Cohousing-L Mailing List: Re: Value vs. Cost

[Tom Lent (tlent]

Au contraire, Rowena, I am not joking and this does reflect reality. You CAN
place whatever values you think are equitable want on a house price **as
long as it doesn't exceed appraisable values**. Sure the bank is going to
want its own independent appraiser to look at the property and make his or
her own assessment of values, but at the stage at which we needed to set
expected prices, we were a long ways from knowing who are bank was going to
be and therefore who the appraiser they wanted to use would be. As I trust
you know, real estate appraisal is an art, not a science. You will get as
many different answers to the question of how to price your homes as you get
appraisers. It gets particularily wide open when you do something unusual in
the market like cohousing for which very similar comps (comparative property
sales) just don't exist. We hoped to make the pricing of our units less
contentious by putting it all off on an appraiser, but several appraisers
told us in no uncertain terms that there is no one right answer and we
ultimately have to take responsibility for setting our prices.

We finally found a friendly appraiser who joined our unit pricing committee
to provide us with general ball park guidelines of the type you describe
(views, southern exposure, new construciton versus old, etc) for evaluating
each unit ("that kind of proximity to a busy street could easily cut the
value of the house $10-20,000 compared to one in a quieter location"). We
then combined her input with our own values to determine actual "percentage
unit values" (as you described them) that we were comfortable with. We know
that these could be challenged by a future appraiser with a different sense
of values in a changing market, but we have a baseline to argue from (and
you can challenge appraisals). As long as our prices fall at or under the
final appraised values, whatever those turn out to be, we will be fine.

Tom Lent - Berkeley Cohousing

At 12:04 AM 10/11/96 +0000, Rowena Conkling wrote:
>At 04:43 AM 9/29/96 +0000, you wrote:
>>Thanks for the clarification. Now that I understand, there is no question.
>>You can't really accurately allocate the "actual" construction and
>>development costs to every unit in any objective way anyway so you are going
>>to be arbitrarily divying up your costs in to prices anyway. You can make up
>>the factors that determine the proportion to suit your sense of fairness and
>>financial need as long as they don't exceed appraisable values. Have fun.
>>
>
>I hope you are joking here, because what you say doesn't reflect reality!  
>
>When you go to get financing the bank will want to have an appraisal carried
>out by an appraiser of their choice who has no ties to your group.  The
>appraiser will establish "market rates" for each of the units, which will
>take into account not only size but things like views, distance from
>highway, southern facing, etc.  
>
>At that point you can establish the "percentage unit value" for each unit by
>adding together the total appraised values, and dividing by the unit value.
>This percentage value will stay constant regardless of the actual cost of
>construction.
>
>Generally, you will want to charge the household the percentage of the total
>cost (all the units, plus common house, plus landscaping, etc.) based on the
>percentage unit value.  Beyond that some communities may want to add some
>amount to the cost of most units to finance affordable units, etc.  This is
>easier than trying to fudge the unit value since most states have rules on
>allowable variation of percentage ownership, etc in a condo association, so
>you need to be sure of the statutory requirements before writing up your
>agreement on this issue.  If the community provides financing to some
>households, you will want to ensure that the household has a "limited
>equity" clause in the deed, so that they can't turn around and make a killing!
>
>        Rowena
>        speaking for me and not Cambridge Cohousing
>
>
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Tom Lent * 2220 Sacramento St * Berkeley, CA 94702-1907
           email: tlent [at] igc.org * phone: 510/845-5243
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