Single Family Comps in use of Condominium Appraisal

[penapp692]

Recently appraised several new units of inventory in a newer ranch condominium development, however there have not been any recent closed sales of new units but a number of re-sale units, which have sold significantly lower than the builder list prices of new units. The new units are also sitting on the market longer than the re-sale units. The neighborhood is primarily occupied by senior residents, however does not have age or residency restrictions unlike many similar developments in the general market area.

The bank is questioning the report because there are only resale units available and they believe that a new unit has more value (the re-sales are less than 3 years old in construction age). The bank states that the re-sales are "distressed sales" due to factors including one unit selling due to the death of a spouse and another being the owner was moved to a nursing home facility. I disagree, because despite the lack of age and residency restrictions, this neighborhood is approximately 99% occupied by senior residents.

Now the bank has come back and asked us to use sales of new units from a single family neighborhood located less than a mile from the development which are selling significantly higher and closer to the list price being asked by the builder of the subject development. This neighborhood DOES have age and residency restrictions, however is NOT a condominium development. I have NEVER heard of one using attached single family sales in the use of a condominium appraisal. I refuse to do it. Am I right?

 

[Randolph Kinney]

Recently appraised several new units of inventory in a newer ranch condominium development, however there have not been any recent closed sales of new units but a number of re-sale units, which have sold significantly lower than the builder list prices of new units. The new units are also sitting on the market longer than the re-sale units. The neighborhood is primarily occupied by senior residents, however does not have age or residency restrictions unlike many similar developments in the general market area.

The bank is questioning the report because there are only resale units available and they believe that a new unit has more value (the re-sales are less than 3 years old in construction age). The bank states that the re-sales are "distressed sales" due to factors including one unit selling due to the death of a spouse and another being the owner was moved to a nursing home facility. I disagree, because despite the lack of age and residency restrictions, this neighborhood is approximately 99% occupied by senior residents.

Now the bank has come back and asked us to use sales of new units from a single family neighborhood located less than a mile from the development which are selling significantly higher and closer to the list price being asked by the builder of the subject development. This neighborhood DOES have age and residency restrictions, however is NOT a condominium development. I have NEVER heard of one using attached single family sales in the use of a condominium appraisal. I refuse to do it. Am I right?

You are the appraiser and that means you make the calls for how you go about satisfying Standard 1 in the appraisal process.

You do not have apples to apples direct comparisons. If you were to use SFR new construction to compare against new condo construction, you have to derive a price relationship. The buyers of a condo are different than SFR buyers. This is really a complex assignment if you use that approach.

 

[DMZwerg]

Recently appraised several new units of inventory in a newer ranch condominium development, however there have not been any recent closed sales of new units but a number of re-sale units, which have sold significantly lower than the builder list prices of new units. The new units are also sitting on the market longer than the re-sale units. The neighborhood is primarily occupied by senior residents, however does not have age or residency restrictions unlike many similar developments in the general market area.

The bank is questioning the report because there are only resale units available and they believe that a new unit has more value (the re-sales are less than 3 years old in construction age). The bank states that the re-sales are "distressed sales" due to factors including one unit selling due to the death of a spouse and another being the owner was moved to a nursing home facility. I disagree, because despite the lack of age and residency restrictions, this neighborhood is approximately 99% occupied by senior residents.

Bank would apparently be trying to influence your appraisal and apply pressure on you to hit a number. Three year old properties often do have a slightly lower value than new, but that is due to depreciation and "first owner syndrome". It can be accounted for using age adjustments, etc, and documented well. A new house that has languished many months on the market could well be gathering issues of its own and could also be subject to age adjustments. As you mention the new constructions seem to have longer marketing times on average that seems to indicate a market preference you may be able to quantify.

Well, in other words, good luck and I hope you stick to your guns.

 

[Lloyd Bonafide]

Ask Mr. or Mrs. Banker: if they were going to buy in this development, would they rather buy a new one, or would they choose one of the crappy, beat-up three-year-old units, (you know - the ones with nice landscaping, window coverings, upgrades, etc., at a much lower price). And if they have to foreclose on one of these in a few years, would they rather take back one that sold really high this year, or much lower?

 

[penapp692]

That's my point exactly...why am I going to pay an additional $50K for new unit when I can buy a re-sale unit that has been just as meticulously maintaned by the association? Like I stated, its predominatley senior occupied? Do they think these residents are just throwing parties and damaging the property every weekend? And for the record, I DID get permission to enter an occupied unit via the site agent...No difference in condition, unless you account for poor decorating tastes? lol

 

[Mike Boyd]

Bank would apparently be trying to influence your appraisal and apply pressure on you to hit a number. Three year old properties often do have a slightly lower value than new, but that is due to depreciation and "first owner syndrome". It can be accounted for using age adjustments, etc, and documented well. A new house that has languished many months on the market could well be gathering issues of its own and could also be subject to age adjustments. As you mention the new constructions seem to have longer marketing times on average that seems to indicate a market preference you may be able to quantify.

Well, in other words, good luck and I hope you stick to your guns.

I agree with D.M. Is the builder offering incentives for buying a new unit? By the way: What is a "ranch" condominium?

 

[OminousRun]

It's a big no-no to ignore more suitable comps (like the ones that area actually resale condos in the development), in favor of comps outside the area (farther away single family nonetheless!!).

Don't do it, unless you want a TON of headaches justifying yourself later on (in front of a state board).....and "The bank told me to do it" is not a reasonable excuse in their eyes.

 

[vanguard]

It is my understanding that lenders have a 5% tolerance range. If they sell the unit at 5% above your opinion of value then they can post it on the MLS and get the ball rolling again on increased values associated with increased costs for constuctiojn.You are providing the client with your opinion of value and you do not have to rubber stamp the sale price. If the client does not like the appraised value they can disregard it and fund the mortgage based on whatever value they consider appropriate.

 

[penapp692]

Mike,
To answer your question, there are a number of new developments in the area that are becoming more increasingly popular with builders..ranch style condominiums geared to the "active adult community"...nothing more than a one story attached (sometimes with a room over garage) having standard upgrades but buyers can opt for handicap amenities to include wider door frames or lower counter-tops, etc...The appraisal is not for a mortgage however, is for the bank because they've financed the development..Either way, their reasonings for disputing the value or the comps used have no validity, so basically, if they want a higher value and want to single family comps and ignore the recent sales in the neighborhood, they can find someone else. Sadly, it took several back and forth emails for them to realize that I wasn't budging..Thanks everyone!

 

[DMZwerg]

Mike,
To answer your question, there are a number of new developments in the area that are becoming more increasingly popular with builders..ranch style condominiums geared to the "active adult community"...nothing more than a one story attached (sometimes with a room over garage)

Side-by-side (2 unit) ranch condominiums are not that uncommon in some areas. Probably currently the most common new duplex condos (also called twindos, etc).

I have seen side-by-side ranches sold separately as SFR in Milwaukee as well.