Question about condo vs. attached SFR

[Bohemiana]

I'm a real estate agent and I've spent a lot of time researching on your board. I have an FHA appraisal that came in under the purchase price and the bank won't do a new appraisal or review unless there are 4 new comps. My issue is not in the comps used but in the appraiser's opinion that there is no value difference between an attached SFR in a PUD (subject owns the land the structure sits on and the structure) compared to a typical condo where homeowner only own airspace and an undivided interest. I looked up the title on each property used in the appraisal and they were all the same airspace, undivided interest.

Here in southern CA, very few condos are FHA approved in our market and many can't even go conventional because of dues delinquencies and low owner-occupancy rates. It's really a nightmare to try to get a buyer into a condo unless there's at least 20% down. This is the reason my buyer is buying this particular property because it's one of the few that can get FHA financing. The bank admits an attached SFR is no problem to finance and a condo is extrememly difficult. That's why it's hard to comprehend how there can be zero value in owning the land and structure, plus having much, much easier financing options.

Can anyone in So. Cal or a similar market help me understand the appraiser's opinion or tell me a tactic I can use to get the bank to do a new appraisal?

 

[Randolph Kinney]

I'm a real estate agent and I've spent a lot of time researching on your board. I have an FHA appraisal that came in under the purchase price and the bank won't do a new appraisal or review unless there are 4 new comps. My issue is not in the comps used but in the appraiser's opinion that there is no value difference between an attached SFR in a PUD (subject owns the land the structure sits on and the structure) compared to a typical condo where homeowner only own airspace and an undivided interest. I looked up the title on each property used in the appraisal and they were all the same airspace, undivided interest.

Here in southern CA, very few condos are FHA approved in our market and many can't even go conventional because of dues delinquencies and low owner-occupancy rates. It's really a nightmare to try to get a buyer into a condo unless there's at least 20% down. This is the reason my buyer is buying this particular property because it's one of the few that can get FHA financing. The bank admits an attached SFR is no problem to finance and a condo is extrememly difficult. That's why it's hard to comprehend how there can be zero value in owning the land and structure, plus having much, much easier financing options.

Can anyone in So. Cal or a similar market help me understand the appraiser's opinion or tell me a tactic I can use to get the bank to do a new appraisal?

The appraiser should have gone back in time to graph the $/sf relationships between the two neighborhoods, showing the difference. In order not to make an adjustment, the two trend lines would have to overlap, coincide with each other as of the effective date of the appraisal.

You can do that yourself. Just take +/-20% GLA as a screen, go back 5 years, use Excel, plot the individual data points of $/sf versus COE (date of sale).

The other graph to construct with the same data is to show the relationship of price versus GLA for the two neighborhoods.

You can also segregate the data into groups: regular sales and distressed sales.

This technique paints the picture.

Good hunting.

 

[Calvin the Airedale]

I'm a real estate agent and I've spent a lot of time researching on your board. I have an FHA appraisal that came in under the purchase price and the bank won't do a new appraisal or review unless there are 4 new comps. My issue is not in the comps used but in the appraiser's opinion that there is no value difference between an attached SFR in a PUD (subject owns the land the structure sits on and the structure) compared to a typical condo where homeowner only own airspace and an undivided interest. I looked up the title on each property used in the appraisal and they were all the same airspace, undivided interest.

Here in southern CA, very few condos are FHA approved in our market and many can't even go conventional because of dues delinquencies and low owner-occupancy rates. It's really a nightmare to try to get a buyer into a condo unless there's at least 20% down. This is the reason my buyer is buying this particular property because it's one of the few that can get FHA financing. The bank admits an attached SFR is no problem to finance and a condo is extremely difficult. That's why it's hard to comprehend how there can be zero value in owning the land and structure, plus having much, much easier financing options.

Can anyone in So. Cal or a similar market help me understand the appraiser's opinion or tell me a tactic I can use to get the bank to do a new appraisal?

Your approach should be to demonstrate that such a difference exists. I realize that comps may be few and fair between, at present, but I am sure that this has not always been so.

Go back in time and demonstrate, by pairing dated PUD sales with same period condo sales similar to those currently used as comps that, aside from all other differences, a value difference exists between the two forms of ownership.

Such support may be the basis for you to appeal to the lender and their appraiser to take a second look. Your presentation should emphasize the consequences of the difference in ownership and especially to the ease of financing and the availability of FHA funding. Even though the both housing products may appear similar in most respects, obviously for the differences noted, there are real and tangible consequences that should be reflected in the prices.

Is your screen name Bohemiana because you're a Czech or because you fancy yourself a non-conformist intellectual?

 

[Bohemiana]

Calvin--I'm part Czech and non-conformist, but not very intellectual!

Wow, that is going to be hard to go back 5 years but I'll see if I can do that. The subject is new construction and there are some 1970s attached SFRs (but they do not own the land) that have sold higher than the subject recently so I'm not sure why he didn't use those--he used a newer condo instead I guess because of age.

At this point in time the seller won't accept the appraisal price so it looks like we'll have to go back out looking for another property if I can't get a review approved pretty quick.

 

[TJSum]

First question, why did the appraiser use condo comps? Were no PUD comps available? If there is a legit reason for it, then follow the advice given above, see if there is a historical difference between the two. This might not reveal the problem though, if the financing issues on the condos have recently changed (most likely).

The prices in condo projects in this region that have severe financing issues have fallen off a cliff, they would not be accurate comps for a PUD not facing the same issues.

 

[Bohemiana]

No PUDs nearby. I actually used the same properties as the appraiser used but I made an assumption that owning the land and structure, and having easier financing options would be more valuable hence justify the higher price we negotiated with the seller. I have an easier time accepting owning the land isn't important in SoCal but financing issues are very real these days in condos. It's really hard to sell a condo that can't go FHA.

 

[Bohemiana]

One more thing about the appraisal...the appraiser justified there was no additional value in the PUD because you don't have freedom to change it. (I assume he means paint it a different color, make additions, etc.) My response was you really don't have very much if any freedom in any PUD--it seems like there are always restrictions on colors, additions, etc.

 

[TJSum]

How can the appraiser say there is no value difference between the PUD, which can easily obtain financing, and the condos which can not? Like I stated, in my market, that would create a huge value difference.

 

[jakeboeger]

I agree. In my markets, units in projects with high owner occupancy rates where financing is easy to obtain are usually sold much higher than similar units in low owner occupancy projects where financing is difficult.

Also...

Going back in time to compare projects may not be the best solution for you as these issues have only come about over the last year few years. To justify your argument you may want to compare similar projects with differing occupancy rates to extract an average price difference or percentage.

 

[Randolph Kinney]

Can you give me the location (address or PUD name and city)? Anything?

One can look at historical relationships of condos and PUDs of similar age and size over time and extrapolate that percentage difference to the new PUD.

Condos that are not FHA approved, for example, sell for all cash or with hard money loans.