Case Study 2

We recently appraised an apartment complex in San Diego. It was reported that the subject property consists of 22 apartments units. It was a pending sale for $2,300,000. It appeared that this was a typical apartment transaction. However, this was not the case. For every commercial appraisal assignment, we research the subject property through various sources such as County/City records. We called the planning and building department to verify the subject property information. It turns out that only 18 units were permitted and the remaining four units are considered illegal. From the inspection, it was impossible to tell that there were illegal units as they were professionally done.

The current owner failed to report this information to the listing broker, bank and pending buyer. As such, the pending buyer was able to lower the purchase price substantially (several hundred thousand dollars) with this new information. This could have easily been not caught. The buyer and bank was able to avert substantial risk in this transaction.