Townhouse versus Condominium Comparables

[Mr Rex]

If both projects have a long sales history, you have the answer to your question right in front of you.

You could compare a townhouse to pre-1976 mobile homes with enough data.:icon_idea: At least I think thats what Lee is saying in a round about way.

 

[Couch Potato]

Here there is many differences in a TH when the exterior needs repair, and or painting; or the roof needs replacing the home owner picks up the bill, However in a condo the condo association picks up the bill. In a town home there is usally Land involved in condos true there is land involved it just does not belong the the condo owner.

In some developments the reverse is true. Only a specific analysis can compare competing developments regardless of the ownership type, or the architectural style of the subject. As long as there are some common characteristics a comparison can be done.

 

[Lee Lansford]

You could compare a townhouse to pre-1976 mobile homes with enough data.:icon_idea: At least I think thats what Lee is saying in a round about way.

Close enough.

Given reasonably good similarities other than the form of ownership present in two projects, a review and analysis of sales history should provide the appraiser with sufficient information to evaluate whether one is a market substitute for the other (and, what adjustments, if any, might be appropriate).

I understand that each situation is different. Very frequenty during my last 25 years of appraising, I have observed that owners and Realtors (agents in general) are often surprised to learn that the dwellings in a particular townhouse project have condominium form of ownership. Buyers, sellers and agents often seem to be oblivious to the form of ownership Given otherwise (other than form of ownerhsip) good similarities between two townhouse projects, I have not yet been able to identify an adjustment that was appropriate due to the form of ownership. I'm not stating that my experience is applicable to each and every location that others frequent, but this has been my experience.

 

[David Mescon]

Ron, I don't know about CO, (did I just make a rhyme?), but in most venues, condominiums are legally defined as airspace condominiums, and you own the space between the floor, the ceiling and the walls. In most areas townhomes are typified by full vertical property rights, (i.e., ground, surface and air), and, generally speaking, the interior 1/2 of the perimeter walls.

Assuming that the two projects' physical configurations are similar, i.e., the units in both are either single story units or multi-story units, (we only know that your subject's project is three stories - we don't know how many levels each unit comprises), it might work. The major issue I could foresee is if the townhome units appreciate faster in "good times" than the condominium units. This is a common phenomenon and I have observed it in a number of metropolitan markets. If this is the case, you may be SOL, and have to go far far away for comps. The easiest way to test the stability of the relationship between the projects is to do some historical research. Go back to when units last sold in the subject project and compare them with units in one of the other projects. Look at the residual differential, if any, after making hypothetical adjustments for all other known relevant elements of comparison. Now, go back another year, and do the same. Finally, go back one more year and do it again. If the proportionate linkage appears to be relatively static over a three year timespan, it is likely these would make adequate comps. If not, you may just be out of luck and have to go to another city entirely for comps.

Lee, I have appraised innumerable condos. in the valley, (I lived there for about thirty years). There is definitely a legal difference between a condo. and a townhome in California. By legal definition there, townhomes include the underlying land. Condos usually do not, (I know of at least one exception to that). Irrespective of legalities, in rising markets, all other locational and physical characteristics being equal, townhomes virtually always appreciate more rapidly than condos. SFRs outpace them all. Things may have changed since I left in the early 90s, but I doubt they changed that much.

 

[tmcneeley]

The answer is as easy as this: Would a potential buyer consider those properties if they were looking for a place like your subject? That is all that matters. When you are talking about Townhomes as single family, it is better to use the term "single family attached" as this describes the ownership rather than design, as there are also townhome styled condominiums.

With that said, your description of the single family attached homes appear to be valid substitution properties in the market. While single family attached homes usually have a small amount of land attributed to them, this land is usually nominal, and somewhat similar to the undivided shared land of a condo ownership. If all the amenities are similar, design is similar, and characteristics are similar, then it is a comp.

To the above thread, it doesn't matter what the future appreciation rates might be in SF vs. Condo, because you aren't appraising the future, you are appraising the marketability of your condo at the present, and if the single family attached properties are competing with them right now as a viable substitution, then they can be used. Like I said, let's not be guilty of hubris here, all that matters is if a potential buyer would consider them as viable substituitons.

 

[Ariba]

Ron, I don't know about CO, (did I just make a rhyme?), but in most venues, condominiums are legally defined as airspace condominiums, and you own the space between the floor, the ceiling and the walls. In most areas townhomes are typified by full vertical property rights, (i.e., ground, surface and air), and, generally speaking, the interior 1/2 of the perimeter walls.

By legal definition there, townhomes include the underlying land. Condos usually do not,

Thank you for all the input.

In my scenario the amenities are the same. Exterior building maintenance, roof, pool tennis courts, clubhouse, etc. Homeowners Association dues very similar. Also, as I stated before this is an age (55+) restricted unit.

Would you compare age restricted housing with none age restricted housing?

Bottom line, what is the difference for a homeowner besides the legal definition. So you own the underlining land for a townhouse, so what! In other words in the legal sense what can a Townhouse owner do that a condominium owner cannot.?

 

[OminousRun]

Thank you for all the input.

In my scenario the amenities are the same. Exterior building maintenance, roof, pool tennis courts, clubhouse, etc. Homeowners Association dues very similar. Also, as I stated before this is an age (55+) restricted unit.

Would you compare age restricted housing with none age restricted housing?

Bottom line, what is the difference for a homeowner besides the legal definition. So you own the underlining land for a townhouse, so what! In other words in the legal sense what can a Townhouse owner do that a condominium owner cannot.?

In townhomes, due to the land ownership, the owner can often make small improvements to the outside (front and rear) of the landscaping of the home, and also may be able to install a fence (if allowed). With Condos you can't do any of that. The condo usually controls all of the exterior landscaping and improvements to the land.

Small difference, but still a difference.

 

[tmcneeley]

Exactly, there is a small difference depending on the land that is attributed to your attached single family home.

I don't think I would compare a 55+ community to a regular condo or single family attached, as the market segments of buyers is limited on a 55+ community, and the appeal is different.

 

[Lee Lansford]

The answer is as easy as this: Would a potential buyer consider those properties if they were looking for a place like your subject? That is all that matters. When you are talking about Townhomes as single family, it is better to use the term "single family attached" as this describes the ownership rather than design, as there are also townhome styled condominiums.

With that said, your description of the single family attached homes appear to be valid substitution properties in the market. While single family attached homes usually have a small amount of land attributed to them, this land is usually nominal, and somewhat similar to the undivided shared land of a condo ownership. If all the amenities are similar, design is similar, and characteristics are similar, then it is a comp.

To the above thread, it doesn't matter what the future appreciation rates might be in SF vs. Condo, because you aren't appraising the future, you are appraising the marketability of your condo at the present, and if the single family attached properties are competing with them right now as a viable substitution, then they can be used. Like I said, let's not be guilty of hubris here, all that matters is if a potential buyer would consider them as viable substituitons.

This is fairly well my thinking on this subject.

 

[David Mescon]

Perhaps I was not clear. The reason you develop an economic linkage history is to determine the stability of the relationship between the subject project and the potential comparable project(s). This can be exceedingly important. If there is an economic differential between the subject and the townhome unit(s) (i.e., all other things being equal, the townhomes sell for more, which is common), then there is a quantifiable differential between the two. Also if the proportionate difference between the two is dynamic, as is my premise, the adjustment will shift over time - i.e., the relationship will change. All I'm saying is that to CYA, I would recommend a simple, historical analysis of the linkage to see if it is either static, or nearly static. It would make me feel much warmer and fuzzier.

I generally don't like to compare apples with oranges, but sometimes it is necessary. I just tread very carefully when doing so.