2-4 Unit Adjustments

[Amira Shipman]

I have a situation in which I'm appraising a triplex but with only one three unit comp with the remainding comps being either two or four unit properties.

It's recently come to my attention that one can establish a market adjustment to compensate for variances in unit mix by means of applying the GRM. However, I'm not completely clear as to impliment this methodolgy.

Can any one offer some advice? Any assistance will be appreciated.

Thank you

 

[Jim Onderisin]

I'm not familiar with the technique you mention. Maybe it is an adjustment for one fewer or one more unit based on the expected rents for the unit? I usually keep searching until I find other 3-unit buildings.

 

[Lee Lansford]

I have a situation in which I'm appraising a triplex but with only one three unit comp with the remainding comps being either two or four unit properties.

It's recently come to my attention that one can establish a market adjustment to compensate for variances in unit mix by means of applying the GRM. However, I'm not completely clear as to impliment this methodolgy.

Can any one offer some advice? Any assistance will be appreciated.

Thank you

Try this: Expand your search parameter for TIME.

Go back in time as far as you have good data to work with. Search for sales of 2-, 3- and 4-unit buildings; determine whether the data are sufficient to provide an indication of the relationships among properties with various number of units. If successful, you have some basis for forming an opinion today.

Also: Is the Subject "neighborhood" or "market area" very limited? If a prospective buyer could not find a market substitute for the Subject property within the "neighborhood", where are the alternative properties located?

 

[Mike Kennedy]

Ms. Shipman, are you a Licensed Appraiser?

 

[Randolph Kinney]

I have a situation in which I'm appraising a triplex but with only one three unit comp with the remainding comps being either two or four unit properties.

It's recently come to my attention that one can establish a market adjustment to compensate for variances in unit mix by means of applying the GRM. However, I'm not completely clear as to impliment this methodolgy.

Can any one offer some advice? Any assistance will be appreciated.

Thank you

I am not aware of a direct GRM adjustment for differences in the number of units.

However, you can compare a duplex or fourplex with a triplex and make adjustments for the number of units, the number of bedrooms and the number of bathrooms plus GBA differences along with land size and parking. After making those adjustments, you should be bracketing what your triplex value is. Now comes the reconciliation of where the GRM estimation comes in; it fits within the GRM range of the comparables and the market rent times the appropriate GRM should give you a value based upon income.

 

[hastalavista]

It's recently come to my attention that one can establish a market adjustment to compensate for variances in unit mix by means of applying the GRM. However, I'm not completely clear as to impliment this methodolgy.

Can any one offer some advice? Any assistance will be appreciated.

Thank you

(my bold)

If all properties were similar in all respects except for rental income generated by unit difference, and all buyers acted strictly by investment decision-making, then this would work. That usually isn't the case in the real world.

In most of my markets, 2-units are valued more as primary units than as income properties, so given the choice of using a duplex or fourplex to compare to a triplex, I'd choose the fourplex.
A number of different units of comparisons will need to be analyzed (indeed, this is why room count, bedroom, unit, etc. is at the bottom of the sales grid page). Sometimes a triplex will sell for the same as a fourplex; why? Usually, because it generates a similar income (which is the point of your original question!) . So, in that case, a unit-comparison adjustment is not appropriate.

My bottom-line answer is that a GRM adjustment can be part of the analysis, but I'd be hesitate for it to be my only support. Others will argue that such a tactic is mixing two different types of approaches (income and sales comparison). I don't see it the same way (and I hope this thread doesn't turn into that argument; we just had that discussion about 2-months ago).

I will add this: In my opinion, if one has to start analyzing income differences as consideration to determine what the best unit of comparisons are, then one has a complex assignment. :new_smile-l:

One last thought: If all the properties rent for a similar $/sqft and their GRMs are similar, then differences in value can be adjusted using a GBA adjustment.`

Good luck!

 

[Mike Boyd]

(l:

One last thought: If all the properties rent for a similar $/sqft and their GRMs are similar, then differences in value can be adjusted using a GBA adjustment.`

Good luck!

Or, you can just give more weight to the income approach rather than double dipping (my opinion). I adjust for square footage differences and number of bathrooms....maybe for number of bedrooms. If you then adjust for GRM in the comparison grid, it is akin to double dipping.

 

[hastalavista]

Or, you can just give more weight to the income approach rather than double dipping (my opinion). I adjust for square footage differences and number of bathrooms....maybe for number of bedrooms. If you then adjust for GRM in the comparison grid, it is akin to double dipping.

(my bold)

Mike-

You are correct and my post wasn't explicit. In my example, all value differences could be explained by a GBA adjustment; no other adjustments would be needed.

 

[PropertyEconomics]

Or, you can just give more weight to the income approach rather than double dipping (my opinion). I adjust for square footage differences and number of bathrooms....maybe for number of bedrooms. If you then adjust for GRM in the comparison grid, it is akin to double dipping.

Or you can make the adjustment using the GRM, recogizing all differences between the properties which produce income, and make no other adjustments. We have had this discussion before and I think we are all in agreement that adjustments should be made based upon the availibility of market data to support such adjustments. If you can seperate them out, do so, if you cant .. there are other ways of achieving the same measurement of value. As long as you dont double adjust you should be fine.