborhood. I didn't see any reason to go outside at least 3 miles away to find an outside comparable.

 

[J Grant]

As an appraiser, I have no issue with providing an outside comp that is truly a comparable and usually did exactly that. However, when there are no comparable units that are outside of the project then including a unit that is not comparable to the subject property is misleading.

Makes sense...however, on a lender appraisal, we have to add an outside comp, and there are ways to do that that are not misleading. Explain the differences, give it little weight, etc.

In my experience, though, there is usually an outside comp of some level of equivalence (unless one is in a sparsely populated area)

Which brings us to another issue that might concern a client...if the only place comparable sales to our subject exists is within the building itself, what does that indicate? Are the subject building unit floorplans, size, etc, so unique to subject buiding that no outside buildings in area offer similar condo units? That is something that might concern a lender regarding a limited market and marketability, for example.

 

[J Grant]

I had a condo in a neighborhood all the same development name, but 74 stages over a 10 year period there were dozens of MLS sales in the neighborhood. I didn't see any reason to go outside at least 3 miles away to find an outside comparable.

You don't see a reason, but your lender client does. Lenders are concerned with conformity, marketability, etc. Is the only building where units like the subject exist are in the subject building itself? Are any buildings in surrounding areas offering similar units? What are buyers paying in other buildings for similar units compared to what they pay in subject building, and why?

Though we may only need unit sales within the building to derive a credible value, there is a whole other market and competition out there from other condo buildings, even if they differ in some respects.

The definition of market value references the most probable price the subject would bring in an open and competitive market, and one building alone does not comprise an open and competitive market.

 

[fractal7221]

Makes sense...however, on a lender appraisal, we have to add an outside comp, and there are ways to do that that are not misleading. Explain the differences, give it little weight, etc.

In my experience, though, there is usually an outside comp of some level of equivalence (unless one is in a sparsely populated area)

Which brings us to another issue that might concern a client...if the only place any sales or units comparable to our subject exists is within the building itself, what does that indicate? Is the subject unit or layounts/sizes within subject building so unique that no sales around it in another building can be found? That is something that might concern a lender, limited market , etc.

As a lender, we are typically only concerned about the outside condo comp when the development could be considered a controlled market. Typically either new projects or ones were the builder/developer is still in control. In open, established projects an outside condo comp is not really an issue. I am sure some lenders require an outside comp on all condos, but I think they are missing when and why an outside comp is useful; to determine if the developer is trying to overinflate the value by controlling the sales.

 

[J Grant]

Every lender appraisal order I have ever recieved says on engagement letter an outside comp is needed (or if not, the UW asks for one)

If lenders don't consider an outside unit important, why do they ask for them, when the subject is not a new or developer controlled condo?

Personally, as an appraiser, I consider outisde unit a market indicator, a check on value and trends outside the subject building itself. I do agree that often, the strongest value indicators are sales within the building itself (assuming the sales are similar in other respects to subject unit)

Maybe I am odd , or my area is odd , but unless it is a building with plentiful sales, I find that there are often more similar sales outside the building then inside the building (in some cases).

A buyer looking for a high floor unit with panoramic views is not the same as a buyer willing to settle for a lower floor unit with limited views. IF there has only been one high floor panoramic view sale in subject building in the past year, the 3 lower floor unit sales with limited views are not good comparisons. This kind of buyer is more likely to buy a high floor open view unit in a competing building.

 

[ctapraser]

Makes sense...however, on a lender appraisal, we have to add an outside comp, and there are ways to do that that are not misleading. Explain the differences, give it little weight, etc.

In my experience, though, there is usually an outside comp of some level of equivalence (unless one is in a sparsely populated area)

Which brings us to another issue that might concern a client...if the only place comparable sales to our subject exists is within the building itself, what does that indicate? Are the subject building unit floorplans, size, etc, so unique to subject buiding that no outside buildings in area offer similar condo units? That is something that might concern a lender regarding a limited market and marketability, for example.

While I agree this may be a concern sometimes, if the appraiser states there are 8-10 sales of similar units within the past 6 months I think that should eliminate that concern.