Condo Budget Analysis

[Timothy Hogan]

Condo Budget

This is the comments I included in the report for any condo's my firm completes.

THE SUBJECT'S CONDOMINIUM PROJECT BUDGET WAS NOT AVAILABLE FOR REVIEW BY THE APPRAISER AT THE TIME OF INSPECTION. (THE APPRAISER IS NOT A CPA AND IF THE BUDGET WAS AVAILABLE FOR REVIEW BY THE APPRAISER, THE APPRAISER WOULD NOT BE ABLE TO DETERMINE IF IT WAS ADEQUATE.)

THE CURRENT BUDGET WAS NOT AVAILABLE TO THE APPRAISER FOR REVIEW OR ANALYSIS. THE PROJECT APPEARS TO BE ADEQUATELY MAINTAINED WITH NO DEFERRED MAINTENANCE NOTED OR OBSERVED. THE MONTHLY FEES APPEARS TO REASONABLE TO OTHER PROJECTS IN THE AREA AND CAPABLE OF MAINTAINING THE PROJECT. THERE ARE NO SPECIAL ASSESSMENTS CURRENTLY IN EFFECT.

ANALYSIS OF THE CONDOMINIUM PROJECT BUDGET IS BEYOND THE SCOPE OF THIS APPRAISAL REPORT. THE APPRAISER IS NOT AN EXPERT IN THE ANALYSIS OF FINANCIAL DOCUMENTS. IF THE LENDER IS CONCERNED WITH THE ADEQUACY OF THE CONDOMINIUM PROJECT'S BUDGET, AN ANALYSIS BY A CPA IS RECOMMENDED.

This explains the scope of work we compelte when it comes to the condo budget.

 

[Mike Boyd]

Caveat the report that you are not qualified to render an opinion with regard to the budget. You are neither an accountant or a lawyer. All interested parties are encouraged to seek qualified financial and/or legal opinions.

I could not have said it better myself. Good response, Joyce.

 

[Joyce Potts]

I think many would be awestruck at how many condo units they've appraised where the common amenities were NOT owned by the association. Unless TRUTHFULLY disclosed by the management company, outside of a title search, how would you know?

There so many pitfals out there that many haven't encountered or even thought about that, rest assured, I do the best job possible, but I disclose and caveat every report to limit as much liability as possible. There is nothing wrong with exercising and expanding any and all extraordinary assumptions and/or hypothetical conditions in a report. It's there for a reason.

Example: Condo developer held back ownership of the pool and clubhouse and rented it to the Condo association. What a nice lifetime cash flow gig UNTIL he died and his estate was a complete mess. The condo project was thriving UNTIL the pool turned green and the clubhouse started to deteriorate. The liability insurance went unpaid, etc, etc, etc. It had a major impact on the marketability and VALUE of those units.

 

[Lee Lansford]

When an appraiser expresses an opinion within the appraisal report, whether qualified to do so or not, the appraiser is liable. Therefore disclaimers are necessary along with any extraordinary asssumptions.

Budget analysis is complex in that it presumes one has all the facts about the complex and any issues that are pending or issues that should have been known for the foreseeable future.

Randolph's thinking (plus Joyce's) pretty much reflects my position.

First, define "analyze".

I'll wager that each and every appraiser has a slightly different thought on what does--and does not--constitute "budget analysis". Undefined, or, poorly defined, terms are bothersome.

Thus, what is the appraiser's SOW regarding this "analysis"? The possibilities are endless.

 

[DTB]

I don't see how you can realistically make that claim given you agreed to report on a form that asks for an analysis of the budget. Plainly it is part of the scope of work to which you agreed unless otherwise arranged at the time of the order.

I think they give you 2 boxes to choose from along with room for explanations.

 

[Mike Garrett RAA]

Knotty problem for most appraisers. One very good reason why appraising condos is not for novice or in-experienced appraisers.

That said, it is a normal course of business for appraisers IN MY MARKET to question the association management as to the adequacy of the budget. I like to ask questions like:

1. Is the budget, in your opinion, adequate?

2. Are there any special assessments now or anticipated?

3. Are there any plans for increasing the association dues?

I then include in my report who I talked to, what I discussed, and when I did it. Sometimes I ask for a copy of the budget IF I think there is a problem. I agree with others, I am not qualified to analyze a budget but can rely others who are. Just for the record, I have served on boards for both a Condo HOA and a subdivision HOA and worked on budgets for them. That still does not make me qualified to render an opinion as to the adequacy of the budget.

 

[TJSum]

Even if you received the full budget and considered yourself qualified to make judgements on it... who is to say the condo project is actually following their budget? With the amount of foreclosures, many budgets aren't close to the reality.

As appraisers, our role is to make sure any budget concerns are taken into account into the subject unit's value opinion. As long as we have comp data within the project, that should effectively take budget concerns into account.

Here is my disclaimer...

The budget was not made available to this appraiser. Real estate appraisers are not lawyers or accountants, and therefore do not have the expertise or full array of information to make judgments on the current budget, any proposed budgets, or if the expenditures are complying with the stated budget.

 

[Zambendorf]

reserve studies

For those that don't express opinion on the condo budgets, do you collect copies of the budgets and the reserve studies to include with your reports?

 

[Randolph Kinney]

For those that don't express opinion on the condo budgets, do you collect copies of the budgets and the reserve studies to include with your reports?

No. If there are concerns, a qualified expert needs to be consulted along with collecting these document from the owner who has access to them. Appraisers are generally denied access to them from the HOA, unless they get them directly from the owner who can get them from the HOA.

 

[jay trotta]

Nix

in my State there is a requirement (during the purchase of) for the Seller to provide a copy of the prospectus & budget; the potential Buyer has 5 days to show them to the Attorney/CPA or ayone else they elect to claim responsible. If they recind, no harm, ifn they go forward, it is with everyone else on the Hot Seat.

The Buyer has had the opportunity to have his Attorney & CPA review all documents during the recission period; we are not "Licensed" in the area of "Budget Analysis" and therefore, refer all inquires to those who are "Licensed" in that field of expertise. "Intellectual property Rights of Jay Trotta"

shot out of cannon located at the doorstep of Snowglobe Enterpises.......ahhhchuuu