Appraisers AND REALTORS, Are You Reconciling HOA Budgets for Both Condos and Townhouses (Shortfalls in Reserves) In Your Value Decisions? Is it a good idea to ask the question, “What is the outstanding balance of unpaid dues?”
I sent this reply below to a Realtor who complained that their condo listing recently didn’t appraise because the appraiser was considering 2-3 short sales in the development….. It’s a MUST for you to be obtaining the budgets for both condos and townhouse developments and reviewing them (updated budgets). I won’t even begin an assignment on these until I have been supplied with the budget. And if they tell you to pay $50 for a copy of the budget…..well, I think you can handle that one!!!
A while back, you asked me about the local condo situation that wasn’t appraising. As I told you then, there is and was a glut of these on the market. Here’s the Verification: see this link (link removed)
I was in Atlanta 1.5 weeks ago for a 7 Hour CE Fannie Mae Update Seminar on how to appraise in this national downturn. It was a small, informal gathering of 13 appraisers, 12 of them from Atlanta where the condo market is especially horrible. I asked them about your specific situation with the condo not appraising and short sales taking place and every single one of them sided with the appraiser who appraised your condo deal, taking into consideration the short sales. Also, they asked, “Was the Condo Budget examined by by the Realtor who listed the property and the appraiser who appraised it?”. You see, as problems occur in Condo developments (as they are doing all over the country now) and dues doesn’t get paid, taxes don’t get paid, etc.., it presents a major challenge to the HOA and/or management agencies. If 10% to 20% of units aren’t paying dues, then that’s a major value issue. A shortfall in reserves is a pre-cursor to problems in the development and values later on. I don’t know if this was the case in your situation or not. Did the appraiser examine the condo budget and were red flags flown? It’s a reminder that it’s not only comps that determine value, but that it’s the Listing Agent’s responsibility to examine the Condo Budget as well. Would a lender in 3/2009 lend on a condo development where 30%+ of the units aren’t paying dues? Is the development you want to list in “lendable?”. I think you will see this become much more of an issue in the future, if it isn’t already an issue.
Hope this helps! Bill
NOTE: While we don’t generally examine the budget of a Townhouse, couldn’t a shortfall in reserves in a townhouse development be just as serious as in a condo development? Food For Thought!