4 Or 5 Units?

[DanBuck]

Was that unit the 1st floor center apartment per chance?
You have 6 breaker boxes with the smallest one for 1st floor center. This may be an add on for the electric heat. The other boxes are full size, not needed for a common area in that type of building. Couple of hall and porch lights?

Maybe Rex can weigh in.

Interesting observations. A short hallway upon entering maybe if i can recollect and a small porchway.. I cant reach rex

 

[Michigan CG]

I almost always do detailed floorplans; it's a lot easier to convey what I'm seeing - especially in situations like this.

I am guessing in this situation it is necessary. If that is the situation the fee would go up.

 

[DanBuck]

I am guessing in this situation it is necessary. If that is the situation the fee would go up.

Its a pain to ask for more fees..

 

[Dublin ohio]

Looks like all of the meters are labeled. Center meter looks like it says 1st floor center. Meters to right say first floor rear and first floor front. What do the other meters say. I am going to guess that the panel down and to the far left might be connected to the 1st floor center meter. And the meters to the left might say 2nd floor front and rear or left and right.

 

[KHS445]

Obviously it is difficult without being there and seeing for ourselves, but here are a couple of questions/observations that I have in no particular order.

- There are five electric meters, but six breaker boxes. The far left meter feeds the far left box and then there appears to be a sub-feed from that box to the one below and slightly to the left. The boxes do appear to be labeled. Write down the labeling and mark off the units you have inspected.

- What areas of the building do the units you have seen occupy and what areas did the owner tell you couldn't be accessed? I would start on the lowest level and make sure I have inspected all of those areas and then move up until you reach the top level. Have you been in the attic. I noted there is an A/C unit up there and also one of the other pictures shows what looks like a partial fire escape/metal porch leading from a doorway. From a safety standpoint is this door blocked or some how secured in order to prevent access to the metal platform? My college fraternity house had a platform like that out of the attic level sack room where everyone slept and it was referred to as the **** porch.

- One of your pictures (showing the four gas meters) shows five windows (four in the yellow section and one in the white section) with window air conditioners. This is only one side of the building, what do you see on the other sides. Might there be another gas meter associated with the white building.

- What is the apartment rent breakdown? I believe you mentioned you have seen or have copies of the leases and if not you can ask the owner what is the current monthly rental rate for each of the units. You should also ask the owner about his occupancy rate. Then you can take the stated monthly rent for the four units and multiple by 12 and the resulting number should be equal to or greater than the annual income being reported on the income and expense statement. Obviously vacancy would cause the actual reported rental income to be lower than your gross calculation.

- I would hope the lender has provided you with multiple years of income and expense numbers. Look for income and expense fluctuations. If reported income is higher than should be generated by a four unit that could be a tip. Also if the income is fairly steady but the utility expenses are higher one year it may be an indication of a vacancy with the owner paying the utilities for several months on a vacant unit.

- Looks like there maybe a garage to the left in one of the back side pictures. Did you see inside of the garage? Might this be the fifth unit?

- If you saw three of the supposed four units, where did he tell you the fourth unit was located? Does that area match up with the portion of the building you didn't see. In other words does the estimate size/location of the unit seem reasonable in relation to the building area not observed.

- If I were a betting man and based on what pictures and comments you have made I would bet there are five units and I wouldn't be surprised that there might not be an extra sleeping room or two. Were there any common areas with a TV, bathroom, cooking facility, etc.?

- Is your client (the lender) a traditional lender ie. Bank type, or is it a lender where the loan originator might be on some sort of commission?. I have to wonder if this same property owner has several other properties that you are also appraising, wasn't coached to state this property was a 1-4 unit in order to get financing. A traditional lender would handle this building as either a 1-4 or commercial. A non-traditional that packages and sells all of their loans probably only deals with 1-4 unit properties and doesn't have an outlet for properties with five or more units.

- I am assuming you have researched the local MLS going back a number of years to see if it shows any listings or sales of this building. When did this property last sell? If it was in the last 5 to 10 years you might try finding the seller and asking them about the property. Just tell them you are looking for a little history and/or background on it. Maybe trying to verify any remodeling, updating, etc. and wondering if permits were pulled and who did the work.

Be sure to keep us informed as you move forward and let us know how things turn out.

 

[Tom4value]

Btw is it a bad idea to get involved with the town inspector and building dept in general. it can open a can of worms-i never like doing that..

Yeah, but that's what they are there for. I have to do my job correctly and that entails getting involved.

I used to feel uneasy about "opening a can of worms". Not any more. I am doing them a favor. If there is a code violation and God-forbid, someone gets hurt, they won't want that on their conscience. Also, if there is a fire or some lawsuit, the first thing the insurance company does is check for code violations to get out of paying. I can open the can or worms and they may get a naughty call from the Building Inspector and/or lose the loan. The insurance company can open it and it would be far worse.

 

[glenn walker]

I got a difficult situation. Basically, before going on inspection of appraisal bank tells me property is 4 units which also seemed that way from one of the records. Upon inspection I get into 3 units. I decided that Id have to come back for the 4th unit due to the face that some of these props were fixer uppers and I wanted to make sure that last unit is usable.

Now I'm seeing from building records that the property is legally a 5 unit and is actually taxed as so. On the building records it says it has 5 kitchens. I called the building dept and assessor and this is the information that they have as well.

I bring this up to the borrower and he says he knows of only four units. Now, perhaps there's a possibility that he knows there's more, which is why he didn't get me into all areas of the house upon the first inspection, and maybe is pulling some stunt- but he says "he'd be happy if it were a 5".


I'm not sure what to do from here do I tell the bank anything yet(they don't like being bothered), Currently, Im trying to get another inspection (for that so called 4th unit) which is being delayed by the borrower. Do I just write up appraisal as a 4 unit with ext. assumption that there's 4 units and assumption that the owner is showing us everything here and if hes hiding something the value may change. The property is very oddly shaped which is hard to figure that every part of it has been inspected properly.

On top of that would there ever be an incentive why a borrower would want it to be a 4 unit rather than 5 in terms of getting a loan? (Its all renter occupied)

What do I do here?


Thanks all.

The incentive for the owner or buyer is a 4 unit qualify a for traditional, loan, Fannie-freddie-FHA-VA *** A 5 unit or more does NOT qualify as a 1-4 for loan purposes and is not completed on Fannie-Forms or UAD.

The loan on a 5 unit is considered to be a commercial loan with higher interest rate . On a 4-Unit even though the lender will have you do both sales comparable and income approach Fannie-Freddie-FHA make the final value based on sales comparable approach and do not purchase loans where the most weight was based on the income approach and that's because 1-4 are considered residential and one is going to be owner occupied. Hope that helps on the incentive question

 

[Joe Flacco]

What is the difference in loan terms for 4 units and 5 units for fannie mae?

 

[glenn walker]

What is the difference in loan terms for 4 units and 5 units for fannie mae?

Fannie-Freddie does not purchase 5 or more units they are considered income property and done as commercial loans. The interest rate on 5 + can be anywhere from 1% to 2% higher and loan to value is often cut down to 65%-70% "V" 95% or more on FHA-. 5 Units are very difficult to sell in some ares because of the poor financing available. Also certified residential licenses only allows the appraiser to do income or commercial under $250,000 and in my area there is no such thing so 5 units are done by CG Appraisers only.

 

[Joe Flacco]

Fannie-Freddie does not purchase 5 or more units they are considered income property and done as commercial loans. The interest rate on 5 + can be anywhere from 1% to 2% higher and loan to value is often cut down to 65%-70% "V" 95% or more on FHA-. 5 Units are very difficult to sell in some ares because of the poor financing available. Also certified residential licenses only allows the appraiser to do income or commercial under $250,000 and in my area there is no such thing so 5 units are done by CG Appraisers only.

I thought fannie mae expanded into multifamily recently.