Method for calculating bulk sale discount for 13 residential condos

[BRCJR]

For regulated lending:

The "as is" value of each unit is necessary.
The absorption period for the total number of units is necessary.
If the market analysis indicates all units can be sold within 12 months of the loan transaction date, no discount is required by law.

If longer than 12 months the DCF will be required.

If less than 12 months I would still consider some level of discount for holding costs (commissions, taxes, insurance, legal fees, possible R&M and management).

 

[Terrel L. Shields]

I don't see how we can get to a value of the whole without starting with the values of the individual units.

you have to predict the price for each sold lot by the year of the holding period. So, yes you are discounting the lot price but that price changes or can. Here, pre-08, absorption times were in months. But prior to say, 2001, the absorption time of a typical subdivision was maybe 3-8 years. Complicates things substantially.

 

[sputnam]

There is no 'formula'. The answer, as always, is in the market. The answer is found by gathering and analyzing sufficient market data.

 

[Zoe]

"There is an affordable housing problem here, and large employers, the county, the school board, and a funded affordable housing agency are the most likely bulk buyers. I say "likely" because these condos may not fit their criteria or level of funding."

This part bothers me. That is almost like predetermined H&B use. I know. I don't like that analysis going in.

 

[Zoe]

I don't like that analysis going in.

Preliminary analysis would best describe what you posted.

 

[JTip]

You can't say 'affordable', that's a bad word. Like calling Fernando a ******, you just can't do it these days.

 

[sputnam]

You can do an appraisal with a predetermined highest and best use. It's not market value. It's value in use.

 

[Zoe]

I don't know if you posted or not. But who is the client on this appraisal

Thank you. I've given it more thought this afternoon and reached some conclusions. Even if condo bulk sales are rare, the concept is on the table for this appraisal. I should have called it what it is.... a "liquidation value." The company owning all the condos has a fiduciary responsibility to the shareholders to sell the assets quickly, reduce their holding costs, and maximize the return. A judge will oversee everything, so they need an expert opinion on a bulk discount or whatever it will take to sell quickly at the highest profit. Due to a lack of proven bulk buyers for this property type and the low inventory, I may advise the client to sell units individually with supply and demand-derived discounts for each type of condo (studios will sell quickest, for example, a 3-bedroom in an old building will take longer and should have a higher discount from MV, etc). All in all, with a bulk discount, it may take longer and be riskier to put all their eggs in one basket than it would to sell the units individually.

That doesn't matter really. You still want to give property rights the best way to sell it to your client.

 

[Zoe]

For regulated lending:

The "as is" value of each unit is necessary.
The absorption period for the total number of units is necessary.
If the market analysis indicates all units can be sold within 12 months of the loan transaction date, no discount is required by law.

If longer than 12 months the DCF will be required.

If less than 12 months I would still consider some level of discount for holding costs (commissions, taxes, insurance, legal fees, possible R&M and management).

But we don't know client requirements. What about cash sale?

Who is this client? Is it the owner?

Is it a lender?

Let's assume client says I want 12 month liquidation value.

You see the problem?

 

[Zoe]

You can't put the cart before the horse. It don't work.