Form 1025 - 4-Unit Condominium Unit?

[Ariba]

Why not just value the subject as 4-condos that make-up one condo project and discount it for the bulk sale? :new_smile-l::

So if I understand you right, what you're saying is to appraise each unit separately add them together and discount for bulk sale? That is a possibility. Would the bulk discount be the difference between the opinion of value of 4-condominiums versus a fourplex.

The only reason I can think of using an HC is if you are going to value the subject as if it were a fourplex. Are you certain that is what the client really wants? That doesn't seem to be consistent with the asset valuation purpose of the assignment?

This is for asset valuation for a lender and they want one value the 4 condominiums. That is why I was going to use fourplexes as comparables.

 

[PropertyEconomics]

This is for asset valuation for a lender and they want one value the 4 condominiums. That is why I was going to use fourplexes as comparables.

If this is the case, then using fourplexes as sales will not accurately reflect the value of the property. You would need bulk condo sales becuase you are comparing apples to oranges. I would further suggest the 1025 form is not the proper form to use.
This is best handled in a narrative report and accurate measurement of the bulk discount to sell all four units at the same time to one buyer would be very important. The nice thing is that given the condition of your units, selling in bulk would be most probable.

 

[Ariba]

What are your HCs?

If you are proposing that what exists (4 individual units) is actually something else (a single, 4-unit, building), and given my understanding of what you have been requested to provide, I believe that you are heading down the wrong road.

I suggest you review Denis' prior post.

See post #9 by PropertyEconomics

If this is the case, then using fourplexes as sales will not accurately reflect the value of the property. You would need bulk condo sales becuase you are comparing apples to oranges. I would further suggest the 1025 form is not the proper form to use.
This is best handled in a narrative report and accurate measurement of the bulk discount to sell all four units at the same time to one buyer would be very important.

Your suggestion in post #9 seems to be a good/sound way to approach this assignment.

 

[hastalavista]

So if I understand you right, what you're saying is to appraise each unit separately add them together and discount for bulk sale? That is a possibility. Would the bulk discount be the difference between the opinion of value of 4-condominiums versus a fourplex.

I am saying something like that.
I don't want to parse words and sound like a wise-guy, but here goes:
What I'm suggesting is that the subject be identified as 4-condos and the value that the client wants is the market value of those 4-condos if sold in bulk.
That probably would require valuing them individually and then analyzing what a likely bulk-sale discount would be. (Unless there is a market for such properties, then the individual unit valuation would not be necessary- but we know this isn't the case! )

There may or may not be a difference between the bulk-sale value and the 4-plex value, but I'm not sure one could draw an inference of correlation between the two (bulk-sale 4-unit condo projects have a X% price difference vs. similar fourplex-style properties). The difference (if any) may just be a unique consequence of the specific assignment, and another assignment using other data may conclude a different result.

As to the question if the bulk-sale condo value is different vs. a fourplex sale, the answer is (sorry!) "it depends".
One thing I can do with the condos that I cannot do with the 4-plex is sell the units individually if I want to. That's a flexibility that might warrant a premium over a 4-plex.

This is for asset valuation for a lender and they want one value the 4 condominiums. That is why I was going to use fourplexes as comparables.

I understand that approach but I'm not sure it is consistent with what is useful/meaningful to the client.
They want the value of the asset (4-condos as if it were sold together). Using an HC to compare it to something that it isn't is not going to provide them with that value (IMHO).
To not use the HC, I think one would have to prove that a fourplex property sells at some correlated value to a 4-unit condo project.

Regardless, a complicated and complex assignment!!!

Good luck!! :new_smile-l:

 

[PropertyEconomics]

Ron,

I have talked out of both sides of my mouth in this thread, and I dont like that, however if the condo documents can be defeated and rendered invalid (which I assume an owner of all four units can do) then return to a fourplex would be most probable in my market.
There are legal questions to be answered and a highest and best use analsyis to be done which will show what the true use of the property is or should be. Dont forget to compare the differences in capital expenditure in rehab for condo vs fourplex use and I would guess they would be substantially different.
Its certainly an interesting assignment, and you get to do the analysis now to show what the property REALLY SHOULD BE used for. I love these assignments.

 

[PropertyEconomics]

They want the value of the asset (4-condos as if it were sold together). Using an HC to compare it to something that it isn't is not going to provide them with that value (IMHO).:new_smile-l:

Denis

I would discuss this thoroughly with the client after I had done my highest and best use analysis, because to continue forward under the false pretense the condos are the highest and best use of the property would simply compound the problem. If they hold title to the entire property, its highest and best use, and if that be fourplex then so be it, will determine the value of thier asset. In my mind to continue to play the sharade of these are condos (even with articles in place) will not adequately address the real issue of value.
The value they want, may be different than the value they should be told. Again only the highest and best use will really decide what use this property should be put.

 

[hastalavista]

Denis

I would discuss this thoroughly with the client after I had done my highest and best use analysis, because to continue forward under the false pretense the condos are the highest and best use of the property would simply compound the problem.

Agreed and I did not mean to imply that Ron should assume anything as to what best suits the client's needs. That was the thrust of my point; that the approach of using an HC to compare apples to oranges may not give the client what they need.

The value they want, may be different than the value they should be told. Again only the highest and best use will really decide what use this property should be put.

The value they need for their purpose may be different from the HBU :icon_wink:. But (as you point out), without discussing the full complexities of the assignment with the client, one cannot be sure! :new_smile-l:

 

[PropertyEconomics]

The value they need for their purpose may be different from the HBU :icon_wink:. But (as you point out), without discussing the full complexities of the assignment with the client, one cannot be sure! :new_smile-l:

You may very well be right but my assumption, and you know what those are, would be they want to know the TRUE value of their asset so they can compare it with the value on their books.
I would personally do the highest and best use section of the report and then call them and have a full discussion with someone in authority to make a decision.
In the end, value is what value is.

 

[hastalavista]

You may very well be right but my assumption, and you know what those are, would be they want to know the TRUE value of their asset so they can compare it with the value on their books.
I would personally do the highest and best use section of the report and then call them and have a full discussion with someone in authority to make a decision.
In the end, value is what value is.

We have no real disagreement! :new_smile-l:

 

[Ariba]

Ron,

I have talked out of both sides of my mouth in this thread, and I dont like that, however if the condo documents can be defeated and rendered invalid (which I assume an owner of all four units can do) then return to a fourplex would be most probable in my market.

I should have clarified that the lender owns all 4 units in this building that I am appraising. However there are three more 4-unit buildings in the complex for a total of 16 condominiums. One building is abandoned, and the other two have tenants that have not paid rent from 2-5 months and will be evicted next week. A total of four owners own the 16-unit complex. They are all most likely in foreclosure proceedings.

Also, this market area is apartments with very few condominiums.