Using Condominiums as Comparable Sales for a Single Family (details)

[DTB]

IMO, you are going to have to show something to demonstrate the site differential and SF on land differential vs site condos. I can see an UW having a cow over this and rejecting the loan, not to mention when it hits the secondary UW review. Whatever you do, keep that in mind. I don't envy your problem.

You actually might go back to the client and outline the problem. There's a distinct possibility that the lender may decide to pull the plug on this one given the issues.

I've done it several times, explaine dthe reasoning in the report and not even a call back. In many markets here the owners don't even know what type of ownership they have. Pretty hard for them to say they have a preference.

 

[AnonApprsr]

Did that appraiser disclose the use of condos. in the report?

Definitely. It was the reason why the sales office suggested them.

 

[incognito]

Though I have used detached unit condo's for comps for otherwise similar detached fee simple houses, in your case, I think there is too much difference to credibly support any adjustments or conclusions.

I really think the solution is much similar. If you must, go 20-30-40 or more miles and find a similar sfd development, and use sales from there.

Per FNMA:

Per FNMA: "If a property is located in an area in which there is a shortage of comparable sales, you might need to use properties within the neighborhood that are not truly comparable to the subject or properties that are located in competing neighborhoods. This may be due to either the nature of the property improvements or the relatively low number of transactions in the neighborhood. These sales may simply be the best comparable sales available and most appropriate for your analysis. The use of such comparable sales is acceptable as long as you adequately document your analysis and explain why these comparable sales were used. You must adequately explain how a competing neighborhood is comparable to the subject neighborhood."

If the nearest comparable neighborhood is 50 miles away, so be it. Explain it well, and you should have more credible and supportable conclusions.

 

[Mark K]

If it walks like a duck, quacks like a duck....

My point is this; Does the typical buyer really know or care about the different ownership types, condo vs. non-condo?

To many buyers, both properties are condos. Owners have very little control over the property; someone else does the maintenance, both have monthly HOA fees, etc.

In a couple of PUDs in this area we have single-family condos and non-condos that looks essentially identical. Free standing, maintenance free, 1500-2000 s.f. brick homes. Even the non-condo owners think they live in condos and they call them such. I've have numerous discussions with owners/lenders where the owners swear they live in a condo but that isn't the case.

It sounds to me that your situation is somewhat similar and using either for comps for the other is not out of line and definitely superior to using comps from another market or area miles away.

 

[incognito]

My point is this; Does the typical buyer really know or care about the different ownership types, condo vs. non-condo?

They will when they go to refinance, and find that the Condo portion is not lendable because there are over 25% tenant occupied, remaining unsold developer units, and 10% or more owners behind in their condo fees! The guy in the Fee simple will never have those issues. There are countless other potential issues why many buyers avoid condo ownership, no matter WHAT shape the building or residence may be!

And regardless of what you may speculate, you MUST be able to support your adjustment or lack of in the market, and I do not think there is adequate market data to do so. Go 50 miles away like I suggested...

 

[Mark K]

Go 50 miles away like I suggested...

Similar, competing market...... 50 miles away. Yeah, right. Support that adjustment or lack thereof.

I can hear the realtor now..."Hey Mr. Potential Buyer, I know you like this city and this neighborhood but I want you to look at a competing, similar neighborhood, its only 50 miles away." When the laughing stops the realtor may come to the realization that there is no such thing as a similar, competing neighborhood 50 miles away.

Besides, an apparent personal bias against condos is not a sufficient reason to ignore their existence. There's just as many people that love them as hate them and buying in a highly restricted neighborhood with a strict HOA, whether its condo or non-condo, makes little difference to many people.

 

[residentialguy]

Gotta do what ya gotta do to make a credible appraisal. While that area 50 miles away may or may not draw the same buyer, it may draw similar buyers and be a community with similar market demand and amenities that is reflective of the subject's market value.


I've gone to California to pull comps before for MN. I didn't end up using them, but it was a nice write off!

 

[EddieB]

MK, The condo ownership properties are attached units while the subject is a detached SFR. I don't think it is incognito's or anyones' bias against that form of ownership. We have differing forms of ownership and attached vs. detached properties. All fannie is saying is you better account for all factors and if you have to go to competing markets, account for those differences and support your conclusions.

 

[incognito]

When the laughing stops the Realtor may come to the realization

Then ask the Realtor for your adjustments!

I think you may want to broaden your perspective on appraising. Comparable DOES NOT mean that the same buyer may be interested in it...

I have traveled several counties for residential comparable sales. Some times, comparable (not competing, two different things) properties simply do not exist in the same market area as the subject. I've appraised houses on islands. Try to find 3 sales within 1 mile and conform to FNMA guidelines.

Similar, competing market...... 50 miles away. Yeah, right. Support that adjustment or lack thereof.

Re-read my post. I NEVER said competing. Those are your words.

Support the adjustments? Quite easy to do. There is no need to do a matched pair analysis between the two. I understand your experience may not have afforded you the opportunity to appraise complex properties, (and I do not say that condescendingly), but if you can locate a community 100 miles away, and it can be shown with reasonable degree of confidence that property values are similar, LTV ratios are similar, there is no reason you could not select a comparable (NOT competing sale) from that subdivision, and have NO adjustments!!! Nothing to prove there adjustment wise.

I have gone out of state for comparables on historic homes. Do you realize that when doing commercial appraisals, in is not inconceivable that an appraiser would go half way across the country for a comparable, and I've read appraisals of sky scrapers where the appraiser has gone to different countries for comparables...

The important thing to remember is that a property does not have to be COMPETITIVE with the subject to be COMPARABLE to the subject. Now ideally, it would be preferred to be close and competitive, but this is not a perfect world, thus the OP's conundrum.

 

[DTB]

They will when they go to refinance, and find that the Condo portion is not lendable because there are over 25% tenant occupied, remaining unsold developer units, and 10% or more owners behind in their condo fees! The guy in the Fee simple will never have those issues. There are countless other potential issues why many buyers avoid condo ownership, no matter WHAT shape the building or residence may be!

...

all of the above will be reflected in their sales price, right? If the sales prices are similar to the non condo units, voila no preference (for similar units).

Doesn't the need to go 50 miles for comps indicate, perhaps, a problem with the subject property? Most people prefer homogenous areas and if the subject is a bit of a one off, it's usually a problem IMO.