A MultiFamily Question on Adjustments

[Mztk1]

Also, in a 2 to 4 family property, there are other factors. Some of these are owner occupied. Location will make a difference. If the property has features that an owner occupany would prefer, the house will be in higher demand. Good schools, good view, fits the needs of more potential owner occupants because it has 3 brs and 2 baths so a family can occupy it. These things are all considerations in the residential multi-family world. Your standard tenant might not care so much. They are often transient, often schools are not as much of an issue, and the view out the back plays less of a role. But when you are dealing with the potential to lure in the owner occupant market, which four families can still do, the units of comparison exclusive of rent, are viable.

 

[David Dietz]

PE I agree with you on this...tell the underwriter if he want to make the adjustments to get a license and do the work himself.

 

[mark jacobs]

What say ye ?

PE
You made a good point the other day and I thank you for the response.
The income derived method is fine and well suited for income producing property, but that is not what is asked of an appraiser in the SCA.

One interesting point is USPAP nor Fannie Mae tell us how we must derive our adjustment(paired sales, linear regression, or an abstraction method...).

If you are confident with your rent adjustment then apply the GRM to that item and place that amount in the SCA grid for that item. Infact that is what you are doing in the IA.
This is relatively easy if you go to large complexes that have rent differences for say a unit with fireplace vs. unit without a fp. They do the work for you when finding the rent adjustment. It is market derived. If you apply the GRM to the item then that is also market derived. If the complex charges $20 for the difference in a fireplace and the local GRM is 110 then a $2,200 adjustment can be justified in the SCA, if no better data is available. This only works for items that investors(buyer and seller) perceive as marketable to renters.

 

[PropertyEconomics]

PE
You made a good point the other day and I thank you for the response.
The income derived method is fine and well suited for income producing property, but that is not what is asked of an appraiser in the SCA.

One interesting point is USPAP nor Fannie Mae tell us how we must derive our adjustment(paired sales, linear regression, or an abstraction method...).

If you are confident with your rent adjustment then apply the GRM to that item and place that amount in the SCA grid for that item. Infact that is what you are doing in the IA.
This is relatively easy if you go to large complexes that have rent differences for say a unit with fireplace vs. unit without a fp. They do the work for you when finding the rent adjustment. It is market derived. If you apply the GRM to the item then that is also market derived. If the complex charges $20 for the difference in a fireplace and the local GRM is 110 then a $2,200 adjustment can be justified in the SCA, if no better data is available. This only works for items that investors(buyer and seller) perceive as marketable to renters.

The only real problem I see Mark .. is there are very few items which are easily identified like Fireplaces or Garages which could be adjusted that way. Square footage for example ... is very difficult to measure because in most complexes one size unit rents for one price and a second size unit another.
I believe making the line item adjustment within the Sales Grid as outlined measures all diffrences (which can be directly attributable to income). Its just not an adjustment thats all separated like the lenders are use to or underwriters understand.

 

[mark jacobs]

PE

You know who is responsible for that(over using adjustments) is us the appraisers.
Too many adjustments most of the time.
I darn near lost a client over the argument with the underwriter regarding brick vs frame. She insisted I make an adjustment......
Okay I am about to show my age.....
in the 80's a firm I worked at did a lengthy paired sales analysis. Half a dozen appraisers over a one year period. Employer required a minimum of 2 paired sales per week per appraiser, 6 x 2 x 52 = we had a slew of paired sales.
These were very well done paired analysis. And relatively simple to do.
A variety of items and several sets of paired sales for each items.
One of the most interesting things that kept coming back is a home with new siding or freshly painted tended to sell at or slightly higher than the brick house.
I have refused to make that adjustment ever since, unless the frame home was in less than average condition, which also was singled out in the analysis.

I do stick with the concept less is better in the adjustment grid. If you can't prove it or have solid evidence, don't make the adjustment.

As for the rentals, there is ample data for many items, but you have to have a large enough sample and being willing to trust your info from one neighborhood and apply it to another if you can show they have similar market characteristics.

 

[PropertyEconomics]

PE

You know who is responsible for that(over using adjustments) is us the appraisers.
Too many adjustments most of the time.
I darn near lost a client over the argument with the underwriter regarding brick vs frame. She insisted I make an adjustment......
Okay I am about to show my age.....
in the 80's a firm I worked at did a lengthy paired sales analysis. Half a dozen appraisers over a one year period. Employer required a minimum of 2 paired sales per week per appraiser, 6 x 2 x 52 = we had a slew of paired sales.
These were very well done paired analysis. And relatively simple to do.
A variety of items and several sets of paired sales for each items.
One of the most interesting things that kept coming back is a home with new siding or freshly painted tended to sell at or slightly higher than the brick house.
I have refused to make that adjustment ever since, unless the frame home was in less than average condition, which also was singled out in the analysis.

I do stick with the concept less is better in the adjustment grid. If you can't prove it or have solid evidence, don't make the adjustment.

As for the rentals, there is ample data for many items, but you have to have a large enough sample and being willing to trust your info from one neighborhood and apply it to another if you can show they have similar market characteristics.

Mark I couldnt agree with you more ... My office does that on square footage adjustments .. we have a book by neighborhood and size range with paired data ... you are right its not difficult to do it just takes a little time and effort.

I agree with you in large complexes and I agree there is typically very good data with which to measure differences ... the problem lies in comparision of these data with those of small investor properties 2 - 6 units lets say .. Im not sure the markets react the same way .. but there is one thing both have in common ... INCOME.

I am a firm believer in matched pairs .. just harder to do among smaller properties in my opinion and I achieve the exact same thing with my adjustment process as one would splitting the hairs to make individual adjustments. I would bet, given the data, the adjustments would nearly be equal in the end given good analysis.

Thanks for your posts.

 

[mark jacobs]

PE

SW Ohio has whole sections of neighborhoods with the brick 2 and 4 unit buildings.

Cincinnati must have invented the brick. And every butcher and factory worker wanted to rent one.

Then came WWII and they stopped building them.

Paired sales are relatively easy, because so many look the same.

 

[SANDY]

You must perform both the income and market approaches credibly or you are violating professional standards. Can't use the income approach data to perform the sales comparison analysis. Even a trainee knows that!!! Of course you could always state that the market approach was not really developed. Turn your license in before you get nailed.

 

[CANative]

You must perform both the income and market approaches credibly or you are violating professional standards. Can't use the income approach data to perform the sales comparison analysis. Even a trainee knows that!!! Of course you could always state that the market approach was not really developed. Turn your license in before you get nailed.

Why can't an appraiser use capitalization of a rent loss or rent gain to derive a quantitative adjustment in the SCA? Just like an appraiser might use cost data to derive an adjustment for an inferior or superior characteristic.

 

[SANDY]

Two different approached required-that's why there is a reconcialtion line on the form-Also why all tree approaches if applicable are required-what is being done is the income approach twice and its being thinly veiled in the guise of a sales comparison approach.

Gotta be careful of what you post!!!