One Bedroom Condo

[Chase UW]

I am an UW looking at a 1 bedroom condo in California. The appraiser only provides A 2 bedroom unit from the project. I searched MLS for the last 2 years and I was unable to locate a 1 bedroom unit from the subject project that consists of 43 units. The report does not have any commentary regarding this issue other than to say he could not locate a similar unit in the project. A 1-bedroom sale was provided from outside the project.

I am going to confirm whether there are other 1 bedroom condos in the project but if there are not wouldn't this be a marketability issue? How should this have been addressed in the report?

 

[RSW]

Sounds like the appraiser did the right thing by going outside of the development to locate a 1 BR unit since there are none in the subject's development. I would have given a detailed comment about the lack of 1 BR sales in the subject's development and why it was necessary to go outside in order to locate 1. Fannie Mae already requires 1 sale from outside the development anyway. So, it looks like the appraiser killed to birds with 1 stone.

 

[Chase UW]

Sounds like the appraiser did the right thing by going outside of the development to locate a 1 BR unit since there are none in the subject's development. I would have given a detailed comment about the lack of 1 BR sales in the subject's development and why it was necessary to go outside in order to locate 1. Fannie Mae already requires 1 sale from outside the development anyway. So, it looks like the appraiser killed to birds with 1 stone.

thank you for the response.

 

[timd354]

Sounds like the appraiser did the right thing by going outside of the development to locate a 1 BR unit since there are none in the subject's development. I would have given a detailed comment about the lack of 1 BR sales in the subject's development and why it was necessary to go outside in order to locate 1. Fannie Mae already requires 1 sale from outside the development anyway. So, it looks like the appraiser killed to birds with 1 stone.

Fannie does not require one of the comps to be located outside of the condo project unless the project is a new (or recently converted) project although some lenders do have that requirement as an overlay to the Fannie guidelines. Here is the applicable text from Fannie Mae Selling Guide


Section B4-1.3, Appraisal Report Assessment
B4-1.3-08, Comparable Sales (01/31/2017)
Additional Requirements for New (or Recently Converted) Condos, Subdivisions, or PUDS

If the subject property is located in a new (or recently converted) condo, subdivision, or PUD, then it must be compared to other properties in the neighborhood as well as to properties within the subject subdivision or project. This comparison should help demonstrate market acceptance of new developments and the properties within them. The appraiser must select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. The third comparable sale can be from inside or outside of the subject subdivision or project, provided it is a good indicator of value for the subject property. Two of the sales must be verifiable from reliable data sources, other than the builder. Sales or resales from within the subject subdivision or project are preferable to sales from outside the subdivision or project provided the developer or builder of the subject property is not involved in the transactions.

 

[RSW]

That is true..

 

[J Grant]

I am an UW looking at a 1 bedroom condo in California. The appraiser only provides A 2 bedroom unit from the project. I searched MLS for the last 2 years and I was unable to locate a 1 bedroom unit from the subject project that consists of 43 units. The report does not have any commentary regarding this issue other than to say he could not locate a similar unit in the project. A 1-bedroom sale was provided from outside the project.

I am going to confirm whether there are other 1 bedroom condos in the project but if there are not wouldn't this be a marketability issue? How should this have been addressed in the report?

Yes it would be a marketability issue, and it is questionable whether a 2 bedroom is a good comp at all for a 1 bedrm condo, even if it is in same building....it could have been commented on and not put on grid. See if there are any listings or pendings of 1 bedroom in subject building.

As far as how it should have been addressed...as san UW you should have a general idea,or study up on appraisals ( a basic course would do), common sense though and what might be a large price gap between a 1 and 2 bedroom condo is a start.

 

[jay trotta]

Fannie does not require one of the comps to be located outside of the condo project unless the project is a new (or recently converted) project although some lenders do have that requirement as an overlay to the Fannie guidelines. Here is the applicable text from Fannie Mae Selling Guide


Section B4-1.3, Appraisal Report Assessment
B4-1.3-08, Comparable Sales (01/31/2017)
Additional Requirements for New (or Recently Converted) Condos, Subdivisions, or PUDS

If the subject property is located in a new (or recently converted) condo, subdivision, or PUD, then it must be compared to other properties in the neighborhood as well as to properties within the subject subdivision or project. This comparison should help demonstrate market acceptance of new developments and the properties within them. The appraiser must select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. The third comparable sale can be from inside or outside of the subject subdivision or project, provided it is a good indicator of value for the subject property. Two of the sales must be verifiable from reliable data sources, other than the builder. Sales or resales from within the subject subdivision or project are preferable to sales from outside the subdivision or project provided the developer or builder of the subject property is not involved in the transactions.

Tim, (my bold); IMO for a Condo, 2 in and 1 out provides similarity in market acceptable indicators. OP: trying to gather beyond a 1 year timeline for this data may provide an incorrect indicator based on "timeline". One item that may be more typical of the complex (43 units) is smaller and if run well, limited overall sales activity. It may actually retain Owners based on how well it is being run; the smaller the Complex, more of a community atmosphere.
Just a thought

 

[J Grant]

Older sales are often excellent indicators...all one needs to do is make a time adjustment if warranted. The market a year ago was pretty strong so its not like comparing a vastly different market.

The size, functional utility and (often) a large price difference and HOA fee difference means the buyer for a 1 bedroom condo is typically not the same buyer as for a 2 bedroom condo. Fannie requirements are their own bare minimum; appraiser has to use similar sales to subject to credibly support value regardless of a Fannie requirement, or lack of requirement, about using comps outside a subject building/condo .I fail to see how in (most cases) a 1 bedroom and 2 bedroom condo are similar, just because they are in the same building. One can use it perhaps as a fourth comp, but to use it as first 3....a weak appraisal unless 1 bedroom condo sales are so scarce in the area ( and that presents a marketability issue of its own)

 

[Mike Kennedy]

I am an UW looking at a 1 bedroom condo in California. The appraiser only provides A 2 bedroom unit from the project. I searched MLS for the last 2 years and I was unable to locate a 1 bedroom unit from the subject project that consists of 43 units. The report does not have any commentary regarding this issue other than to say he could not locate a similar unit in the project. A 1-bedroom sale was provided from outside the project.

I am going to confirm whether there are other 1 bedroom condos in the project but if there are not wouldn't this be a marketability issue? How should this have been addressed in the report?

The Condo Mgmt. Co./ HOA should have been contacted to determine the total # of units, # of 2 BR, #1 BR (or other units i.e. 3-4 or Studio) units. The data should also have been available at the Local or County Building, Zoning & / or Assessor's departments. The Condo characteristics including the above and common elements etc. should have been discussed including whether or not they are typical or atypical in the subject's local market. Retroactive data from HOA, MLS, Assessment records should have been utilized to confirm the info above and ascertain IF/ when the last 1BR unit *(if there are any others) sold and included in the condo project analysis section. Lastly, contacting the Listing/Selling Agents of the 2 BR units IN the subject's condo should also provide the info the appraiser and you need.

When NO recent sales of 1 BR units occurred this MAY indicate the lack of any OTHER 1BR units in the subject's condo, or higher than typical property retention for existing 1 BR Units vs more common 2 BR units which often/typically sell for higher price$$.

The results of the research MAY provide the basis for necessarily utilizing "dated"/ older 1BR unit sales, active / contracted listings, AND/OR 1 BR units from a competitive Condo (if any exist) which would also be discussed in the report.

The Appraiser may or may not have done some or all the above - and the extent of his/her data search on the subject's condo and competing ones should have been in the market analysis section of the report AND in support of the comparable sale selection made.

 

[Tom4value]

The fact that the reviewer is wondering if there are 1 bedroom units in the development means this was not commented on in the report. Big faux pax!

If there are no 1 bedroom units in the development at all then that means that it was built as a 2 bedroom and they removed a wall to make a large 1. In that case, appraiser could have solved a headache by saying such, used 2 bedroom comps and adjust for cost to convert back to a 2.