Appraising a detached condo in California

[TRESinc]

KD -- very helpful, thanks. Is it true that if I ask the appraiser why a certain comp wasn't used or why a certain adjustment wasn't made, he's obligated to give an explanation?

no. again, the appraiser works for the lender, not the borrower. he has no ties to you and *unfortunately for you* has no obligation to discuss anything with you at all. based on what you have posted so far your lender is most likely not going to lift a finger to help you.

 

[quickly323]

Okay. What is the ideal protocol for appraising detached condos? Comparables should be:

1) Other detached condos?
2) If not available, then small single-family homes?
3) If not available, then small condominium complexes?

 

[KD247]

KD -- very helpful, thanks. Is it true that if I ask the appraiser why a certain comp wasn't used or why a certain adjustment wasn't made, he's obligated to give an explanation?

As I implied before, the appraiser isn't even obligated to pick up the phone.

Okay. What is the ideal protocol for appraising detached condos? Comparables should be:

1) Other detached condos?
2) If not available, then small single-family homes?
3) If not available, then small condominium complexes?

Unfortunately, many people (even in our industry) believe that all properties can be appraised using the same methodology and that the methodology can be expressed in something similar to a flow chart. They can't and it can't.

In general terms, I usually begin an analysis by finding the most similar (or slightly superior) currently available properties. The asking prices of those properties will set a fairly reliable upper limit of value for the subject (the rationale being that no buyer will pay more than they can buy the same thing for). If one can make the assumption that non-condominium ownership is preferred over condominium ownership, then the asking prices of detached homes will set the ceiling for the condominium's value. (Note that these asking prices don't indicate the value of the condominium, they just set an upper limit for that value.)

Conversely, if you were to make the assumption that a detached condominium is more preferable than an attached condominium, recent sales prices of otherwise-similar attached condos would give you an idea of the lower limit of value for your condominium.

So now you've got a range of possible values for your property. The next step is more complicated and depends on several factors, including the width of that range. Lacking comparable sales of identical properties, I'd be inclined to approach the condominium's value from as many directions as possible, including comparisons to all three of the property types you mention. It's impossible to make the call without being there but, generally speaking, the more unique the property, the better it is to correlate different perspectives on value.

This is the way I would approach your appraisal but there are a number of other, equally reasonable methods. Appraising, by nature, is a somewhat subjective art (with no way to test our conclusions) and that's why it's almost impossible to prove that an opinion of value is right or wrong.

 

[23Degrees]

Assuming there are no available recent sales of detached condos similar to yours within the relevant market area one responsible avenue would be for the appraiser to review the historical market premium or discount of detached condos relative to the other property types that were available as recent sales. This may or may not yield meaningful information but it could be one avenue to proceed down. Looking at it from the perspective of a consumer I would hope that I would be able to find some discussion or similar effort in that direction within the report if sales of similar detached condos were just not available.

The comparables available were less than ideal per your description. Was there any effort to account for the potential market premium or discount that has been historically applied to detached condominiums relative to other property types in your area within the report? And beyond that an accounting for any differences between the Berkeley and Oakland markets? If so, or some similar analysis was performed then it could well be that a reasonable effort was put forward and it is what it is.

On the other hand, if nothing of the kind was indicated within the analysis and all that was done involved slapping single family homes and/or attached condominiums in the sales grid with no accounting for the blatant distinction between these properties and yours (whether it results in a value effect or not) then you were handed crap and you might as well have used your $500 to pick up after one of your neighbor's dogs.

If the latter, then unfortunately you probably have no recourse except through the state appraisal board at this point, but this will not result in you getting a decent report or a refund. Any argument presented should not be focused on the value. It should be focused on either the use of comparable sales that were far less relevant than others that were obviously available or on the woeful lack of an appropriate analysis if that was in fact the case.

 

[KD247]

Assuming there are no available recent sales of detached condos similar to yours within the relevant market area one responsible avenue would be for the appraiser to review the historical market premium or discount of detached condos relative to the other property types that were available as recent sales... .

Thanks, I meant to include that concept in my post and forgot to. Sometimes this technique is one of the best tools for comparing unique properties.

I once had an appraisal assignment for a large detached condominium which was being sold by a title company employee to a real estate agent. Both of them were present when I inspected the big beautiful home and neither was aware that the property deed and legal description both indicated condominium ownership. Undivided interest in common land, airspace rights only, but otherwise similar to a typical PUD.

 

[Webbed Feet]

Does anyone else have any thoughts?

Yes, with only two units for a "Condominium" project, being detached I'd recommend you and the other owner get legal advice regarding the advantages of vacating the declaration of condominium and see if the jurisdictional authority will allow you to change the legal form of ownership to "Non-Condo" Single Family Residential.

 

[KD247]

... get legal advice regarding the advantages of vacating the declaration of condominium...

Could be expensive, maybe even something similar to splitting a lot or getting approval for a subdivision. In the example I cited above, the market didn't really care about whether they owned a condominium unit or a distinct site and improvements. The owners use and enjoyment of the property was exactly the same as it would be in a PUD that included the same level of maintenance. It's possible that the only reason to change the type of ownership might be to keep the lawyers and appraisers happy.

 

[JTip]

Yes, with only two units for a "Condominium" project, being detached I'd recommend you and the other owner get legal advice regarding the advantages of vacating the declaration of condominium and see if the jurisdictional authority will allow you to change the legal form of ownership to "Non-Condo" Single Family Residential.

Very interesting.

Being from a market with very few condominium ownership properties, what was the builder thinking when they only have two units? I don't see the advantages as is. Perhaps the builder was planning 100-200 units but only made 2? Seems like a real PITA ownership with what you get (rights).

 

[quickly323]

Very interesting.

Being from a market with very few condominium ownership properties, what was the builder thinking when they only have two units? I don't see the advantages as is. Perhaps the builder was planning 100-200 units but only made 2? Seems like a real PITA ownership with what you get (rights).

What he did is he bought an existing house on a relatively large piece of land (the lots in Berkeley are usually fairly deep), tore down the existing structure, and built 2 detached "houses" on the land. Our neighbor's "house" sits in the front with a driveway the leads into a shared carport in the middle, and our "house" sits at the back of the lot. I suppose he made more money selling 2 detached condos as opposed to 1 house.

Unfortunately, there's not really anything like it in Berkeley, and that makes the exercise of appraising difficult (and a headache for me when trying to get it re-financed). I might just be stuck waiting until the market goes up since the most "relevant" comps that come up are condo complexes that are lower in value right now.

 

[KD247]

What he did is he bought an existing house on a relatively large piece of land (the lots in Berkeley are usually fairly deep), tore down the existing structure, and built 2 detached "houses" on the land. ...

I've seen that before in Southern California. Weird that they wouldn't approve a lot split but would approve a condominium project. There must be some technicality involved that we aren't aware of.

Just curious, do you know when the original house was built and when the condominiums were built? Around here, that would have typically been the 20's and then redeveloped in the early 70's.