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Whole Development Appraisal

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Lanny A Freng

Thread Starter
Sophomore Member
Joined
Nov 28, 2006
Professional Status
Certified Residential Appraiser
State
Minnesota
I have a guy that wants to buy out his sister. Together they own 37 rental townhome units, possibly townhome style condos. (Havent got the legal yet). They want to know the value of the entire project. Is there a way to value the whole project with one appraisal (narrative)? Or do we have to appraise each unit? If we do the whole project would it then become a commercial appraisal?

I talked to the guy who mentored me and he said this has come up a few times in his past and what he did was do an appraisal on each different style of townhome and then essentially duplicate the like units appraisals changing legals, photos, address and such. In the end delivered 30 seperate appraisals for the developement at a discout for multiple appraisals of similar units.

This would be possible here I would think but from what I gather he is looking for one appraisal. Any body done this before, any info would be appreciated.
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
Lanny-

I think there are a couple of things that you need to identify.
The first is the type of value that is requested (bulk or individual unit).
The second is the communication format (report) of the results.

If bulk, I think you are looking at a commercial assignment.

If individual unit value, then you could report it individually (N reports) or report the individual values in one report.

What I would be very clear on with my client is this: I would not want to have any misunderstanding as to what type of value I am opining. I think a dangerous potential for a residential appraiser (such as myself) to have happen is to do these as 30-individual units and then have my client think they can apply some kind of straight discount (10%, lets say) for a bulk value. There's nothing stopping them from doing that. I'd want to make it clear (in writing, in my engagement agreement and SOW) that using my individual values in that way is not an intended use and may arrive at something that is non-market based.

My 2-cents!

Good luck!
 

Ken B

Elite Member
Joined
Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
If the scope of the appraisal is to provide individual values for each unit, then that is what you need to do. If the scope of the appraisal is to value the portfolio of properties in its entirety, it requires a CG to at least act as supervising appraiser.

I had a similar question a couple of weeks ago. I am appraising a portfolio of 20 individual condo units. The engaged appraiser was a CG who is also the supervising appraiser for the assignment. A "bulk retail value" has been requested, which would be the sum of the values for each unit including all selling costs. We are also providing a single value for the entire portfolio which requires a DCF analysis or capitalization of net operating income.

If you haven't taken any income capitalization courses, you may have bitten off more than you can chew with this assignment. Sounds to me like it requires the services of a CG.
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Lanny:

Best get a REAL clear and signed and written SOW agreement with the cleint. And do a gut check on how those units would be sold - collectively or individually... no matter what the CLEINT says, specially if they are in a single or proximate condo projects.

Even if you are doing fee simple on EACH property as if under sole ownership for individual market sale... and the cleint is gonna use those in decisionmaking by applying his/her discounting ... better look at potential problems with absorbtion rates and marketing time, given that YOU know how many units (may) be involved!!

Like I said, get REAL specific in your letter of engagement or it could turn into a shootin' match with you posing as target.:unsure:
 

Lanny A Freng

Thread Starter
Sophomore Member
Joined
Nov 28, 2006
Professional Status
Certified Residential Appraiser
State
Minnesota
I havent accepted any assignments on anything yet. I told him I thought we would be bordering on commercial appraisal and I am not a commercial appraiser. Told him I needed to do some more research. I think I am gonna pass on this. Over my head and I dont know any GC appraisers around me to supervise me. Any Minnesota GC's out there who want to teach me something might have a job for you! Thanks for your info all
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
In the end delivered 30 seperate appraisals for the developement at a discout for multiple appraisals of similar units.
So many times they ask for such, then take the appraisal(s) to the bank. A bank would be required under Fed law to appraise any development with 5 or more units as commercial. They would lend as commercial. So its commercial most likely. Since you would be applying a discount...hmm. A good way to get involved in a really bad situation. Either way. A word of caution about pricing it. It seems reasonable to discount the price since you are doing a lot of reports. IMHO, you likely should be getting a full fee x 37 regardless whether you appraise them individually or in bulk and I would price it that way. And allow yourself about twice the time you think is absolutely the most you would need.
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
In California, if any single entity owns 5 or more units in one development and is attempting to sell them, that entity needs to apply to the state creating a NEW subdivision.

That fact might impact the decision whether to do them individually or as a block.

Another issue might be that if they are in DIFFERENT developments, there is likely a different market for the different developments. In my opinion, these issues would impact how many separtate reports are needed.
 

MNRural

Member
Joined
Oct 11, 2006
Professional Status
Certified General Appraiser
State
Minnesota
Lanny, this is a commercial appraisal, requiring a sellout and absorption study or bulk townhome unit sales. It requires serious market analysis, given current market conditions, specifically if they are in Dakota County, one of the softest markets around.

Doing separate appraisals and adding the values would be misleading. If they were all offered for sale on the open market, they would not receive the same value as if just one was offered for sale. Think of its as one real estate entity. What would an investor pay for the entire thing?
 
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