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Condotel?

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ROBERT JONES

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Feb 12, 2002
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Certified Residential Appraiser
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New Jersey
An appraiser friend of mine who is not a member of this forum found out he was placed on a "Do Not Use" list by a larger purchaser of mortgages. He called to inquire and they said that on a driveby report he did that was reviewed he did not properly identify the property or the comps as being a "condotel". This was a Jersey shore hotel converted to condo's - extremely common. I know that these lenders can do what they want and maybe that is not the real reason, but is that a real term?
 

Kevin A. Spellman

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Joined
Aug 30, 2003
Professional Status
Certified Residential Appraiser
State
Massachusetts
I label the units as Condo/Motel and clearly define the high and low season for the daily rent along with vacancy estimates, the management costs and the quality of the furnishings. Pictures of the front desk and I scan in the brochure for the complex with features and its costs. These are investor units and not used as primary homes. The income must be discussed within the report. Not a typical condominium assignment.
 

Ray Miller

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Feb 20, 2002
Professional Status
Licensed Appraiser
State
Wisconsin
These are quite common in the area I work. But I feel that many appraisers look the other way and never put in the appraisal report that the subject property is a condotel and the owner may or may not have the unit in a rental pool.

The rental pools can be nightly, weekly, monthly. They can be the full unit, or any part of a three unit. Most units are purchase as a whole unit that can be divided off by the use of doors and have three seperate rental units.

Hence the units are finance as second homes to the unkowning lender or buyer of the mortgage paper. I have a real feeling that in a few years, the lenders will be eating these for lunch in this area. I would say that 90% of the condo's are condotels in real life.

A lot of the resorts in this area are the condotel and have 500 or more units within the resort, convention center and waterpark.

Yes it is a real term.
 

timd354

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Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
If the subject really was a condotel and he did not report that, then that is a legitimate reason to get blacklisted. FNMA, Freddie, FHA, VA and most lenders will not lend or guarantee loans on units located in Condotels. Lenders who do lend on condotels typically have a large downpayment requirement. Obviously, this makes condotel units typically much less marketable as typical condominium units. Additionally, condotel units, since they are first and foremost rental units should not be labeled as "owner ocupied" or "second home" in the appraisal report.

If your friend did an appraisal on an unit in Condotel then the lenders suspect that your friend is either incompetent in not knowing the property is a condotel or dishonest and fraudulently colluded with the mortgage broker involved to not correctly report the nature of the property being appraised.

Another problem with apprasing "condotels" is that, although they are marketed as residential projects, in reality, they are most often operated as hotels (and often taxed as commerical real estate and subject to licensing as a hotel and the payment hotel room taxes, etc.) it is arguable that it licensed or certified residential appraiser cannot legally appraiser condotel units where the transaction value is in excess of $250,000 and that they must be appraised by a certified general appraiser. Any licensed or certified residential appraisers should check with their state appraisal board and get their opinion in the matter.
 
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Ken B

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Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
Two primary indicators of a property being a condominium hotel, or "condotel", are that there are very limited common elements and unit owners who desire to lease their units must do so through the development's rental pool. The rental pool is normally managed by the owner of the "hotel unit." The owner of the hotel unit owns those components of the property which are normally considered to be "common elements" in a typical condominium, including the structural components of the building, recreational amenities, and site.

Dependant upon the boundary descriptions of the residential units and the extent of the common elements, the owner of a residential unit can literally have an ownership interest limited to the air within the residential unit. The air and maybe the paint on the walls.
 

Terrel L. Shields

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Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
FNMA, Freddie, FHA, VA and most lenders will not lend or guarantee loans on units located in Condotels.
We have a small development where a number of units are rented on a weekend or daily basis. More a time-share type arrangement. But over half the units are owner occupied.
But I have never heard any of the management describe this as a "condotel" and my red headed helper was asst. manager there for 10 years and still lives in a unit.
 

Couch Potato

Elite Member
Joined
Mar 15, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
In July of 2006 FannieMae revised their definition of condominium hotel:
Revised definition of Condominium or Cooperative Hotels – Any project that is managed and operated as a hotel, resort, motel, inn, or lodge and, therefore, is not a residential project, even though the units are owned individually.
Anyone appraising a condominium without considering that letter ought to be placed on a 'do not use' list. Not recognizing a 'condotel' would mean the appraiser violated the competency rule of USPAP (even if they did not realize it at the time.) Never assume a property is 'just like any other' when something is different about the property. Investigate the difference or run the risk of a competency violation.
 

ROBERT JONES

Thread Starter
Junior Member
Joined
Feb 12, 2002
Professional Status
Certified Residential Appraiser
State
New Jersey
Just goes to show you that you can still learn something new everyday.

However, the type of units most of you are reffering to do not sound like what we are dealing with (I have never done one, but I spend the summer in the town of North Wildwood where this took place so I am familar, I have looked into buying at several conversions) These units are all owned individually. No rental office or anything like that on site. And generally these are smaller from 5-30 units. I would be interested to hear from a New Jersey appraiser who covers the Cape May & Atlantic county markets.

Thanks
 

DJBanas

Senior Member
Joined
Aug 26, 2005
Professional Status
Certified Residential Appraiser
State
Pennsylvania
Robert:

I do appraisals along the S.Jersey shore.

I received an assignment for 2 condo units in Ocean City about 2 years ago. It was in a converted hotel and I was origionally told that the units were condo by the project manager. After I wrote up the report I happened to see in the marketing brochure that the units were described as a "condotel" which was something I had never heard of. I called a realtor in Ocean City and he explained the details - you own the unit and provide a list of available dates that the unit can be rented. The rental "agents" run the project as a hotel with all the usual hotel amenity and services and get paid a % of the rent. Rentals are not available through any other agents except the Project agents.

I posted some questions on this forum and the FNMA letter was posted. I contacted the lender immediately and informed them that I had discovered the the units were part of a condotel. They thanked me for the info as they were not aware of this situation. I was paid a decent trip charge and they assigned the order to a Cert Gen to do as a commercial appraisal.

I recommend reading the FNMA letter as it gives a good understanding of what a Condotel really is.
 
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