• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Condo vs Cooperative

Status
Not open for further replies.

Julia Young

Thread Starter
Sophomore Member
Joined
Feb 23, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
Actually I have two questions: :?:
Question 1: I need a definition and a little information. I am asked to appraise what appears to be a condo but some agents in MLS say they are really cooperatives. There are only 12 individual units in this complex as far as I know with only one sale in two years. I don't know of other cooperatives with which to compare so in my appraisal they will probably be compared to condos. I find no local databases that make the distinction between the types of properties. Someone who is familiar with this type property, tell me a little about what makes a difference here so I can address those differences if necessary.

Question 2: Don't know why I get all the hard ones but I have two houses on one lot. Originally the single lot was 2-3 lots or an old subdivision. The properties are now linked together as one lot and contain two houses built in the 20s. They are owned and taxed as one unit. This is not a duplex or guest house arrangement but two separate 1,000 sq. ft. houses side by side with the lot and frontage to accommodate each. I turned down the appraisal because I couldn't figure out how to do it as one property with two values when taxed as one since the properties were not legally separated. For taxes, they indicate a value for one house. Anyone have a similar problem?
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
Julia,

Two questions in one day!

The second question is the easiest to answer so I'll address that one first. If I understand your question properly, you have two residential units on a single parcel. Try not to confuse the fact that these units are detached, the fact remains that there are two units on a single lot. You handle this just like any other 2-unit residential property, on the 2-4 form. Your best comps will be other properties with 2 detached units, and your next best comps will be semidetached duplex properties. If there aren't enough of those handy, you can use a 2-story duplex and from there you can go to 3 units (although that would be a last resort). Bear in mind that the typical buyer is going to either rent out both of the units, or else occupy one and rent the other one out.

The first question is slightly more complex. Let's look at the definitions:

Condominiums
A condominium unit is a separate ownership, with title in an individual owner. The unit may be leased, sold, mortgaged or refinanced separately. The condominium owner has title to a partial interest in a total project, whether it is housing or commercial property. A condominium owner has ownership of a three dimensional space within the outer walls, roof or ceiling, and floors. In addition, the owner, together with the other owners, has an undivided interest in common areas, such as the land, public portions of the building, the foundation, the outer walls, and in the spaces that provide for parking and recreation. In a condominium project, owners usually form an association to manage the real estate in accord with adopted bylaws. The expenses of management and maintenance are divided pro rata among the owners and are levied as a monthly fee.


Cooperative Ownership
In certain areas, the cooperative ownership of apartments is popular and affords the selling owner/developer or converter an attractive price and gives purchasers control of their living accomodations. A "Co-op" begins when a stock corporation is organized to have an authorized number of shares issuable as a specficied par value. The corporation takes title to an apartment house and then prices the various apartments. The price per unit determines the number of shares an apartment occupant must purchase to acquire a proprietary lease. The lease obliges the occupant to pay a monthly maintenance fee, which may be adjusted at various times by the corporations' board of directors. The fee covers the expenses of management, operations, maintenance of public areas and the like. In addition, the fee includes debt service on any mortgage the cooperative has on the property. Shareholders can vote their shares in elections of directors, thereby exercising some degree of control over property conditions.

"The Appraisal of Real Estate, Chapter 23, pages 538-541"

There are other defintions out there you can apply to these types of ownership, but these are about as good as any.

So basically, a condo is a form of fee ownership, whereas a co-op unit is owned via the ownership of shares in a corporation. Two separate types of ownership, with vast differences. One of the biggies is the consequences of one or more of the shareholders defaulting on their share of the fees, which can also include debt service on the entire project. When one or more shareholders default for long enough, the other shares basically have to pick up the slack until the shares can be re-sold. If you really want to get a sense of these differences and how they affect the ownership interests, all you have to do is compare the Fannie's Condo form to Fannie's Co-op form. The Co-op form resembles the Condo form on pages #1 and #3, but includes an extra page (Page #2) that will ask about the corporation and how the project as a whole is being occupied, owned and financially managed.

If you only have the one Co-op project in town and insufficient sales from within that project, you will have a tough job appraising a single unit. Even Co-op units from different projects will often have different values depending on how the corporations are doing with regards to debt service on the property, financial reserves, etc.. Usually, the Co-op board has all the comparable sales data from the project and they will be your best source of data. Public records data sources often have minimal sales data, and sometimes it gets real confusing. Condos are not directly comparable to Co-ops without significant adjustments because of their different types of ownership. Exposure time and the availiblity of financing will also differ. You might have to use your most recent sales from inside the Co-op project and then augment them with the more recent condo units. Maybe even do a paired analysis to support any necessary time adjustments. Even so, without recent sales data from within that project, the reliability of your appraisal is not going to be as high as if you were appraising a more typical property type.

If I were you, I'd take my time on this and really research the project out well. Either that, or I'd refer the assignment to an appraiser I don't like.

Just kidding....


George Hatch
 

Julia Young

Thread Starter
Sophomore Member
Joined
Feb 23, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
Half way through your explanation, I was deciding to send this one back. The lender is one of my best clients and I hate to let them down. They are requesting a 2055 Int/Ext. on the property although that does not appear to be adequate for a co-op held by a stock company. Since the owner told me it was a cooperative and one of the MLS listings terms it a co-op, it isn't as if I could plead ignorance. If it isn't a fee ownership, is it considered a leasehold? I believe co-ops are a rare bird in Memphis, having never had this great opportunity in 12 years or so. This is probably a bad question but one I am asking in case the lender tells me I can do this on a 2055: Is it possible to put this report on a 2055, by any stretch, without corporation data since the lender is telling me it is a conventional refinance rather than sale? I don't want it floating back to me requesting a 3 page form sometime down the road. I need to say something wise when I give it back! :lol:
Thanks for your help. The answer to the first question helped too although I gave that one back as well. The owner wanted the value equivalent to two single properties and I couldn't see it as a detached multi/duplex in single residential zoning. I suggested he consider separating the properties since they had once been subdivided anyway.
 
A

Anonymous

Guest
Do not make the mistake of comparing co-ops and condos, they are two different animals. The market for the co-op is far different and the ownership documents may have restrictions as to occupancy. Co-ops normally have underlying mortgages, the subjects responsibility for this debt is reflected in it's market value. If this is an odd ball project with no other co-ops in the area you would be wise to reject the assignment.
 
Joined
Jan 16, 2002
Ditto the previous postings.

Here (it might vary in different states) the front cover of the prospectus clearly indicates either Condo or Co-op.
 
A

Anonymous

Guest
Based on your explanation and nothing else, this property sounds like a condo. My reasoning is this. With a co-op, the entire building falls under one mortgage. If the owner/occupant is refinancing this particular unit then he/she must have a seperate mortgage. This sounds more like a condo.
 

Julia Young

Thread Starter
Sophomore Member
Joined
Feb 23, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
I have the owner telling me it is a co-op. He pays $400 (to the association)per month on it, which seems excessive if it is a condo. Although I turned down the project, because the lender wanted it handled as a refinance on a 2055 form, I was concerned that after doing a 2055 it would resurface from an underwriter wanting the 3 page co-op financial form which is clearly outside my field of experience. The main problem in our city is that there are few of these to none when it comes to co-op properties. Only one of the units (there are 12 in the complex) sold in the past year. Without comparing to condos, it is doubtful the appraisal could be completed with the apples to apples sales approach. I still feel uncomfortable turning it back but did not know how to handle it. You may be correct about the mortgage. He must have had a separate mortgage on the property with a transferable interest but is it a first or second mortgage? Is his interest purely as a leasehold? We don't generally see SFR leasehold properties in our backyard. If he is financing a leasehold, that is interesting, but also beyond my experience.
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks