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Condo Questions

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Julia Young

Sophomore Member
Joined
Feb 23, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
I have a Condo assignment. I know its a Condo and I have appraised a few condos but not many, as it is an uncommon local product. We have even less co-ops.
I have several questions that I have dealt with in the past on logic and experience but now think it might help to have input since "scope of work" is being looked at under a magnifier. Maybe this is a keg of worms but you guys always come through for me so here I am, asking:

1. If only a market approach to value is used, is the condo report a complete or limited report? (Even though other approaches were considered and not deemed to be applicable.)
2. Is the cost approach ever applicable and does age of unit make a difference? If cost approach is applicable, where are valid or reliable guidelines? Marshall-Swift limits Condo info, it seems.
3. Is there significant differences in market value between 'townhome' and 'flat' types when square footage and room counts are similar. We are talking about 1 BR units in this case?
4. If the unit is sold/refinanced, owner-occupant, and the development is 70%+/- predominantly owner-occupant, is the income approach applicable even though it seldom supports the preferred market approach and data sources are limited or non-existent for a determination basis?

Hoping to get your gray cells going and some input in our ever-changing challenging profession to help answer my questions.
Julia
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Good questions, Julia.

1. If only a market approach to value is used, is the condo report a complete or limited report? (Even though other approaches were considered and not deemed to be applicable.)

It depends. :rolleyes: A cost approach would possibly be applicable if the condo units are townhouse style, sometimes. The Income Approach could be applicable depending upon how many are rented/leased. I basically use the 50% rule unless the subject is rented. If the rentals are over 50% or the subject is rented, the Income Approach would be applicable.

2. Is the cost approach ever applicable and does age of unit make a difference? If cost approach is applicable, where are valid or reliable guidelines? Marshall-Swift limits Condo info, it seems.

See above answer.

3. Is there significant differences in market value between 'townhome' and 'flat' types when square footage and room counts are similar. We are talking about 1 BR units in this case?

Another 'it depends'. Take a look at all the sales within the past few years to figure this out for that project and other similar projects in your market area.

4. If the unit is sold/refinanced, owner-occupant, and the development is 70%+/- predominantly owner-occupant, is the income approach applicable even though it seldom supports the preferred market approach and data sources are limited or non-existent for a determination basis?

See answer to #1 above. If the project is predominantly owner occupied and the subject is/will be also, I consider the Income Approach as not necessary for a complete summary. It could be viable and used if the client wanted it, but not using it is not a departure IMO. With 30% rented, a reliable cost approach could be worked up. (I would definately charge extra for that!!!)
 

Julia Young

Sophomore Member
Joined
Feb 23, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
Thanks Pamela, this goes along with my thinking too. One question I failed to add to the group was this:
Is it reasonable that all three comps are from the subject development? When appraising SFR in new subdivisions, at least one comp is selected outside the subdivision, as a rule, but these condo units are 25 years old and availability for comparison is limited with the best comps in the development, due to superior location.
I found little differences in values related to style, although I believe there is a trend to higher values for ground level units.
 

Paul Ness MAI

Member
Joined
Jan 14, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
Regarding the cost approach, IMHO a cost approach can not be completed because the ownership interest typically includes the air rights between the walls and ceiling of a unit plus an undivided interest in common elements (building, land, amenities, etc.) as identified in the condo doc’s, and could also include divided elements such as a designated parking space or boat slip. Try to fit that in the little cost approach box on the FNMA form.
 

Patrick Egger

Sophomore Member
Joined
May 29, 2003
Professional Status
Certified General Appraiser
State
Nevada
in my opinion, the cost approach would be difficult to validate due to the common walls, area improvements and interests and because buiding a replacement (substitute unit) would be impossible due to the same, hence unrealistic.

as for the income approach, its not just a matter of how many are rented, but also if they are purchased (or would be) for their investment potential, ie if you had 100 units and 10 were rented and you had good information (sales for GRM's, expense data, etc) that indicated positive cash flows and reasonable returns on the equity, you may have more than sufficient information to warrant using this approach ... and would likely be amiss if you didn't.

approches used depend not local or appraiser custom, but rather on applicability to the problem at hand. standard 1-4 requires all 3 approaches ... its up to the appraiser to justify the exclusion of any of them ...

often units are rented at break-even or a loss because the owner had to leave the area ... in this case you may have rentals and data for the income analysis, but the approach may not support the market and you simply need to comment as to why ... there could be many reasons for not applying the income approach ... you simply need to state them and make sure they're justified in the market.

as for using all sales from the same project ... would be fine given the age, etc you described. the reason for going outside to competing projects is typically related to projects in the initial selling period. when all you have is resales in the project, they're the best indicators due to overall comparability, location, physical, etc. going outside the subject and using dis-similar units would likely be misleading ... but it would lend to your report if you had competing projects that were highly similar.

as for TH's vrs Flats ... would depend on your maket data ... what does it tell you? does one sell better/faster/higher than the other? or is it more of a user's choice? in my market, not much difference in some projects, but very different in others. we have lots of seniors and the two story TH's or garden walk-up condos don't seem appeal to them as much as 1 story units ...

take a look at the prices, selling/marketing times and call a Realtor or two that sells a lot of both ... could give you some additional insight.
 

Walter Kirk

Senior Member
Joined
Jun 24, 2003
Professional Status
Licensed Appraiser
State
New Jersey
The Cost Approach is not applicable since the buyer can not build one condominium unit.

The adjustment between a townhouse style unit and a flat depends on the market's reaction to each type of unit, you must decide whether an adjustment is necessary in your market place.

The Income approach is valid if you can develop a reliable GRM. If only 70 % of the condo's are owner occupied there must be some rental data around.
 
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