Form 1025 - 4-Unit Condominium Unit?

[Otis Key]

I have a situation were the client is requesting an opinion of value on a 4-unit condominium building. There is a Condominium Declaration and each unit is a condominium with separate legal descriptions, tax assessments, etc. The clients want one value for the building (4 condominiums).

The intended use of the appraisal is to arrive at an opinion of value is for asset valuation, and not for a mortgage transaction. There is one loan on the property. The client will not separate or list the units separately.

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.

Again?

Sorry, I shouldn't have done that but you seem to have a habit, or maybe I'm wrong, of laying out just enough lead to get some some info and HELP and then come back with the details. I'm going to agree with PE, Lee and Webbed. I won't post an answer to your question because it's beyond what I would do without being associated with CG. It's a very complex assignment and it is NOT JUST A 4-PLEX - it's part of a condo complex.

 

[PropertyEconomics]

Using extraordinary assumptions and hypothetical conditions should always be discussed with the client, IMHO. I always have written approval of such things.

What are the laws like in Colorado governing condominiums? In North Carolina a single entity owning an entire condominium could dissolve it quite easily. Likewise it is not very difficult to convert a four unit building into a condominium under state law (although building codes and zoning can be a source of difficulty.) While I think the advice in this thread is good, your local laws may greatly affect how you should handle the assignment.

Couch .. in this instance the entity doesnt own the entire condo ... they only own four units out of 16 or 25%. It would be difficult I think in this instance to defeat or dissolve the condo assn by the four unit owner in my opinion.

Ron ... your client asked you to appraise all four units, they did not ask you to appraise them as a four plex. I think if you will call them you can clarify they want a value of FOUR CONDO UNITS .... not a fourplex. You must consider condo comps, you cannot put this assignment on a 1025 form, and I have stated several times I believe this is a narrative report that MUST CONSIDER DISCOUNT FOR BULK SALE.
Its not individual units on a condo form, this is a FOUR UNIT CONDO all to be sold at the same time. I believe your client has been very clear what they want, but you have confused the issue with your four plex analysis. Your sales must be of condos not of non-condo four plexes.

I do not mean to be rude, but you cant simply decide how you wish to appraise the property and make the property fit a form and fit your data ... your data and reporting must fit and accurately reflect the property you are appraising. Somehow that appears to be a bit confused here.

I will say one more time, I believe your clients request is very clear, but you have confused it because of the fourplex idea you have come up with. It will not work. It is wrong appraisal technique and your client will not get what they asked for which is simply to appraise four units within a 16 unit condo project reflecting their sale as four units together and if a bulk discount applies you must reflect that in your final value.

 

[Couch Potato]

Couch .. in this instance the entity doesnt own the entire condo ... they only own four units out of 16 or 25%. It would be difficult I think in this instance to defeat or dissolve the condo assn by the four unit owner in my opinion.

After rereading the post, I agree. I was reading the thread all at once and thought it said there were for similar buildings and a total of 16 condominiums of this type, but now see his is saying 16 condominium units in a total of 4 buildings which comprise the single condominium. In NC that would mean the owners of 13 of the units would need to agree to dissolve the condominium. Local laws are very important and need to be considered. For instance, under the condominium law in NC the owner of the four units in such a building is free to merge them into a single unit should they desire. Likewise, an owner can divide a unit. Of course specific statements in the declaration of condominium can alter some of the law, and local zoning and building codes can also change what can be done.

Without specific knowledge of the local laws, and reading the declaration of condominium, it is nearly impossible to give appropriate advice. I can even imagine a scenario or two where a 1025 would be appropriate.

 

[AnonApprsr]

I don't understand where the problem is.

If they are condos, you appraise them as condos....4 appraisals. Than you figure out a bulk discount, see if there are any examples of multiple condos selling in a bundle. Where is the problem? Use 4 1073 forms.

 

[Couch Potato]

Not that simple.

I don't understand where the problem is.

If they are condos, you appraise them as condos....4 appraisals. Than you figure out a bulk discount, see if there are any examples of multiple condos selling in a bundle. Where is the problem? Use 4 1073 forms.

Suppose there is no discount, but rather a premium when the market data is analyzed? After all, the other three buildings are also owned in groups of four. Maybe that is because there is not a market for the individual units, only groups of four units. There are limitless possibilities.

 

[PropertyEconomics]

I don't understand where the problem is.

If they are condos, you appraise them as condos....4 appraisals. Than you figure out a bulk discount, see if there are any examples of multiple condos selling in a bundle. Where is the problem? Use 4 1073 forms.

The problem is the client asked for all four appraisals in one report. In my opinion this is not four reports but one and addressing of the bulk discount, if any, should be done within that report and not within individual reports.
Finally, if you read the posts you can understand that this complex has some problems as a whole, which must be thoroughly discussed, the individual units have some problems which must be addressed, and quite frankly, I think doing them individually could lead to a misleading report.
Having just looked at a property which contained more than 10 units that is exactly like this, only fully renovated, the overstatement of value when done individually compared to being done all together, considering sell out time, considering a bulk discount, considering the issues of the association, was pretty high. In excess of 50% higher than if considered all together.
This is not a simple assignment Anon, and the recognition of the complexities is paramount to rendering a reliable opinion of value. Simply appraising all of the units individually could certainly result in a value indication that is not reliable. A question you must ask yourself is have you ever done a property like this, not just a condo, but four condos together which the client needs an asset valuation on considering all four units selling at the same time?

 

[hastalavista]

The problem is the client asked for all four appraisals in one report. In my opinion this is not four reports but one and addressing of the bulk discount, if any, should be done within that report and not within individual reports.

PE-

I agree that this assignment, as I understand it, is best delivered in a non-form format.

Could it be done in a form with a cover letter? Sure, it could. I think one would have to take extraordinary steps to make sure that the results are not misleading or could be misinterpreted. But as you (and others) have pointed out, that is trying to wrap the assignment (4-condo units, bulk-value, as-is) into a package (the form) for which the package was not designed or intended.

IMO, the best way to communicate the results of this assignment so that the significant issues can be properly presented and there is no reasonable risk of misunderstanding the results is to do so in a non-form format.

Ron-

As to your initial SOW comment (which you may have modified by now)- this is what was posted (only part, but this is what I'm focusing in on):

HYPOTHETICAL CONDITIONS: That which is contrary to what exists but is supposed for the purpose of analysis.

FOR THE PURPOSE OF THIS APPRAISAL, HYPOTHETICAL CONDITIONS ARE ASSUMED, THEY ARE NOTED IN THE SCOPE OF WORK AND ADDENDUM. HYPOTHETICAL CONDITIONS WERE SPECIFICALLY REQUESTED BY THE CLIENT FOR THIS APPRAISAL ASSIGNMENT. THE CLIENT IS AWARE THAT UNITS #1, #2, #3, AND #4 LOCATED AT 1234 MAIN STREET, ANY TOWN, CO ARE CONDOMINIUMS, AS RECORDED IN THE CONDOMINIUM DECLARATION AND PLAT MAP. HOWEVER, THE CLIENT REQUESTS THAT THE 4-CONDOMINIUMS BE APPRAISED AS A 4-PL EX.

(my bold)

Now, here is the roadblock I run up against: when I take the bolded statements and try to fit it in with what I understand the purpose and intended use of the report to be, I have a statement like this:

1. The purpose of the appraisal is to provide a market (bulk sale) value of the subject identified in this report. That subject consists of four individual condo units and is located in a 16-unit condo project. The configuration of the project is four detached buildings, each building consisting of four individual condo units. The four condo units that are the subject of this report are located in the same building.
2. The value is "as-is".
3. The intended use of the appraisal is for asset valuation purposes; my client wants to know the value of its asset based on an as-is, bulk-sale condition.
4. In order to provide the above, the client has instructed me to value the subject as if it were a fourplex and report those results. The client understands that the results I report may or may not reflect the value of the subject property under the bulk-sale/as-is condition.
5. By providing my client a value of the subject as a fourplex using a Hypothetical Condition, that will be consistent with its purpose (bulk-value, as-is market value) and intended use (asset valuation).

My challenge is that I cannot reconcile items #1-3 with #4-5. And as I understand my responsibilities, I need to be able to reconcile all points so there is no contradiction.
As I see it, either some significant changes are going to have to be made to items #1-3 or changes to #4-5 so that there is consistency, no contradiction, and all items can be reconciled.

But, that's me. If you (or anyone else) can figure out a way to avoid the contradiction (or, if you don't think the contradiction exists or matters), please let me know. I'm always willing to consider something new!!!:new_smile-l:

 

[Webbed Feet]

I don't understand where the problem is.

If they are condos, you appraise them as condos....4 appraisals. Than you figure out a bulk discount, see if there are any examples of multiple condos selling in a bundle. Where is the problem? Use 4 1073 forms.

A.A.

Along with P.E.'s response I thought I'd chime in a little. You've overlooked that 1073 forms are designed for a sale of one unit for one market price for just that one unit. You have no way to take a group sale of four units for one (1) price and separate out what dollars belong to each unit. You can't just divide the price by four. Like the header of the 1073 says, "Individual Condo Unit Appraisal Report"

The above is why an attempt at using a 1025 form is being made. I think that is also a mistake. Either the condo conversion made it far enough that these are presently a legal condominium, or perhaps it did not make it that far (so far I believe no unit has ever been resold since the beginning of the condo conversion attempt) and this is still legally a 16 unit apartment complex with four owners. Personally, I don't think any of that has been properly determined yet. Either this is four separate condo units needing to be analyzed as a distressed "investor only" situation, or it is a 16 unit apartment complex needing to be analyzed under a partial ownership. Both nasty assignments.

IF any form were to be used, at the moment the only one I would consider would first demand that the current legal form of ownership be nailed down to prove that the condo conversion went far enough to be a successful conversion to a new legal form of ownership of condominium. Then I'd consider the old 06/1993 URAR form IF I actually had any bulk sales in the market place to use. Even then, that form still makes things very difficult when there are drastic differences between condition of the units either within the subject units or the comp units between one another.

More, all the "forms" are rife with references to "Market Value" and I suspect this client really has to have some other value, like Liquidation Value. The very fact any seller at this point is asking a world of buyers to enter into a complete cluster you-know-what of horrible condition units, legal nightmares, and what may be seriously delayed holding period before ANY public reselling of these units to nice, sweet, innocent SFR buyers can be attempted. Any appraiser slams right into "not affected by undue stimulus" with the Market Value definition. If a total disaster of a failed project with unknown future actions of other owners is not "undue," over the uncertainty that would cause, then I don't know what is. This assignment is literally SWIMMING in issues that could take weeks to iron out before any sort of attempt at opining a value could be made.

To reference the saying about having the cart ahead of the horse, I suspect this client doesn't understand they don't even have the barn doors open to get the cart out of the fricking barn yet! LOL!!!! I think some lender staff are in a head long rush to follow their procedures and they don't have a clue what a mess this is and / or are clueless about the appraisal requirements needed when entering into a failed project cluster you-know-what for their asset valuation they are asking for. Appraisers are not allowed to just toss around bunches and bunches of EA's and / or HC's willy nilly, without any credibility in so doing, just to make it look like some lender's staff followed procedures in a rush to please their upper managment.

P.E. How'd did I do on this post? :Eyecrazy:

 

[AnonApprsr]

Suppose there is no discount, but rather a premium when the market data is analyzed? After all, the other three buildings are also owned in groups of four. Maybe that is because there is not a market for the individual units, only groups of four units. There are limitless possibilities.

Then figure out the premium. The market data won't lie.

 

[Webbed Feet]

Mr. DeSaix,

My compliments in breaking down the problem caused by the request, versus the intended use, in showing the SOW conflict. You were posting while I was. When you are tearing this assignment apart, I am, P.E. is ................... I just don't see how any appraiser that is unable to answer all of our concerns we have posted is remotely ready to sign their name on anything regarding the property.

P.S. When using any HC an appraiser is required by USPAP to disclose the truth / reality of the subject property to the report readers. As anyone reading the thread can see, I am having trouble believing that any appraiser can even so much as state the condominium conversion was successful (a legal opinion by the way) and that they are not really dealing with what is still a 16 unit apartment complex and a completely failed conversion attempt that never made it out of the chutes.