Ask Habitat: Your Co-op Shares Have Gone Up in Value. Yay! Or Maybe Eh?

HABITAT ANSWERS: Everyone loves it when share value goes up. Yet how well does share value translate to market value?

Sellers generally use the selling prices of similar apartments in their building to help determine their apartment's value. More often, people talk of "selling my apartment" rather than "selling my shares."

Likewise, a spokesperson for the National Association of Realtors says share value isn't really a factor. Instead, it looks at the median sales price for actual transactions. The formula for the increase in a typical home's value is CPI [the U.S. Bureau of Labor Statistics' Consumer Price Index] plus 1.5 points.

One Way to Calculate Sale Price

One attorney says that if he wants to evaluate what a prospective sale should be, he takes recent sales in the building, adds them up to get the total selling price, adds up all the shares represented by that number, divide the number of shares into that gross price, and get a value per share.

You also may want to adjust your figure up by factoring in capital improvements. After all, if your building has just spent $10 million on a new roof, doesn't that make the value of the apartments go up?

More often, people talk of

'selling my apartment'

than of 'selling my shares.'

Yes and no. Experts say a new way of determining value is needed. Instead of using just the CPI, you have to look at its components. For example, food expenditures might not have as much of an effect as the housing component would, although some experts wouldn't even use the housing portion of it because of variations in any given city on any given day.

On the Other Hand...

So the simplest formula is: Share value is the aggregate of recent sales and capital improvements divided by the number of shares. Right? 

Not quite. Simply dividing that hypothetical $10 million roof improvement into a per-share figure may not be an accurate reflection of share value. While as a resident of the building, you would hope it would increase your share value if a new roof was needed and the board made a good decision, if you didn't need a new roof and spent the $10 million, it didn't increase your value.

And now here's where the "yes" of "yes and no" comes in. Whether that metaphoric roof was needed or not, a seller can tell a buyer, 'Oh, we got a new roof!' So, share value would be used to try and convince people that the selling price should be higher than what it might be otherwise. However, you also have to depreciate it. A savvy buyer would factor in that it's not worth $10 million two years or five years or ten years later.

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Adapted from "Share and Share Alike" by Frank Lovece (Habitat, April 2006)