303: Units in Cooperative Projects

When an appraiser evaluates a cooperative unit, he or she must develop an opinion of the market value of the cooperative interest. The cooperative interest is the cooperative shares or other evidence of an ownership interest in the cooperative corporation and the accompanying occupancy rights (excluding the cooperative interest's pro rata share of the debt service of the blanket mortgage). In other words, the cooperative interest is the equity portion that is over and above the pro rata share of the blanket mortgage(s).

To determine the value of the cooperative interest, the appraiser must consider and report among other things, the information listed below on the Individual Cooperative Interest Appraisal Report (Form 1075) or the Desktop Underwriter Individual Cooperative Interest Appraisal Report (Form 2095). [Much of this information can be obtained from the Request for Cooperative Project Information (Form 1074), if the management agent, cooperative board, or project sponsor/developer uses this form to respond to the lender's or the appraiser's inquiries for project information. When Form 1074 is used, the appraiser may either transcribe the appropriate information to the applicable appraisal report or attach Form 1074 to the report as an addendum.]

•	The number of shares attributable to the unit and the number of shares issued and outstanding for the cooperative 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, and their remaining term and provisions for escalation of real estate taxes. (The dollar amount by which the taxes will increase and the year in which the increase will occur should be shown); and

•	Any monthly maintenance fees (including utility charges if they are part of these fees), monthly special assessments, ground rent, or other fees for the use of the facilities that are attributable to the unit, and their type, amount, and term (if applicable).

The appraiser must use reliable sources to obtain data on the cooperative 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 it). The appraiser must address any factors that could result in an increase to the monthly debt service for the subject unit. For comparison purposes, the appraiser should indicate in the "sales comparison analysis" adjustment grid the dollar amount of the monthly assessments for each of the comparable sales.

In many areas, there is limited experience with the cooperative form of ownership. The appraiser always must comment on the acceptance of housing cooperatives in the market area. The degree of acceptance is generally reflected in the availability of similar comparable sales data for cooperative units. If there is limited market acceptance of the cooperative form of ownership, or if it is a relatively new form of ownership in the market area, the appraiser must address any effect that has on the marketability and value of the unit that is being appraised. Because we are concerned about the marketability of the subject property, the appraiser must compare the subject unit to the general market area as well as to other units in the subject cooperative project. This comparison should help demonstrate market acceptance of cooperative units in the area. If the appraiser believes that the submission of more than the three required comparable sales is appropriate to support the opinion of market value, he or she should submit other comparable sales -- including contracts for sale -- as additional supporting data. Comparable sales must be from similar types of projects -- townhouses, mid-rise, high-rise, etc. -- that have similar common amenities and recreational facilities.

Generally, when an appraiser appraises a unit in a cooperative project, he or she should use sales of cooperative units as comparables. However, the appraiser may use sales of condominium units as comparables if cooperative unit sales are not available, as long as he or she explains why those types of comparables were used. When there is a preference for condominium ownership in the subject market area, the appraiser must adjust the condominium comparables to reflect the reaction of the market to the cooperative unit.

If the subject property is a unit in a new or recently converted cooperative project, the appraiser 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, the appraiser should use comparable sales from competing projects. When the subject property is a unit in an established cooperative project -- one that has resale activity -- the appraiser should use as comparables two closed or settled sales from within the subject project (if available) and one closed or settled sale from a competing project.

The appraiser must report the value of the cooperative interest, excluding its pro rata share of the blanket mortgage(s). This value reflects the market value for the cooperative interest of the unit. [To illustrate: When the indicated value of the unit encumbered by the blanket mortgage(s) is $100,000 and its pro rata share of the blanket mortgage(s) is $25,000, the value estimate that the appraiser should report for the cooperative interest of the unit is $75,000.] The appraiser certifies 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 cooperative interest.