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It's a Matter of Opinion
By Arleen E. Goscinski
One of the most important aspects of the appraisal process is not just to explain to clients what an appraisal is, but also to explain what it is not.
An appraisal is an opinion of value, based on a range of factors, such as the condition of the dwelling, its style, size, amenities, and location; the state of the surrounding homes, as well as the overall condition of the marketplace, and the skill of the appraiser.
After the information is gathered and weighed, an opinion of market value is rendered. An appraisal is not a statement of a fact to be found. In other words, as circumstances change, so can value. It is important to understand this (especially when you're negotiating a sale), and to be flexible.
I always advise homeowners who are planning to sell that an appraisal can help them. It not only tells a buyer that you've made every effort to price your home fairly but it is also an excellent bargaining tool. However, the appraised value is not necessarily the selling price. The price is determined by the seller and the buyer, not by the appraiser.
Appraising a condominium or homeowner association
Appraising a unit in a condominium or homeowner association is similar to appraising a single-family residence. The same type of ownership applies: fee simple, which is the maximum possible estate one can possess in real property. Title to the unit is held by an individual owner, who has the right to sell, lease, or mortgage it. The owner also holds a partial interest in the common areas of the total condominium or homeowner association complex. The owner of a unit in a homeowner association also owns a small portion of land surrounding the unit.
These developments are becoming more and more popular on Long Island, as the demand for "specialized" living increases. As the population ages, the desire for maintenance-free living has become more pronounced. The demand for developments designed for senior citizens has already exceeded the supply of units available. Some projects encourage young children, others do not allow children at all. Gated communities with 24-hour security service have become popular in recent years. Recreational amenities, such as swimming pools, tennis courts, and golf courses, are in high demand.
Amenities vary considerably, generally depending on the size of the complex; smaller projects cannot support the high costs associated with these improvements. And some people don't want the frills or the expense of paying for them. Clearly, an advantage of this type of ownership is that there is something for everyone.
Cooperative ownership is not common on Long Island, so it will be only briefly mentioned. Restrictions on sales or leases of apartments may apply. Each owner of stock in a cooperative apartment building receives a proprietary lease on a specific apartment and is obligated to make a monthly payment which represents the proportionate share of operating expenses and debt service on the underlying mortgage, which is paid by the corporation.
|Determining Value: Amenities are important, but so is upkeep.|
How is value determined?
How is value determined? To appraise individual units, the sales comparison analysis is the best indicator of value. Recent sales of units of comparable size, location, quality, and condition are chosen, to determine the most probable market price. The appraiser compares these sales to your unit, making dollar adjustments where necessary. It is important to choose sales within the complex itself for comparison, but equally important to look outside to other similar projects.
In a condominium or homeowner association, factors not under the control of the owner play an important role in establishing value. Are maintenance fees reasonable and competitive for what is offered? Is the project well-maintained or in disrepair? How many units are rented? Are there any restrictions on pets, children, or other factors that would adversely affect value and marketability?
To insure the highest value for an individual unit, keep your home in good maintenance, and upgrade when possible. New kitchens and baths add significantly to value. Central air conditioning and new windows also add value in the marketplace.
If you are planning to sell...
If you are planning to sell, you can prepare in several ways. Put your home in the best possible light, literally. Open curtains and blinds and let natural light in. If painting is necessary, use white or off-white on all walls. Make an inspection, room by room and remove all clutter and make needed repairs. In short, the better the condition, the higher the value, most times considerably.
The condition of the complex itself is crucial in determining value. Individual owners can play an active role in keeping abreast of how the complex is operated. Are you satisfied with the condition of the amenities and the common areas? Do the grounds look as well as when you purchased the property? Would you want to buy here again? Attending a board of directors or homeowners meeting will gain you insight into how the development is run and what the costs of operation are.
If the market for cooperative apartments is active, an appraiser can value individual units with the sales comparison approach. However, value is influenced by the amount and terms of the mortgage financing that the corporation has placed on the building. That must always be considered and carefully weighed. The condition of the property, its size, location, and the amenities available to shareholders are all determinants of value.
More important for the owner of an apartment, is an understanding of the corporation and the underlying financing involved. Careful study should be made to insure that the corporation has not over-extended itself to the point where value is affected negatively.
How do you find a qualified appraiser?
Finally, how do you find a qualified appraiser? At the very least, the appraiser you select should be licensed or certified by the state. This will insure that the appraiser has the education and experience necessary to appraise your property. An appraiser must conform to the Uniform Standards of Professional Appraisal Practice (USPAP), adopted by the Appraisal Standards Board of the Appraisal Foundation.
To be sure an appraiser is competent, ask if the appraiser is a designated member of a recognized appraisal organization such as the American Society of Appraisers. Standards for accreditation go well beyond those established by the state. Recognized appraisal organizations are sponsors of the Appraisal Foundation.
Arleen E. Goscinski, ASA, New York State Certified Real Estate Appraiser
New York City, Queens, Nassau, Suffolk New York Real Estate Appraisals
149 Ketay Drive South East Northport, NY 11731-5031