Co-op maintenance adjustments

[MBD]

We have an internal office disagreement. I'd like to get a feel for the methodologies when adjusting for monthly maintenance charges in cooperative projects.

Here are extreme examples. Assume all else are equal, with the subject and comp in different co-ops:

Example A:
Subject: $950 maintenace, 1,000 SF
Comp: $950 maintenance, 1,300 SF

Example B:
Subject: $950 maintenace, 1,000 SF
Comp: $1,300 maintenance, 1,000 SF

Are maintenance adjustments appropriate? If yes, what would the maintenance adjustment be and how did you calculate it?

 

[Roger Hudson]

I never adjust for maintenance fees.

 

[Eli Weiss]

I won't adjust for example A, but I'll adjust for example B depending on the situation.....
The first question is does the subject and comp offer the same amenities? if one offers a gym over the other I will adjust for gym and not for the maintenance as not to double dip, if both offer similar amenities and the maintenance fees is higher significantly on one or the other I will adjust accordingly, it's no doubt that the maintenance fees are an important factor, as buyers look at the total monthly cost, and brokers price the units accordingly, I constantly see that units with high maintenance fees will not sell for as high as units with lower maintenance fees.

Adjustments may range from $25 to $50 per dollar difference.
Depending on the typical "length of ownership" in this project or market area, and the dollar difference it will cost the owner over the years of that typical ownership span....

I will not adjust for any differences in maintenance fees within the subject project, as they are typically based on the shares/GLA and floor location, and those differences if any, are already accounted and adjusted for....

And Roger you are wrong for not adjusting for something that has a clear market recognition, ask any NYC broker....

 

[Tony V]

This appears to be more of a city based question....out here in the land of space, I will adjust for amenities which are paid for in the maintence fees...

This is one of the reasons that sales from within are best suited for these types of jobs...

 

[MBD]

Tony, agreed. But most of the time, there aren't enough sales within the same co-op, so we have to use outside comps.

I've probably done over 1,500 co-op appraisals. I have to agree with Eli that maintenance charge is a critical marketing factor between competing units.

I would like to know the reasoning behind not adjusting for maintenance charges, in otherwise similar co-ops.

 

[Kevin Mc]

Never.

unless you have all the details of the MM for each comp I wouldn't do it. Comp#1 has a MM of $950, of which $125 is a 3 year assessment and it it 60% tax deductible due to the underlying mortgage. Comp#2 has a $800 MM with no assessment and is 40% tax deductible. What is the adjustment? What is the adjustment based on? The typical Coop owner lives there for a 7 year average. How do you derive an adjustment? When you can (or anyone in your office) explain that all to me I'll be impressed. My answer is never. Differences in MM are reflected in sales prices. Leave it alone.

 

[Tony V]

And presently the boards are now adding a Heating Surcharge into the mix.....

 

[Eli Weiss]

My answer is never. Differences in MM are reflected in sales prices. Leave it alone.

Yup, just like amenities like a deck, patio, in-ground pool etc. are reflected in sales prices on a SFR, but Isn't that the sole purpose we should adjust?

 

[Kevin Mc]

Eli, what is the formula for adjusting MM? Was it derived from a paired sales analysis? Do you know the deductible for all your comparalbes MM?

 

[MBD]

I was trained with the formula of weighted differences in maintenance per SF: (Subject MM divided by Subject GLA multiplied by Comp GLA), then subject Comp MM. Multiply the result by a factor. If the answer is negative, the adjustment is positive. If the answer is positive, the adjustment is negative.

The company I work for now does the adjustment based on multiplying the difference between GLAs by a factor per dollar difference in MM.

Both factors will usually be between $20 and $50.