How Do Bulk Purchases Affect Appraisal Price?

[AZNotes480]

Hello, I currently own a condo in Arizona that I rent out. All condo owner's are being forced to sell due to ARS 33-1228. Once someone one's 80%+ of the units they can force all other owner's to sell and terminate the condo structure. Buyer wants to convert it into low-cost housing.

The buyer bought 130 units in a single transaction for around $9.5 million in October. It average out to $70k a unit. They then got an appraisal for the other units they will acquire. The appraisal states my condo is worth $72k. For comps, the appraiser used a unit that that was part of the 130 bulk purchase. He then goes on to state that he placed the greatest weight on this comp.

Two other condos were sold in the complex over the summer for $89k.

First, I don't think there was independence with this appraisal. I can get my own appraisal, which I will, and if buyer does not want to pay it we will be forced into arbitration.

Second, how does the bulk purchase affect the comps?

 

[George Hatch]

Bulk sale purchases *usually* result in a discount due to the economy of scale. However in a situation like this where the significance of the bulk sale is the controlling interest that might have a different result. I could envision how the affect of the bulk sale conditions on the individual unit price caused them to be higher, lower or the same due to the controlling interest factor. So I wouldn't invoke ANY assumptions about discounting. That would be an opinion to be developed in this situation, not a knee-jerk assumption to make.

One way to determine if the conditions of sale were of significant effect on the individual unit is to find another competing condo project with similar features and see how those sales stack up to the units in your project *over time*.

If you get a 5-yr sales history on both projects you should be able to ascertain what their relationship has been with each over during that time frame. If the units in project A have historically sold for 5% more than units in project B then the same would probably continue to apply in the current time frame. If the pricing was directly competitive over time then the same would still hold true.

 

[leasedfee]

A bulk sale value is the purchase price that a wealthy investor will pay to acquire numerous units. Think of it as a wholesale value, which occurs using one contract, under-written as a commercial transaction, with one closing, and with transferred by one deed. They then sell off the units to Joe Public one at a time. The individual retail value is calculated by discounting the cash flows for the absorption's time value of money minus brokerage, taxes, administrative holding costs, and profit to the investor.

I have zero idea what ARS 33-1228 might be. Never heard of it. You and your attorney need to dig into the statutes of what aspects of law this triggers, e.g., eminent domain, just compensation, etc. The fair market value of the fee simple estate to the general public is a retail value (before brokerage costs). This is what I would want to be bought out at. (I'm not sure if an element of duress of a forced sale may or may not occur in your situation. The appraiser needs to answer this question to value it of duress of a forced sale or if they can make a jurisdictional exception that there is no project induced duress. These are the starting questions you need to ask.

 

[Lee Lansford]

Hello, I currently own a condo in Arizona that I rent out. All condo owner's are being forced to sell due to ARS 33-1228. Once someone one's 80%+ of the units they can force all other owner's to sell and terminate the condo structure. Buyer wants to convert it into low-cost housing.

The buyer bought 130 units in a single transaction for around $9.5 million in October. It average out to $70k a unit. They then got an appraisal for the other units they will acquire. The appraisal states my condo is worth $72k. For comps, the appraiser used a unit that that was part of the 130 bulk purchase. He then goes on to state that he placed the greatest weight on this comp.

Two other condos were sold in the complex over the summer for $89k.

First, I don't think there was independence with this appraisal. I can get my own appraisal, which I will, and if buyer does not want to pay it we will be forced into arbitration.

Second, how does the bulk purchase affect the comps?

What is to be the date of value (aka, the effective date of the appraisal)?

Recently I was offered to do such an appraisal of an individual unit (in a situation such as yours) and after some consideration, I declined,

I was to be the 3rd appraiser (BTW, the entire process is outlined in my state's "Condo Act"). The other 2 reports (and I will not offer opinion here of those reports) had different effective dates (again, date of value) and the effective date makes a HUGE difference in the value of the property. If...if...the date of value is prior to the date that there is public awareness--the legal process has not begun--of the coming reversion from condo to rental, I have to surmise that the value at that date would be higher than after there is public awareness. WHO would purchase--unless the price was so low that it was likely to yield a good return at the time of the buy-back--a unit in such a condominium knowing that the reversion is coming?

Suggest: Look to your's state's "Condo Act" as this may be spelled-out there. If not, argue for the date of value to be prior to the announcement and public awareness of the coming reversion. If the date of value is after the notice, I can't see how the opinion of value could be anything other than "low". [edit to add: Another option as to date of value would have a current effective date but with a hypothetical condition that there is no reversion process taking place.}

 

[Lee Lansford]

What is to be the date of value (aka, the effective date of the appraisal)?

Recently I was offered to do such an appraisal of an individual unit (in a situation such as yours) and after some consideration, I declined,

I was to be the 3rd appraiser (BTW, the entire process is outlined in my state's "Condo Act"). The other 2 reports (and I will not offer opinion here of those reports) had different effective dates (again, date of value) and the effective date makes a HUGE difference in the value of the property. If...if...the date of value is prior to the date that there is public awareness--the legal process has not begun--of the coming reversion from condo to rental, I have to surmise that the value at that date would be higher than after there is public awareness. WHO would purchase--unless the price was so low that it was likely to yield a good return at the time of the buy-back--a unit in such a condominium knowing that the reversion is coming?

Suggest: Look to your's state's "Condo Act" as this may be spelled-out there. If not, argue for the date of value to be prior to the announcement and public awareness of the coming reversion. If the date of value is after the notice, I can't see how the opinion of value could be anything other than "low". [edit to add: Another option as to date of value would have a current effective date but with a hypothetical condition that there is no reversion process taking place.}

One reason that led me to decline the assignment was that under the Condo Act, the 3 appraisers ("armed" with the 3 reports) were to gather together and come to an opinion of value by the "committee"--the 3 appraisers . That, I thought, was going to be a nightmare.

 

[glenn walker]

Interesting but kind of like eminent domain where a City-=County-Government agency forces you to sell - BUT- in those appraisals the value can be based on what the highest probably price would be - Personally i would engage a good Real Estate Attorney and ask for at least the $89,000 the other units sold for. The new owners purchased below market and are probably getting State or Federal Funds , Tax credits and other Incentives to create the low income housing project, also ask for relocation costs and anything else you can think of. As far as appraisals I would not engage my own appraiser unless that's what your attorney advises because he/she may want to engage there own who will do research to see what real arms length sales would have been , also in these cases Judges like in eminent domain cases will recognize the value being determined based on what is the highest value would be and not lock you into typical market value based on low sales prices where there is only one buyer. Anyway I think you have a good shot at the $89,000 or more the other units had sold for, so don't roll over spend a few thousand and you may end up getting way more, also ask for relocation and moving expenses.

Good Luck :

 

[Joe Flacco]

It is hard to get a loan when one investor owns that many units so what Lee said about the effective date makes a lot of sense to me.

 

[Lee Lansford]

It is hard to get a loan when one investor owns that many units so what Lee said about the effective date makes a lot of sense to me.

Correct. That and the awareness that the condominium is reverting to rental apartments is not a small matter of importance to all.

 

[Terrel L. Shields]

Another fine reason to avoid condos.

 

[DanBuck]

Hello, I currently own a condo in Arizona that I rent out. All condo owner's are being forced to sell due to ARS 33-1228. Once someone one's 80%+ of the units they can force all other owner's to sell and terminate the condo structure. Buyer wants to convert it into low-cost housing.

The buyer bought 130 units in a single transaction for around $9.5 million in October. It average out to $70k a unit. They then got an appraisal for the other units they will acquire. The appraisal states my condo is worth $72k. For comps, the appraiser used a unit that that was part of the 130 bulk purchase. He then goes on to state that he placed the greatest weight on this comp.

Two other condos were sold in the complex over the summer for $89k.

First, I don't think there was independence with this appraisal. I can get my own appraisal, which I will, and if buyer does not want to pay it we will be forced into arbitration.

Second, how does the bulk purchase affect the comps?

I hear in Chicago this is currently happening near N Lasalle St.. with luxury condos being downgraded to similar rental. Perhaps, Stephen Vertin here is familiar with this...