4580.1

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CHAPTER 8. VALUATION PROCESSING

8-1. GENERAL

a\. Units Extending over Other Units. When the condominium project

is so designed (as in most walk-up apartments) that all or part

of a living unit extends over or under another living unit,

the project is processed in accordance with instructions for

FHA Form 2264-B, 2019, 180 and 2264-A. Such processing is

accomplished by personnel of the Technical Services Branch, or

Chief Underwriter and is the responsibility of the Assistant

Director for Technical Services or Chief Underwriter.

b\. Units Not Extending Over Other Units. When the sponsor has

requested the use of the simplified administrative procedures

(described in paragragh c. below) and when the project is

composed of detached, semi-detached, row or walk-up apartment

structures in which no part of a living unit extends over or

under another living unit, the project may be processed by

Section 203 underwriting procedures. In such cases, the units

involved are essentially single family units, and the only

lasting mortgage insurance is on the individual units. Such

processing is accomplished by personnel of the Single Family

Mortgage Insurance Branch, and is the responsibility of the

Assistant Director for Single Family Mortgage Insurance

(see Reference (1) of the Foreword.

c\. Administrative Procedures. Elsewhere in this Handbook basic

information is set forth concerning standard administrative

procedures for condominium projects. Where a sponsor can

complete the construction of a condominium project not

involving elevator construction without the need for insured

advances, he may request the use of the simplified

administrative procedures (including presale condition.

8-2. PROPOSED CONSTRUCTION.

a\. Condominium Processing uses the basic concepts of the

Multifamily Processing Procedure. There are a maximum of three

processing stages:

\(1\) Feasibility.

\(2\) Conditional Commitment.

\(3\) Firm Commitment.

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4580.1

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b\. The Initial Processing Stage, whether feasibility alone or

combined with conditional and/or firm commitment stage, must

include all key decisions concerning project feasibility

including the location, project size and type, sales price of

units, construction budget, land value, presale requirements

and tentative mortgage amounts both for the project and for

the individual condominium units.

8-3. FEASIBILITY STAGE. This stage begins when the sponsor submits his

proposal to the Field Office using the same forms which will also

be used in Conditional Commitment and Firm Commitment Stages.

a\. Sponsor\'s Application. In FHA Form 3201, the sponsor\'s

estimates in general terms are given regarding physical

description of the project; size of units; equipment and

services included in common expense; replacement cost of the

project; the common expenses and common income the project

will have after it is being operated under individual

condominium ownership; the taxes to be paid individually; the

insurance (if any) to be paid individually; the personal

benefit expenses to be paid individually; and the sponsor\'s

estimate of total cash required to complete and market the

project. In FHA Form 3201, sponsor indicates his choice of

commitment: FHA Form 3283 (Insurance of Advances); or FHA

Form 3284 (Insurance Upon Completion).

\(1\) In FHA Form 3280-A, sponsor indicates his proposed sale

price for each condominium unit.

\(2\) Preliminary Architectural Exhibits should be included

in the required exhibits at the Feasibility Stage in 3

stage processing. If the sponsor\'s proposal is based on

sketch plans which he has already procured, copies of

these should be submitted to HUD along with required

material.

b\. Preliminary Review and Assignment. When the application,

FHA Form 3201, is received by the Field Office, the MFC or

Program Manager reviews the application and related exhibits

to determine if they are sufficient for feasibility processing.

If so, copies of the submission are prepared for simultaneous

processing.

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4580.1

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8-4. VALUATION PROCESSING. Valuation processing in the Feasibility

Stage will be accomplished as follows:

a\. Determine the market need for the purchase of condominium

units in the location proposed. Comparison is made with

other condominiums. If condominiums are not available in a

community, conventional single-family properties or PUD

properties offering similar facilities may form the basis of

comparison with adjustments for differences.

b\. Analyze site for acceptability and determine the land value

in accordance with basic instructions. Site acceptability as

proposed or as modified by site analysis is indicated on

Page 4 of FHA Form 2264-B. The site is appraised and Page 4

of FHA Form 2264-B completed to the extent possible. At a

minimum, the Value of Site Fully Improved is determined and

recorded in Items 8 and 9 and the purchase price of land

verified and other costs of the owner\'s investment in the

site shown in Items 12 and 13, and items 14(1), (2) and (3)

are completed. Please note that Item 9, Value of Site Fully

Improved is an estimate of the value of the site after

compliance with any requirements of off-site improvements to

provide the site with needed utilities and streets. This

Value of Site Fully Improved is also entered in Line 14-(1).

The cost processor will show in Line H-43, Unusual Land

Improvements, the excessive portion of the cost of piling,

rock removal, filling, etc. The amount of unusual land

improvements shown in Item H-43 will be entered in Line 14(2).

Subtracting Line 14(2) from Line 14(1) results in Line 14(3),

Warranted Price of Land Fully Improved (Replacement Cost Items

Excluded) which amount is also entered in Line 79 of the

Estimated Replacement Cost.

c\. Size and composition of units are entered from sponsor\'s

application form. Living area is shown for each apartment

type. Living area is the area of a living unit measured from

the inside faces of corridor and exterior walls, and from the

inside faces of partitions separating the living unit from

other living and/or commercial areas. Net rentable residential

area is the sum of all living areas.

d\. Enter equipment, services and facilities from sponsor\'s

application.

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4580.1

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(8-4) e. Estimate the common expenses and the personal benefit expenses

(owner\'s maintenance and utilities expenses). If the project

most nearly resembles a multifamily rental project, estimate

common expenses by appropriate adjustments to multifamily

rental project data. If the project most nearly resembles

row, townhouse or other single-family properties, utilize

single-family expense data for each unit. Enter Conclusions

on FHA Form 2264-B.

f\. Complete the valuation portion of the estimate of the

replacement cost based upon the condominium as a project.

Overhead and profit allowances selected by the cost analyst for

the project replacement cost estimate will be those customarily

used in projects similar to the subject. In remarks, the cost

analyst will enter the additional percentage of overhead and

profit and the dollar amount of additional overhead and profit

applicable to Section 203(b) processing. The appraiser adds

this additional overhead and profit to the total from the

project replacement cost estimate and transfers the sum to the

total line of Column 8 of FHA Form 180, to be used in allocating

replacement cost to each unit. In computing all items

which are a percentage of the project mortgage amount, use the

mortgage amount indicated by the replacement cost formula.

The multifamily fee schedule is applicable. In no instance

may the combined application, commitment and inspection fees

average less than \$50 per dwelling unit for new construction

or \$40 per dwelling unit for rehabilitation or existing

construction. (Additional fee will not be charged when the

individual unit mortgages are committed.) See Section 234.506

of FHA Regulations. The project replacement cost will include

marketing expense, the usual project allowances for legal and

organization expense, and 1.5% FNMA Fee. AMPO, BSPRA and

consultant fees are not permitted in Section 234. Note that

the possible reduction of mortgage amount which may occur (if

presale requirements are not met at the time of first

endorsement) will not change, in any way, the estimated

replacement cost of the project.

g\. Using the estimated replacement cost of project shown in

Section H of FHA Form 2264-B, the appraiser develops a

construction cost budget in Section M of FHA Form 2264-B.

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4580.1

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h\. Using FHA Form 2019, Estimates of Market Price by Comparison,

the appraiser estimates the price of one benchmark unit of

each unit type in the condominium, by comparison with similar

condominium units. If condominium data is unavailable, sales

of cooperative apartments, properties in PUD\'s and single

family homes may be used for comparison.

i\. On FHA Form 180, Condominium Analysis and Appraisal, the

appraiser\'s estimates of Market Price of Unit are derived

from estimates for benchmark units from FHA Form 2019. Using

information previously recorded in FHA Form 2264B and FHA Form

2019, the appraiser now completes an appraisal of each

condominium unit in a manner similar to a home Mortgage

appraisal, and enters the maximum mortgage amount and monthly

expenses applicable to each condominium unit on FHA Form 180.

When FHA Form 180 is completed, the appraiser turns in FHA

Form 2264B, FHA Form 2019 and FHA Form 180 to the Chief

Appraiser or the Assistant Director, Technical Services

Branch.

8-5. FEASIBILITY DETERMINATION. A finding of feasibility is justified:

a\. When Data Indicates and the sponsor agrees that he can plan

and build the proposed project for the construction budget.

b\. When the Sponsor Agrees that he can successfully market the

individual units using the maximum mortgage amount for each

condominium unit as shown on FHA Form 3280-A.

8-6. PROJECT MORTGAGE LIMITATION IN PRESOLD PROJECTS. Processing as a

multifamily rental project is unnecessary. The project mortgage

amount for proposed construction projects will be determined

(without use of the debt service criterion) by the mortgage credit

processor using FHA Form 2264-A. In many cases, this mortgage

amount may be as as much as 90% of the estimated replacement cost

of the project.

8-7. PROJECT MORTGAGE LIMITATION IN PROJECTS WHERE THE UNITS HAVE NOT

BEEN PRESOLD. The appraiser should also be aware that for each

proposed construction project, the mortgage credit processor will

determine the lower project mortgage amount to be applicable in

the event that 80% of the total value of the units has not been

subscribed for by HUD-FHA approved Purchasers prior to first

endorsement. In such case, the project mortgage amount will be

reduced at first endorsement to an amount not exceeding the lesser

of a or b below:

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4580.1

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a\. 80% of the Total Estimated Replacement Cost of Project

(Line H-80, FHA Form 2264-B.

b\. 85% of the sum of the condominium unit mortgage amounts.

8-8. REVISION OF COMMITMENT FORMS. The appraiser instructions provide

for the entry of the lower project mortgage amount on the

commitment for proposed construction, as follows:

\"The mortgage amount shall be reduced to

if, at the time of the first endorsement, 80% of the

total value of all the units shall not have been

subscribed for by HUD/FHA-approved condominium purchasers.\"

8-9. CONDITIONAL COMMITMENT STAGE. In this stage preliminary plans and

another FHA Form 3201 are submitted by the sponsor. Plans are

reviewed in the Valuation Section, if requested, to assure that

the project is being designed and conceived as envisioned in the

feasibility stage. In addition, when requested, the project is

reanalyzed as necessary to resolve discrepancies between the

decisions reached in the feasibility stage and changes created by

the sponsor\'s new submission. Where necessary to resolve

conflicts, individual items of expense are analyzed in depth.

(See Reference (13) of the Foreword)

Market Price of Units should not change in this stage provided

the preliminary drawings reflect conclusions and agreements

reached during the Feasibility Stage of Processing. All key value

conclusions are made during the Feasibility Stage.

8-10. FIRM COMMITMENT STAGE. When requested, final plans and

specifications are examined for conformity with previous concepts

and decisions agreed upon by HUD-FHA and the sponsor. With a

design representative assigned to the project, there should be no

changes in plans which are not fully approved by HUD-FHA as design

progresses. In this stage, all processing not completed in

previous stages is completed. For example, detailed estimates,

off-site costs, verified sales price of the site and value of the

land fully improved and \"as is\" for cost certification, if not

already performed because of insufficient information, are

completed. Also, any significant changes due to plan changes are

made and the project reanalyzed as required.

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4580.1

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8-11. EXISTING CONSTRUCTION.

a\. Existing Multifamily Rental Projects which have been Previously

Insured by HUD-FHA may be converted to condominium ownership.

Processing will be the same as outlined above except that

insurance of a project mortgage under the new processing will

not be required or permitted since a construction mortgage is

unnecessary. There will be only two processing stages:

Feasibility Stage and Commitment Stage leading to a blanket

commitment for the individual mortgages. Commitment FHA Form

3275-A will be issued in the commitment stage.

b\. Existing Multifamily Rental Projects having between 4 to 11

Units may be processed under this program as above, for

conversion to condominium, even though they have not been

previously covered by an HUD-FHA insured mortgage.

8-12. REHABILITATION PROJECTS. Multifamily rental housing which needs

substantial rehabilitation may be processed under Section 234 for

rehabilitation and conversion to condominium. It is not required

that the rental housing to be rehabilitated be previously covered

by an HUD-FHA insured mortgage. Process in accordance with

instructions for proposed construction with exceptions as follows:

a\. On FHA Form 2264-B, Sections A, B, C, D, E, F, G, and I,

reflecting the operation of the project after rehabilitation

and after conversion to condominium ownership. Do not complete

Section H, Replacement Cost, at this time.

b\. Using FHA Form 2019, estimate the market price, by comparison

of one benchmark unit of each apartment type in the project

after rehabilitation.

c\. On FHA Form 180, list all condominium units by apartment type

and floor of building and complete Columns 1 through 7 for all

condominium units. Total the individual market prices of all

condominium units, including commercial condominium units, if

any. (Market Price of Unit for commercial units, will be

derived from capitalization.)

d\. The \"As Is\" Value of the property for rehabilitation will be

the lesser of:

\(1\) The fair market value \"as is\" by comparison.

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4580.1

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(8-12) (2) The actual acquisition cost of the property in the last

arms length transaction, if within the last 12 months.

\(3\) The residual \"as is\" value, which is found by subtracting

from the sum of the market prices of individual units

after rehabilitation, the estimated rehabilitation costs

(off-site and on-site) including contingency reserve,

carrying charges and financing, legal organization and

marketing.

After the \"as is\" value has been determined the

replacement cost estimate is made by completing Section

H, of FHA Form 2264-B. The rehabilitation cost estimate

is made in accordance with procedures in Reference (13)

of the Foreword.

e\. Complete the Replacement Cost Ratio and all other columns in

FHA Form 180 to reflect values and conditions after

rehabilitation and after conversion to condominium ownership.

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