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

[Rob Sandelin (Exchange) (Robsan]

Paul Conahan asked about whether to charge market rate or cost.

What is the reason you would want to charge Market rate vs cost? This 
can be a sticky issue and can lead to people who are on the financial 
edge getting pushed off. So your group should be very clear about WHY 
market rate. (The typical reason is to raise maximum money for the 
common spaces) but this may not be your reasons. I would advise getting 
a clear decision regarding why charge market rate from the group.

Market rate can be found by comparing other multi-family projects. 
Cohousing per se is irrelevant to market rate. Your comparables would 
be other 36 unit condos in the area. Keep in mind that all the things 
YOU beleive have huge value, such as the commonhouse, the sense of 
community, the pedestrian village design, are largely irrelevant to 
market value. For instance, most appraisers use a price per square foot 
for estimating the market value addition of common elements, some just 
use a standard condo formula checklist....Lets see, no suana, no 
workout room, no multi-media room....minimum value added.

Before you make this choice you need to know your market. You can 
really shoot yourself in the foot if you overprice your units relative 
to their appraisal value. For example, In some areas that were over 
built in condos you may find your appraisal comes in very low. This can 
be a real disaster because typically mortgages are based on 90% of 
appraised value, so for example if a home cost 150,000 to build, 
including common costs, but was only appraised at $130,000, you would 
only get a mortgage for 90% of 130,000 which amounts to 117,000. 
Subtract that from the actual cost of $150,000 means the buyer has to 
make up the difference of $23,000 as a down payment.

So if you decide market rate for the example home above is 165,000, 
suddenly the out of pocket cost for the buyer goes up to become pretty 
huge and this means lots of people bailing out at the worst possible 
time, right at the last minute. Granted you may find new buyers but 
they will be late comers, not have any of the connections that the rest 
of you have built, and that can have some unsettling group dynamic 
consequences.

Charging premiums based on anything besides unit size will unlikely get 
reflected in the appraisals. The appraiser will probably not give a 
higher value to a home because it is closer to the commons. Although 
you can hire your own appraiser to give you some advise about these 
things. Might be a good idea.

Rob Sandelin
Sharingwood cohousing
Northwest Intentional Communities Association

The NW Regional conference is in Seattle Oct 25-27. Its gunna be a 
motherlode.