Condos: Value Of Common Elements In Sales Comparison Approach

[QBL]

Hello,

I am licensed in Alabama. For condo appraisals, when estimating value via the Sales Comparison Approach, the resulting per square foot value includes the value of the common elements which are part of the subject. Meaning, a $150 psf value is applied to the subject GBA and no additional value is estimated for the 7% (for example) common elements jointly owned by others in the association. (Meaning that the value of any common elements are considered in the psf value)

Apparently, in some states, there is a law for condo ownership that requires payment of condo fees to be fully funded prior to sale.

How would an appraiser treat the subject property in the case that the owner has not paid in condo dues for X number of years? Would the market value of a property with funded dues be different than one with unfunded dues?

I was asked this by a client. I would think that it would be similar to a fee simple property whereby the mortgage is in default--we as appraisers don't go below NOI, we look at value on the open market as if the property is for sale at the time of appraisal.

But if condo dues are in default, would the prospective purchaser be required to bring the dues to current? Maybe it's a specific case-by-case basis as outlined in the condo regulations? Maybe in the income approach we include the current condo expense due, and make a corresponding adjustment in the SCA?

I know the basic premise of appraisal that we assume competent management....but do we assume condo dues are current? Or do we adjust in the Sales Comparison Approach for the unfunded dues and subsequent effect on common elements?

Any thoughts would be appreciated.

 

[Elliott]

Cost to cure? If the dues are in default, what is the cost to bring them current? The valuation of common elements seems like a foolish exercise since most common elements cannot be meaningfully separated from the whole.

 

[timd354]

Hello,

I am licensed in Alabama. For condo appraisals, when estimating value via the Sales Comparison Approach, the resulting per square foot value includes the value of the common elements which are part of the subject. Meaning, a $150 psf value is applied to the subject GBA and no additional value is estimated for the 7% (for example) common elements jointly owned by others in the association. (Meaning that the value of any common elements are considered in the psf value)

Apparently, in some states, there is a law for condo ownership that requires payment of condo fees to be fully funded prior to sale.

How would an appraiser treat the subject property in the case that the owner has not paid in condo dues for X number of years? Would the market value of a property with funded dues be different than one with unfunded dues?

I was asked this by a client. I would think that it would be similar to a fee simple property whereby the mortgage is in default--we as appraisers don't go below NOI, we look at value on the open market as if the property is for sale at the time of appraisal.

But if condo dues are in default, would the prospective purchaser be required to bring the dues to current? Maybe it's a specific case-by-case basis as outlined in the condo regulations? Maybe in the income approach we include the current condo expense due, and make a corresponding adjustment in the SCA?

I know the basic premise of appraisal that we assume competent management....but do we assume condo dues are current? Or do we adjust in the Sales Comparison Approach for the unfunded dues and subsequent effect on common elements?

Any thoughts would be appreciated.

My thought is that unless the dues are brought current prior to or at closing, then good title cannot be delivered and the seller would be required to pay any past due condo fees unless the sale contract required the buyer to pay the past due fees, in which case that would be part of the consideration that the buyer was paying for the property.

 

[Mark K]

I don't see where this is different than appraising a property with delinquent taxes, judgements, liens, mortgage payments, etc.

The property is worth $zzz. The clouds on the title have to be addressed either before or at closing, however the property value doesn't change.

Scenario 1: The condo sells for $100K. The owner pays off the condo fees prior to closing and receives $100K

Scenario 2: The condo sells for $100K and the condo fees are deducted from the seller's proceeds at closing, yielding less than $100K to seller.

The appraised value is the same in either scenario.