Hypothetical Condition?

[CPreebz]

Current assignment is a new construction duplex. Upon inspection, the owner/builder provided me with the certificate of occupancy. On the certificate it stated under special stipulations and conditions that the owner/builder can not sell within 1 year of issuing certificate of occupancy. This is common in our market when properties are built by the owner/builder and did all the work themselves. So my main question is would I have to use a hypothetical condition to report a opinion of market value?
Since market value is
Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer.

If the subject property can not legally be sold as of the effective date of the appraisal do I need to use a hypothetical condition to report a opinion of market value, which is based on the theory of what it would sell for as of the effective date. Since it legally can not be sold is it misleading to report a opinion of value without the use of a hypothetical condition?

Really appreciate any insight. Local appraiser saod I'm over thinking it and that since it's for a refinance transaction it doesnt matter. I told him that is irrelevant as I'm am reporting a opinion of market value regardless of its a sale or refinance transaction.

Client wasn't helpful either and had to explain more and waiting to hear back but was hoping to get some input from other appraiser's.

Thank you

 

[RCA]

I would think so, unless there is something in lender guidelines to the contrary.

 

[Surf Cat]

So my main question is would I have to use a hypothetical condition to report a opinion of market value?

So... the duplex is built, finished, with a certificate occupancy in hand..... right?

I would use a hypothetical if it was proposed Construction and not yet built. But it's finished. Why would you use a hypothetical? You're valuing it as of now...the effective date. Not a year from the date of the certificate of occupancy.

I would make mention that the condition of future sale that the property cannot be sold till a year after the certificate of occupancy. But that wouldn't affect my value as of the effect of date.

 

[shrubberyvaluation]

So... the duplex is built, finished, with a certificate occupancy in hand..... right?

I would use a hypothetical if it was proposed Construction and not yet built. But it's finished. Why would you use a hypothetical? You're valuing it as of now...the effective date. Not a year from the date of the certificate of occupancy.

I would make mention that the condition of future sale that the property cannot be sold till a year after the certificate of occupancy. But that wouldn't affect my value as of the effect of date.

You don't think it would effect the value of the property if there are restrictions on when you can sell it?

 

[CPreebz]

So... the duplex is built, finished, with a certificate occupancy in hand..... right?

I would use a hypothetical if it was proposed Construction and not yet built. But it's finished. Why would you use a hypothetical? You're valuing it as of now...the effective date. Not a year from the date of the certificate of occupancy.

I would make mention that the condition of future sale that the property cannot be sold till a year after the certificate of occupancy. But that wouldn't affect my value as of the effect of date.

Yes that is correct it is finished and CO in hand. And that is also my point that I am valueing it as of now... The effective date. And as of now the effective date it can not be sold? So how can you derive market value as of the effective date if it can not legally be sold as of the effective date. It seems to be contradicting or misleading. As stated in the definition of market value Implicit in the definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer.

The title from seller to buyer could not legally take place on the specified date (effective date).

 

[Terrel L. Shields]

Upon inspection, the owner/builder provided me with the certificate of occupancy.

If built, then it is not contrary to what exists so it is not an HC.

And as of now the effective date it can not be sold?

The simple thing is to do a discount as an extraordinary assumption (and I am not even sure that needs to take place.) So what is the time value of money for one - year? Whatever the going interest rate is right? Discount 7% or so, and go on.

 

[Surf Cat]

You don't think it would effect the value of the property if there are restrictions on when you can sell it?

That's not my problem.....I'm valuing the property as of the effective date and making mention of the stipulation of not being able to sell for a year within the report. If the lender doesn't want to loan in it because of the stipulation.... that's their perogative.

Hypothetical conditions refer to assumptions made about a property’s status or characteristics, as if certain conditions were true, even if they are not currently the case. That has nothing to do with the condition it can't be sold for a year.

I reread the op and this is interesting...

On the certificate it stated under special stipulations and conditions that the owner/builder can not sell within 1 year of issuing certificate of occupancy. This is common in our market when properties are built by the owner/builder and did all the work themselves.

What entity makes these special conditions? Also, if this is common, then there should be comps. If there's comps that have this stipulation, one should be able to measure the difference in percentage of regular sales against owner Builder DIYs that have to hold for a year.

 

[J Grant]

What an interesting question!! I was not aware such a restriction existed in your state, learn something new every day!.

Whether it is for a purchase, refnajince, divorce etc, , the "sale" of the subject in the appraisal as of the current Eff date is hypothetical anyway -

I would not create a HC because the opinion of value is not a "real sale" with title being passed - the appraisal creates a model of a sale for valuation purpose. Just state that the C of O has a clause that the builder /owner can not sell for a year and that the opinion of MV in the sales comparisons approach assumes a clear transfer of title for valuation purposes in the appraisal.

 

[CPreebz]

That's not my problem.....I'm valuing the property as of the effective date and making mention of the stipulation of not being able to sell for a year within the report. If the lender doesn't want to loan in it because of the stipulation.... that's their perogative.

Hypothetical conditions refer to assumptions made about a property’s status or characteristics, as if certain conditions were true, even if they are not currently the case. That has nothing to do with the condition it can't be sold for a year.

I reread the op and this is interesting...

What entity makes these special conditions? Also, if this is common, then there should be comps. If there's comps that have this stipulation, one should be able to measure the difference in percentage of regular sales against owner Builder DIYs that have to hold for a year.

It is common but there is not comps that would indicate towards this as they could not sell I was that first year. Once they sold, if they sold, it would be after the condition or special stipulation expired and would not be relevant at that point

 

[Surf Cat]

So how can you derive market value as of the effective date if it can not legally be sold as of the effective date.

CPreebz, I give my opinion in post #7 that answers the above.

Interesting scenario for sure. I wouldn't call this a HC. I would mention the stipulation in the report thus, not being misleading.