Listings for condo complex indicate much lower value than prior sales history

[Ron Patton]

I am currently appraising a 1,889 square foot condominium of good quality and condition built in 2007. The owners purchased the property on 08/17/2012 for $200,000. They are currently seeking to refinance it. It is located in a complex with appx. 60 other units. There are two sales within the past year in the complex that sold for $254,500 (identical unit to subject) and $215,000 (smaller 2 bedroom unit). However, there are currently six active listings of the same design, size, style, quality, and condition within the complex that are listed at:

1) $229,900 (26 DOM). Previously sold for $237,230 in 2006
2) $220,000 (87 DOM). No sales history recorded
3) $259,500 (209 DOM). Previously sold in 2008 for $250,000
4) $200,000 (218 DOM). No sales history recorded
5) $189,000 (374 DOM). Previously sold for $231,500 in 2006
6) $229,900 (542 DOM). Previously sold for $236,895 in 2006

All of these are arm's length sales (not REO or short sales). Our job as appraisers is to reflect the market and give our opinion as to market value. If the market has a slew of very similar properties available at prices significantly lower than what the sales indicate, is a market condition adjustment appropriate to apply to the sales? Or could I give more weight to the listings? There really is no rhyme or reason why the listings vary in price since they are all virtually identical. Please help AF! Thank you!!!

 

[Michael S]

Principle of substitution. Why would somebody pay more for the unit you're appraising than the identical unit in the same complex?

Why did the buyer of the identical unit pay $254,500 when listings 5 and 6 were on the market for $189,000 and $229,900 (assuming that their listing prices were not much higher a year ago)? I think you need to call some of the brokers involved on the sales and listings to find out if they truly are the same or if there's some reason those lower priced listings didn't sell.

 

[Terrel L. Shields]

4) $200,000 (218 DOM). No sales history recorded

You would need to know who and why...why on the market so long?

5) $189,000 (374 DOM). Previously sold for $231,500 in 2006

same question. Condition? issues? why the difference.


BTW..my helper lives in a townhouse complex (they call the "Condos" but they are not) Prices are all over the map. AND, because my helper was the property manager there years ago, she knows what the design is.

There are a series of townhouses (about 20-30) that have 3 different designs. One is two levels, 2 bed, 2 bath with a spiral staircase to the upstairs. One is 3 bed, 2 bath and that cussed spiral stairs. The last design is a sort of split level which has stairs to the upper two bedrooms, the kitchen and 1 bed on the mid level and living -dining in a lower level. It is not obvious that there is a difference in those townhouses but the ones with stairs are more appealing and sell better, quicker.

With such long marketing times, and I presume the sales are similar, then I am betting the value of the condo isn't going to be up very much.

 

[Tim The Enchanter]

If some are short sales you may find they are listed below market value. Don't have typical motivation, maybe not typical marketing. Not good indicators of market value. I'm looking at #5.

Other than that you need to dig into the details and see WHY the differences.
This is why we make the big bucks. Enjoy. :new_all_coholic:

 

[J Grant]

I am currently appraising a 1,889 square foot condominium of good quality and condition built in 2007. The owners purchased the property on 08/17/2012 for $200,000. They are currently seeking to refinance it. It is located in a complex with appx. 60 other units. There are two sales within the past year in the complex that sold for $254,500 (identical unit to subject) and $215,000 (smaller 2 bedroom unit). However, there are currently six active listings of the same design, size, style, quality, and condition within the complex that are listed at:

1) $229,900 (26 DOM). Previously sold for $237,230 in 2006
2) $220,000 (87 DOM). No sales history recorded
3) $259,500 (209 DOM). Previously sold in 2008 for $250,000
4) $200,000 (218 DOM). No sales history recorded
5) $189,000 (374 DOM). Previously sold for $231,500 in 2006
6) $229,900 (542 DOM). Previously sold for $236,895 in 2006

All of these are arm's length sales (not REO or short sales). Our job as appraisers is to reflect the market and give our opinion as to market value. If the market has a slew of very similar properties available at prices significantly lower than what the sales indicate, is a market condition adjustment appropriate to apply to the sales? Or could I give more weight to the listings? There really is no rhyme or reason why the listings vary in price since they are all virtually identical. Please help AF! Thank you!!!

What a nightmare! Does floor height matter ? different floor heights can command a premium, as well as corner vs non corner units, which way in building the units face, re north or south side light etc.

I would not spend much time looking at what they sold for back in 2006 and 2008, the market was much better then.

Your subject sold in 2012 for 200k, then in 2013 two sales at 254k...that's quite a jump. Were those two sales anomalies.? Especially now that the listings are lower, it's possible those 2 sold above market....why?

Ask RE agents who sell at lot in the building and area. Did something change in the building, such as an assessment or other reason 6 are for sale with no offers? Is the condo market in other buildings also going down? See what the trend is in competing buildings.

A lot of research to get the value, these kinds of appraisals are about the worst. As another poster said, principle of substitution, if all the units for sale are the same layout/finish as subject, why would someone pay more for subject than the lower price listings....key is to find out why those 2 sales sold so high, were they outlier or odd terms sales or not well informed buyers, is the market for condos declining, are investors who were renting units in subject building starting to sell, etc.

Keep asking the questions and eventually the answers will emerge.

 

[togatour]

There really is no rhyme or reason why the listings vary in price since they are all virtually identical. Please help AF! Thank you!!!

Ron, this is why we "Used" to get paid the BIG BUCKS. This is like a puzzle, so you will have to do some research. Check the project on the internet and see if you can find prices from when it was new. Obviously, there appears to have been price adjustments for something?? floor location, view, end units, floor plans, ect. If not, why would someone pay $254k for a unit similar to the subject within the past year when 2 of your noted listings have been on the market over one year and two others are over 6 months (and all at lower prices, some much lower). You say they are all "virtually identical", but obviously the market is saying something else. Some research and talking to the agents (especially the buyer's agent for the $254k unit, ask him why, with other "virtually identical" units available for much less, did his buyer's choose that unit) will likely provide the necessary clues. Good Hunting.

 

[Rlong]

Well although you have not FOUND the reason... it is there.

Your saying two sold for $245 (and a smaller one for $215) WHILE the "crappy one" was listed for $189,000. Principle of substitution indicates their not equal. Did dig dig..

Good Luck,
Bob in CO

 

[J Grant]

what floor height, and location within building were the two sales? end or interior units?

What floor height and placement within building are the listings? end or interior units? Are any of the listings matches in floor height and unit placement to the two sales?

What floor height is your subject? Are there any superior or inferior locations within building for a unit, or are they all equivalent?

Is there a recent change in the way the building is run or financials? Is it coincidence that so many units are for sale at one time, or are original owners who might be investors who bought back in 2006 starting to sell?

What is happening in other area similar condo buildings? Are they also experiencing growing inventory with prices lower than the sales?
It is important to see if the condo market in area is declining with an over supply of listings, or a trend particular to subject building.

 

[Ron Patton]

I spoke with the developer of the complex and he explained he was attempting to unload the final few units. The sale that sold for over $250,000 in June was a custom build with significantly higher quality (hardwoods throughout) and a superior interior location overlooking the large green area in the rear. He was perplexed as to why a few units weren't selling...as am I. There is a very similar newer complex within 1 mile down the road that has active market activity and doesn't show any signs of lack of demand or over supply.

 

[J Grant]

I spoke with the developer of the complex and he explained he was attempting to unload the final few units. The sale that sold for over $250,000 in June was a custom build with significantly higher quality (hardwoods throughout) and a superior interior location overlooking the large green area in the rear. He was perplexed as to why a few units weren't selling...as am I. There is a very similar newer complex within 1 mile down the road that has active market activity and doesn't show any signs of lack of demand or over supply.

That explains higher sale of one unit at least.

Maybe his units are not selling because of competition from newer complex within a mile. If a similar price range, buyers would rather buy newer. How much newer, price difference?

It's a tough challenge...will prices bounce back once the developer's units are sold? On the other hand, his units are available now at lower prices, and would affect value as of effective date in subject building for competing units .

I have no idea of course where this will appraise, but from info given, I see no reason why subject is worth any more than what they bought it for in 2012.