For a condominium building with five or more units, a Bank must obtain an appraisal of the building that reflects appropriate deductions and discounts for holding costs, marketing cists, and entrepreneurial profit. A Bank may not use the aggregate retail sales prices of the individual units as the market value to calculate the LTV ratio. Condominium buildings are distinguished from other types of residential properties if construction of the entire building has to be completed before any one unit is occupied.
If a Bank finances the construction of a single condominium building with less than five units or a condominium project with multiple buildings (e.g., clustered condominiums and town homes), with less than five units in a building, the Bank may be able to rely on appraisals of the individual units to determine the market value for calculating the LTV ratio. The Bank should be able to control starts on an individual building basis and demonstrate by a feasibility or market analysis, conducted independently of the borrower and loan production staff, that all units in each building can be constructed and sold within 12 months.