Attached Townhome vs Detached SFR in small College Town

[apprnovice11]

I am researching an assignment to appraise an 7-year old attached townhome in a small college town - the college town is very small, with very few townhome developments in the town (71 total). There have been only 18 townhome sales over the past 10 years, so these are highly desirable. One sale just occurred (included in the report), but there are no other townhome sales within 10 miles.

I am considering either:
1. Using the closest available townhomes - these are located 6 and 11 miles away. The comps would be considered inferior (not located adjacent to the college), but I'm wondering if the distance could create a problem.
2. Using the closest "comparable" detached single-family residence sales (small garden homes), with most of the applicable comps in neighboring cities (again, 6-10 miles away - the college town has mostly larger-GLA homes which have ben renovated, and selling for much higher sales prices)

I know the lender will ask for justification regarding the use of single-family comparables vs. the attached townhome sale.

Question - Have any of you used detached SFR's as comparables for attached townhomes?
Question - What was your rationale for doing so?

I realize from my training that any property can be appraised - it's explaining your rationale and reasoning that are critical - even though my reasoning may be good, the underwriter "has the gold".

Thanks for any advice!

 

[The Bob]

What you have is a complex assignment. The complexity lies in the lack of comparable data. There are generally two ways to handle this:

Go back in time

Expand the search for comparables.

You probably want to do both. I would also inform the client that your report will most likely not meet standard guidelines (time, distance, gross/net adj etc..)

Another thing I would do is to interview agents and find out what other types of houses potential buyers of TH's look at.

These are really challenging assignments and you will learn a lot doing these. Just be clear in your reasoning.

 

[Mike Kennedy]

Considerations:

"small college town" in a Rural Market- Yes?

If yes, Urban / Suburban "Guidelines" do not apply re distance and date of sale. 6-11 miles may well be typical w/inferior location adjustment extracted from the market (if warranted).

Active listing activity on THs in the college town within the prior 2 years?

T-home ownership include the lot?

Is there an HOA?

On the smaller detached homes with lots - GLA and Age comparison v the T-Homes?


Are typical owners of T-homes investors seeking rental income or owner-occs??

Property retention rate for the most similar T-homes?

If you have an MLS - identify which brokers sold the majority of the T-Homes within say 5 years and contact them for nuances which drive buyer demand. Apply those nuances against possibly competitive local (in-town), nearby areas.

Doing the above yields supply and demand factors, market conditions trends, buyer demand factors which can be analyzed and compared to local and nearby properties which would directly compete for the attention of buyers who would consider the subject as well.

THEN - select the most similar, recent, and competitive "comparables" to derive a supported OMV for the subject.

IF GSE guidelines apply to the assignment, be certain your client, your supervisory Appraiser and you are all familiar with "Rural Guidelines"
http://appraisersforum.com/showthread.php?t=200470

Also note: in suburban and urban markets, variances from the GSE guidelines are acceptable to the GSES, and most Lenders when PROPERTY TYPE and scarcity of recent sales requires them. One must FULLY discuss the market, the property type, buyers and sellers reactions to the type, property characteristics and retention rates etc. in support.

 

[apprnovice11]

Excellent feedback - why I enjoy and utilize the AF as much as possible! I've got to do some more research now! Thanks again!

 

[George Hatch]

There are most likely going to be some dated sales in your project. You can use those dates and research what the pricing for the small detached homes was like at that time in comparison to the sales in the project. Then use that margin to support an adjustment for the different property type.


For example, if your most recent sales in your project were in 2005 and 2008 you'd look for the detached "comps" that you would have used back then to see what differences, if any, those buyers were paying. If it was (let's say) 15% you'd use that as an adjustment factor for your current comps.

Usually with these types of assignments you end up approaching the problem from a couple different angles, so in this case that would probably include using the sales in different towns and applying the location adjustment (if necessary) as well as one or two additional alternative approaches.

Identifying past trends for market behavior and extrapolating them forward is reasonably straightforward. It's not the only way to do it but it is a handy tool to have in your toolbox for when you need it. This is one tool I use on a regular basis.

 

[Mike Garrett RAA]

I would not try to compare a attached town home with single family residences. Use the most current sale of a town home preferably in the same complex. Expand the time period to find another local sale. Consider looking in other college towns in your state for current town home sales.

 

[Paul Isolda]

...the college town is very small, with very few townhome developments in the town (71 total). There have been only 18 townhome sales over the past 10 years, so these are highly desirable...

I have no idea what the characteristics of this area are but my first question would be, how built up is the area? I live in an area with very little vacant land so when someone says "there are practically none of these around so they are very desirable", that may be true. If an area has significant vacant land and there are not many around AND they are highly desirable, why are builders not building more?

I just had a colleague call me today and ask advice on an assignment that is a two unit building on a waterfront lot. It probably should be converted into a 2 unit condo but has not yet been converted. When we were talking about highest and best use I told him you really need some market data to prove the 2 unit building is not the highest and best use for the waterfront lot. Then I thought, why are there no waterfront 2 families to use in the analysis? Probably because they are not the highest and best use and no one is crazy enough to build one, except this guy. Just pointing out that because there aren't many of something, doesn't make it more desirable. it's usually the opposite that indicates desirability.