2 Condo Units Converted To 1 Unit

[David Millers]

I received an appraisal order for a condominium unit being sold as a single unit, however, it is actually two adjoining units that have been combined by removing part of a wall. There are two tax ID numbers, two kitchens and two owners but is listed and being sold together on one sales contract.
I do not know yet if the condo association has approved the wall removal.
I do not know yet if the city building department has approved or even needs to approve the change.
I am under the impression that I should appraise this as 2 seperate units, then in my letter of transmittal state my opinion of value of of both units added together.
Additionally, I do not know if I should give an opinion as to the highet and best use as a single unit versus two units.
Any input would be greatly appreciated.
David Miller

 

[Phil Chamberlin]

David -

The very first thing I would do is call the lender and inform them of the situation.

Ask them if they want you to continue with the report. If they are willing to place one loan on the property, you will need to get on the phone and get the answers to all the other questions in your post.

Are there other combined units you could use as comps? I have only run across this once in my 20+ years of appraising. In some markets is is not uncommon; i.e., New York City.

 

[Walter Kirk]

I have seen this done on two occations. I would appraise them as two units (unless they have been legally merged) and include a cost to cure for replacement of the wall.

 

[Lee Lansford]

I don't believe that you really want to, first, appraise the two units separately and then in the letter of transmittal combine the two opinions into one opinion. It might be misleading.

Refer to the USPAP, Standards Rule 1-4 (e).

 

[hastalavista]

I do not think the units should be combined as one.
Three quick problems I can think of:

1) In many jurisdictions in my area, the zoning ordinances do not allow two full kitchens in one living unit (so as to not create a "duplex" situation in a "one-unit" residential zone; although in your case, who knows if that is pertinent in a condo-zoned property?).

2) While providing an opinion of value for the two units "combined" is feasible, it is not as simple as adding the two individual values together. I interpret that valuation to be based on a buyer interested in buying both units at once. This would have a significant marketing appeal problem (unless they are common in your area?), a very limited buyer pool, and most likely a very long exposure time (or, a significantly reduced sale price).

3) Lastly (and nothing to do with value), I would assume that the walls separating the individual units would be substantial, and perhaps "load bearing". Be careful of assuming the combined unit's structural integrity is "sound".

 

[Brian Weaver]

Merging multiple units into one generally requires 100% approval by the association. There should be plenty of paperwork with this.

 

[David Millers]

Thank you to every one that has provided insight to this situation. I already spoke to the lender and informed them that it is 2 separate units combined as one. I am going to proceed and do a separate appraisal on each unit. As noted in my original post I have more homework to do - I will also check on the items mentioned in the reply’s I received. Thanks again and any more input would be welcome.
David Miller

 

[joe long]

1. Condo ownership consists of the interior airspace and structural surfaces and part owner of the condo complex ( buildings and all other improvements ).
2. Any structural alteration must be approved by HOA, which 99% of time do not.
3. Removal of a partition wall might effect structural integrity of the whole building.
4. Subject use is no longer highest and best use.
5. Costs to cure might be more than the costs of rebuilding the partition wall due to unknown structural degradation over time. Check all windows and doors to see any deformation due to additional stress.
6. No lender is going to take this kind of property.

 

[JonGalt]

I just recieved an identical order (2 units merged into 1). I would love to hear what you finally ended up doing. I inspect tomorrow.

 

[Hal Mann]

Originally posted by joe long@Sep 8 2005, 08:56 PM
1. Condo ownership consists of the interior airspace and structural surfaces and part owner of the condo complex ( buildings and all other improvements ).
2. Any structural alteration must be approved by HOA, which 99% of time do not.
3. Removal of a partition wall might effect structural integrity of the whole building.
4. Subject use is no longer highest and best use.
5. Costs to cure might be more than the costs of rebuilding the partition wall due to unknown structural degradation over time. Check all windows and doors to see any deformation due to additional stress.
6. No lender is going to take this kind of property.

I've got to disagree, Joe, on virtually every point. This kind of thing is extremely common here in New York. Banks make loans on them all the time. HOA's routinely approve them, and I would make the assumption (reasonable I suspect) that the combination has not weakened any structural members. Finally, on what are you basing the claim that the subject use would no longer the H&BU?

The key is definitely condo board approval. If the condo board has approved/is approving the combination, there shouldn't be any significant hurdles beyond that. To me, it would be misleading to value this combination as two separate properties. I would report the value of the single (over-sized?) subject.