Where would you put the Income Approach in a URAR?

[Tom4value]

Did a SF appraisal (2nd home) on $1.2 million across the street from a bay. Done on a URAR, did the sales comparison approach and thought, hum, income approach might be relevant. Found three rentals in the neighborhood and developed a GRM to arrive at a value. I put my value in the “Income Approach” section. I put the rudimentary info in my reconciliation comments.

This client farms out the rudimentary UW to an appraiser (dealt with her before and nice person). She came back with since I developed the income approach, I need to have the info in the report, not just comment in the reconciliation. I told her there is no separate section for the IA in the URAR so I put it in the reconciliation. We worked it out that I would just make a separate IA comment in the comments section.

My question is, how do you all address the income approach in the URAR? Let’s assume they didn’t ask for a 1007.

 

[sputnam]

How much detail is required depends on the needs of the Client and Intended Users. USPAP only requires that you summarize the data and methods used to arrive at the indication of value.

Although it's called 'The Income Approach' on the URAR, it's not really. As to where to put it, I would give it a separate section on an addendum.

 

[Tom D]

This client farms out the rudimentary UW to an appraiser (dealt with her before and nice person). She came back with since I developed the income approach, I need to have the info in the report, not just comment in the reconciliation. I told her there is no separate section for the IA in the URAR so I put it in the reconciliation. We worked it out that I would just make a separate IA comment in the comments section.

My question is, how do you all address the income approach in the URAR? Let’s assume they didn’t ask for a 1007.

Serves you right for doing the income, or cost, approach. Never done either from ghetto to multi million dollar homes.

As printed in the wonderful book, Scope of Work, edition 3 it states::
"The cost & income approaches to value were not necessary for credible results in this assignment and were not performed."
But, the perfectionists here think it is required on ever appraisal. So perfection gets you what.

 

[Zoe]

1st, is subject rented? 2nd put most on cost or sales comparison. You can do rental addenda with URAR. You'll need rent comparable(s). You may not be able to complete income cap approach with credible results.

With Market Value as value definition, the most likely buyer will be owner occupant. Just sayin..............

 

[J Grant]

Did a SF appraisal (2nd home) on $1.2 million across the street from a bay. Done on a URAR, did the sales comparison approach and thought, hum, income approach might be relevant. Found three rentals in the neighborhood and developed a GRM to arrive at a value. I put my value in the “Income Approach” section. I put the rudimentary info in my reconciliation comments.

This client farms out the rudimentary UW to an appraiser (dealt with her before and nice person). She came back with since I developed the income approach, I need to have the info in the report, not just comment in the reconciliation. I told her there is no separate section for the IA in the URAR so I put it in the reconciliation. We worked it out that I would just make a separate IA comment in the comments section.

My question is, how do you all address the income approach in the URAR? Let’s assume they didn’t ask for a 1007.

You opened a can of worms by volunteering to add an income approach when the client is not asking for it - . That is a different animal from a cost approach ( which I normally do). An income approach means the lender might have to treat it as an income-producing property rather than owner-occupant use, which means a different loan category ( killing the loan for an SFR use)

This is why I NEVER volunteer to put an income approach into an SFR property for loan purposes when the client didn't ask for it- to answer your question.

If the area has a demand for rentals/high $ leases , with the fact that the rents are baked into the prices, I might put something in the comments about the neighborhood section - " Sales in the area are to owner occupants with some investor purchases present due to strong rental demand in the area."

 

[Tom4value]

Call me crazy but I kinda adhere to USPAP. In the reconciliation, we are to address all three approaches to market value and if we didn’t develop an approach, we need to state why. There are basically only 2 reasons why we wouldn’t develop an approach.
1. It is not relevant. (We still have to explain why it is not).
2. The client instructed us not to AND not developing it can still produce credible results.

The client neither told me not to and I determined that developing it would be relevant.

 

[sputnam]

Call me crazy but I kinda adhere to USPAP. In the reconciliation, we are to address all three approaches to market value and if we didn’t develop an approach, we need to state why. There are basically only 2 reasons why we wouldn’t develop an approach.
1. It is not relevant. (We still have to explain why it is not).
2. The client instructed us not to AND not developing it can still produce credible results.

The client neither told me not to and I determined that developing it would be relevant.

Right. Not applicable, like the Cost Approach for land. Or... not necessary for credible assignment results.

Even if the Client says, 'Don't need the Cost Approach (or Income Approach), you have to consider all approaches. If YOU... not the Client... determine that an approach is not applicable or not necessary... then you can omit it but you have to explain why you did.

Not reporting an approach isn't the same thing as not developing an approach. Even if the Client says 'No Cost Approach', you can develop and consider it. If properly done, it can help support adjustments in Sales Comparison Analysis.

 

[J Grant]

Fannie Mae
When the income approach to value is used, the appraisal report must include the supporting comparable rental and sales data, and the calculations used to determine the gross rent multiplier. If the appraiser has completed the income approach, the lender must thoroughly review the information provided to confirm that the appraiser’s analysis and comments for the income approach are consistent with comments mentioned elsewhere in the report.

I found this easily online on their site - If one chooses to include the income approach for URAR they must do the above. So getting back to the first post, the UW allowed the appraiser to simply comment but it looks like fannie wants the rentals actually shown-

 

[alebrewer]

Which is completely inconsistent with Cert #4...

 

[Tom4value]

Fannie Mae
When the income approach to value is used, the appraisal report must include the supporting comparable rental and sales data, and the calculations used to determine the gross rent multiplier. If the appraiser has completed the income approach, the lender must thoroughly review the information provided to confirm that the appraiser’s analysis and comments for the income approach are consistent with comments mentioned elsewhere in the report.

I found this easily online on their site - If one chooses to include the income approach for URAR they must do the above. So getting back to the first post, the UW allowed the appraiser to simply comment but it looks like fannie wants the rentals actually shown-

Worked out with the UW that I have a separate "Comments on Income Approach" comment category. I stated the comps I used (addresses, rents/dates and water amenity). I then stated that I compared the rentals to actual similar sales to derive a range of gross rent multipliers, stating why 511 was most influential. This would support what Fannie wants.