I just called him and he got a big laugh out of this comment! He said that he is going to have to get a ladder to get to the right book in his extensive library. Or we could ask Henry Harrison! Actually he said hogwash-develop the csa with non-income related data and reconcile-never seen an instance in 30 years where he couldn't develop a csa. Maybe times have changed and it might be time for ole dinasour to hang it up!
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A MultiFamily Question on Adjustments
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I just called him and he got a big laugh out of this comment! He said that he is going to have to get a ladder to get to the right book in his extensive library. Or we could ask Henry Harrison! Actually he said hogwash-develop the csa with non-income related data and reconcile-never seen an instance in 30 years where he couldn't develop a csa. Maybe times have changed and it might be time for ole dinasour to hang it up!
I think that your example has put you in a conundrum. If you have adequate market rental data from which to extract a reliable grm then by definition you must have adequate sales price data to construct that grm. Unless you want to stand behind constructing a grm mostly from raw market rent data from properties that have not actualy sold. You would then be basing your grm on a probable sales price which makes your grm less reliable.
I would say that if you have such good data to construct a reliable grm from, then you also would have enough good data to utilize in the csa. You might have limited data to isolate all of the various value contributing components as part of the csa but the same problem would exist in constructing your grm.
To answer your question will have to wait until tomorrow-he's old and in bed now but i think he would say that it would have to be done by someone with a higher license than you or me.
I would say that if you have such good data to construct a reliable grm from, then you also would have enough good data to utilize in the csa. You might have limited data to isolate all of the various value contributing components as part of the csa but the same problem would exist in constructing your grm.
To answer your question will have to wait until tomorrow-he's old and in bed now but i think he would say that it would have to be done by someone with a higher license than you or me.
Amy Perkins
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Your adjustments should be extracted from the sales. For example, if the difference between a two bedroom and a three bedroom is recognized in the market, adjust for it.
CANative
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What if you don't have sufficient sales of ideally similar properties? I work in a market where there may be one or two sales per year of 2-4 properties in the entire county. And there is absolutely no building or unit mix conformity. A couple of months ago I had to do a 4 unit and there has NEVER been a 4 unit sale in that city or any city within an hours drive. And only 1 sale of a 4 unit anywhere else in the county going back 3 years.
I'm not saying one should try out yield capitalization on a 2-4 resdiential property. I'm just saying there are a large number of methods and techniques for developing adjustments.
JT1974
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This is a good thread. I'm really enjoying watching this Trainee give the good 'ol boys a beat down. I'll just sit back and keep reading.
:new_popcornsmiley:
P.S. Sandy, I would recommend you attend the Appraisal Institute's Advanced Cost and Sales Comparison Approach course 530. You will find that it is perfectly acceptable to capitalize the additional rent attributed to a distinct feature such as an extra bedroom, fireplace, den, etc. as long as you support the incremental rent amount via a matched pairs analysis (using comparable rents).
Another question I have for you, Sandy, is if we are supposed to keep such an IRON CURTAIN between the three approaches to value, how can one possibly justify using cap rates in the Income Approach that are derived from the Comparable Sales?
Finally, I will give kudos to Sandy for posing very intelligent questions with very good spelling and grammar..........something that is often lacking on this forum.
:new_popcornsmiley:
P.S. Sandy, I would recommend you attend the Appraisal Institute's Advanced Cost and Sales Comparison Approach course 530. You will find that it is perfectly acceptable to capitalize the additional rent attributed to a distinct feature such as an extra bedroom, fireplace, den, etc. as long as you support the incremental rent amount via a matched pairs analysis (using comparable rents).
Another question I have for you, Sandy, is if we are supposed to keep such an IRON CURTAIN between the three approaches to value, how can one possibly justify using cap rates in the Income Approach that are derived from the Comparable Sales?
Finally, I will give kudos to Sandy for posing very intelligent questions with very good spelling and grammar..........something that is often lacking on this forum.
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Amy Perkins
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Greg, you are in a remote area and if the data is not there, you have to get creative and find a way to quantify it. As human beings we are able to take in large amounts of statistical data without even knowing it, that is what makes an appraiser better than an AVM. Our jobs as appraisers is to recognize and find a way to prove that to a given underwriter. Sometimes it takes more time to get that data or find a way to explain it. At times, I have had to go into a similar markets to extract adjustments. Other times, my knowledge base is appraisals, built upon other appraisals. We all know one thing, some things just have greater utility in a given market. Giving an large overall adjustment without explaining, it is not going to convince anyone.
So can you folks tell me where one obtains a reliable grm or cap rate? Don't you have to have sales of similar properties? But I do seem to remember the good ole boys at the bank providing the cap rate along with those commercial appraisal orders.Hmmmm!
I can fully understand that market rental data is normaly available but and that it even may be available in sufficient quantity to isolate adjustments for individual components but ya still gotta capitalize it or grm it.
Greg: I can now understand some why in your area, you have had to rely on some of the techniques you use-however you must be careful to provide that context less others may think its the only or best way to do things. In your area, it sure does sound like you are doing whatever you need to do.
Just remember, market rent and income data in general have their weaknesses just like other methods used-and it doesn't take much to mess up an income approach when using those multipliers. Garbage in garbage out.
Jason: Thank you for your post-not sure whether your being sarcastic though. If we have enough data from paired sales, then why would we capitalize it. Only reason I can think of would be to use it as a check on an adjustment based upon the paired sales analysis and if so, me likey!!
There goes my grammer.
To try to answer your second question Jason will be difficult for me because my exposure to full blown commercial appraising has been limited to mostly grunt work!! However I would suspect that the main reason for using comparables sales to develop your cap rate in the income approach is simply because they are sales. Doesn't mean that your using the sca to develop the income approach your just using sales that are comparable. The same could be said visa versa. I am not trying to say that there should be this iron curtain between the approaches. I am saying that the main reason that they exist is to serve as a check and balance on each other and to help identify potential problems or errors made in the application of each of them.
I can fully understand that market rental data is normaly available but and that it even may be available in sufficient quantity to isolate adjustments for individual components but ya still gotta capitalize it or grm it.
Greg: I can now understand some why in your area, you have had to rely on some of the techniques you use-however you must be careful to provide that context less others may think its the only or best way to do things. In your area, it sure does sound like you are doing whatever you need to do.
Just remember, market rent and income data in general have their weaknesses just like other methods used-and it doesn't take much to mess up an income approach when using those multipliers. Garbage in garbage out.
Jason: Thank you for your post-not sure whether your being sarcastic though. If we have enough data from paired sales, then why would we capitalize it. Only reason I can think of would be to use it as a check on an adjustment based upon the paired sales analysis and if so, me likey!!
There goes my grammer.
To try to answer your second question Jason will be difficult for me because my exposure to full blown commercial appraising has been limited to mostly grunt work!! However I would suspect that the main reason for using comparables sales to develop your cap rate in the income approach is simply because they are sales. Doesn't mean that your using the sca to develop the income approach your just using sales that are comparable. The same could be said visa versa. I am not trying to say that there should be this iron curtain between the approaches. I am saying that the main reason that they exist is to serve as a check and balance on each other and to help identify potential problems or errors made in the application of each of them.
My apologies to Property for hijacking his thread. BTW since you folks were the first to digress somewhat from the topic and bring this into the realm of capitalizing income streams, let me digress some too-
Vote for an officially recognized enhanced reporting format so that we have a reasonable chance of being adequately compensated for what lenders are slowly requiring from us anyway!!! Raise the bar for us professionals so that the avms, bpos and limited stuff can be exposed for what it is-a bunch of hogwash!!
Let's add some poundage to those residential reports so we can get paid like the big boys!! Doesn't even matter whether the poundage adds anything to the credibility(ok I am being sarcastic). Just reminds me of a 50+ page report we did as an FHA review in Orlando that I once helped on-You would have thought this guy was the offcially state sanctioned best appraiser in Florida but we found out his inspection consisted on standing in the foyer asking the owner some questions when the obvious plumbing leak on the back wall of the bathroom was 10 feet away from him and his photo of one of the comps was taken such that the 2 car garage looked like a 1 car!! Blah blah blah everyone's been there seen that done that!!
Here's some of the best advise you will ever get on this forum from a trainee, newbie, so-called un-informed appraiser- get your noses out of those books and get in the field and apply some of that training you got or are getting from your mentor to make some real money. I am sure that once my ole CG gets around to finding that AI book he will have to dust the cobwebs off of it. Then you will be to afford to sit around all day here on the forum and talk about the good ole days and how us newbies don't know diddly!
Vote for an officially recognized enhanced reporting format so that we have a reasonable chance of being adequately compensated for what lenders are slowly requiring from us anyway!!! Raise the bar for us professionals so that the avms, bpos and limited stuff can be exposed for what it is-a bunch of hogwash!!
Let's add some poundage to those residential reports so we can get paid like the big boys!! Doesn't even matter whether the poundage adds anything to the credibility(ok I am being sarcastic). Just reminds me of a 50+ page report we did as an FHA review in Orlando that I once helped on-You would have thought this guy was the offcially state sanctioned best appraiser in Florida but we found out his inspection consisted on standing in the foyer asking the owner some questions when the obvious plumbing leak on the back wall of the bathroom was 10 feet away from him and his photo of one of the comps was taken such that the 2 car garage looked like a 1 car!! Blah blah blah everyone's been there seen that done that!!
Here's some of the best advise you will ever get on this forum from a trainee, newbie, so-called un-informed appraiser- get your noses out of those books and get in the field and apply some of that training you got or are getting from your mentor to make some real money. I am sure that once my ole CG gets around to finding that AI book he will have to dust the cobwebs off of it. Then you will be to afford to sit around all day here on the forum and talk about the good ole days and how us newbies don't know diddly!
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hastalavista
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Sandy-
I may pass on your advice. :new_smile-l:
I didn't start really reading the books till I had about 12-years of "grunt" experience. The books helped me realize (along with many posts on this forum) what I didn't and still don't know.
Kudos to you if you've found a method that bypasses my experience.
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