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Appraising "New" New York Real Estate

New York Living Magazine
Jonathan J. Miller
July 1, 2004, Page 93 pages

While New York housing is known for its historical landmarks, diverse architecture and rich turn-of-the-century construction details, certain buyers want new. This generally comes in the form of newly constructed or newly converted condo developments. Appraising these properties properly is not necessarily a simple process because new often implies the first, the only, the highest, the tallest, the largest, the most, etc.

Condo ownership is preferred in new development because on average, they simply sell for more than co-ops. There have been only a handful of newly constructed co-ops in Manhattan over the past twenty years. Last year I co-authored a research paper with professor Michael Schill and Ioan Voicu of New York University in which we analyzed approximately 100,000 Manhattan apartment sales and found a 15.5% average value premium of condo ownership over co-op ownership. This was largely attributable to the enhanced marketability of condos due to their fewer restrictions such as co-op boards and financing issues.

The public perception is that the appraisal of a condo is easier than a co-op because condo sales are in public record. It then follows that the appraisal of a new development project is straightforward because they are generally condos. Wrong. We often find that a new development is the first of its kind in a particular neighborhood, in terms of both price levels and quality of amenities and information is limited in availability.

Since there is no sales history within a new building it is tricky to get an accurate reading of its price patterns. For example, the sponsor may have priced apartments with restricted views well above other apartments with similar restricted views outside the building. In addition to the fact that the apartments are new, the concentrated marketing efforts of the sponsor including advertising, web sites, model apartments and a sales office usually results in higher prices than seen in a similar sized condo re-sale.

In addition, the appraiser has to rely partly on sales data provided by the sponsor, which is a non-neutral source of information that cannot be verified. An appraiser generally presents a minimum of three closed sales within the report as its primary focus plus contracts and listings. Since sales within a new development may not have begun to close, outside sales must be used, supplemented by contract sales provided by the sponsor or developer. I am often amazed at the reluctance of some sponsors to give appraisers information on actual apartment sales and the percentage of apartments sold within their buildings. The appraiser must include sales within the building or the lender providing the financing will generally not accept the valuation. There is the tendency for the sponsor to keep this information â??close to the vestâ??, especially if they have begun to negotiate the prices.

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p>We consider the pace of sales as a gauge of market acceptance. During the condo development frenzy of the mid-1980â?

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