B4-1.4-04, Co-op Appraisal Requirements (04/15/2014)

A co-op corporation holds title to a co-op project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements. The co-op interest is the co-op shares or other evidence of an ownership interest in the co-op corporation and the accompanying occupancy rights, excluding the co-op interest’s pro rata share of the debt service of the blanket mortgage. In other words, the co-op interest is the equity portion that is over and above the pro rata share of the blanket mortgage(s).

Note: The lender is required to receive Fannie Mae approval to deliver mortgages secured by units in co-op projects.

The appraisal requirements for co-op share loans are as follows:

• Appraisers must develop an opinion of the market value of the co-op interest when evaluating co-op units. To determine the value of the co-op interest, appraisers must consider and report, among other things, the following information:

  • the number of shares attributable to the unit;

  • the number of shares issued and outstanding for the co-op corporation;

  • the name of the lienholder, the lien position, and the amount and repayment terms of all project blanket financing;

  • the pro rata share of the blanket mortgage payments that are attributable to the unit, as determined by dividing the number of shares attributable to the unit by the total number of project shares;

  • the pro rata share of each lien that is attributable to the unit;

  • any tax abatements or exemptions that are attributable to the unit;

  • the remaining term for any tax abatements or exemptions and provisions for escalation of real estate taxes, which is the dollar amount by which the taxes will increase and the year in which the increase will occur; and

  • any monthly maintenance fees, including:

    • utility charges, if they are part of these fees;

    • monthly special assessments;

    • ground rent;

    • other fees for the use of the facilities that are attributable to the unit; and

    • the fee type, amount, and term (if applicable) of those other fees.

This information can be developed through Request for Cooperative Project Information (Form 1074), if the management agent, co-op board, or project sponsor/developer uses the form to respond to lender or appraiser inquiries for project information. When Form 1074 is used, appraisers may either transcribe the appropriate information to the applicable appraisal report or attach the form to the report as an addendum.

• Appraisers must use reliable sources to obtain data on the co-op project, the individual subject unit, and the comparable properties, and indicate the name of each source on the appraisal report or in an addendum to the appraisal report.

• Appraisers must address any factors that could result in an increase to the monthly debt service for the subject unit.

• Appraisers must indicate in the Sales Comparison Approach adjustment grid the dollar amount of the monthly assessments for each of the comparable sales.

• Appraisers must report the value of the co-op interest, excluding its pro rata share of the blanket mortgage(s). This value reflects the market value for the co-op interest of the unit. For example, when the indicated value of the unit encumbered by the blanket mortgage(s) is $100,000, and it’s pro rata share of the blanket mortgage(s) is $25,000, the value estimate that the appraiser must report for the co-op interest of the unit is $75,000.

• Appraisers must include a certification in the appraisal report that the pro rata share of the blanket mortgage(s) on the real estate has not been included in the opinion of the market value of the co-op interest.

The comparable selection requirements for co-op share loans are as follows:

• Appraisers must comment on the acceptance of housing co-ops in the market area. The degree of acceptance is generally reflected in the availability of similar comparable sales data for co-op units. If there is limited market acceptance of the co-op form of ownership or if co-op forms of ownership are relatively new in the market area, appraisers must address any effect that has on the value and marketability of the unit that is being appraised. The appraiser must compare the subject unit to the general market area as well as to other units in the subject co-op project. This comparison demonstrates market acceptance of co-op units in the area.

• Comparable sales must be from similar types of projects that have similar common amenities and recreational facilities including, but not limited to, townhouses and mid-rise and high-rise buildings.

• When available, appraisers must use sales from co-op units as comparables. However, appraisers may use condo units as comparable sales if co-op units are not available, as long as the appraiser explains why those types of comparables were used and adjusts the condo comparables to reflect the reaction of the market to the co-op unit when there is a preference for condo ownership in the subject market area.

See B4-1.3-08, Comparable SalesB4-1.3-08, Comparable Sales, for general requirements regarding comparable selection.

Comparable sales from within the same project as the subject property should be used if the project has resale activity. Sales activity from within the project should be the best indicator of value for properties in that project.

Note: Use of comparable sales located outside of the established subject neighborhood must be explained in the appraisal analysis.

When the subject property is a unit in an established co-op project that has sales activity, appraisers should use the following as comparables:

• two closed or settled sales from within the subject project, if available; and

• one closed or settled sale from a competing project.

See B4-1.3-08, Comparable SalesB4-1.3-08, Comparable Sales, for general requirements regarding comparable selection.

If the subject property is a unit in a new or recently converted co-op project, appraisers should select as comparables

• one closed or settled sale from the subject project, if one is available; and

• two closed or settled sales from outside of the project.

If closed or settled sales are not available in the subject project, appraisers must use sales from competing projects.

See B4-1.3-08, Comparable SalesB4-1.3-08, Comparable Sales, for general requirements regarding comparable selection.