Appraisal for a triplex.

[juner]

I would like to ask your opinion regarding a recent appraisal done by the county on my triplex. I live in one apartment and rent out the two others.

Anyways, I felt the appraisal came in high. I spoke to a representative with the appraisal company about the appraisal last week. One thing that the appraisal did not take into account was that the utilities weren’t divided. I pay all utilities. I know this negatively impacts the value in the eyes of other investors or buyers. How does this affect the value? Is there a percentage or a reduction in value normally given? Also, my heating (stand alone gas heaters) and electrical (some knob and tube) need updating. Should I have brought this to attention?

 

[hastalavista]

I would think the rent you charge each unit is higher than competing properties with units that are individually metered. In other words, it should be a wash (although I understand dividing up the utility bill is more burdensome than each tenant paying their own, metered rates).

In theory, the higher rents due to the inclusion of the utilities should make the income stream from your building similar to its competitors who have separately metered units, but a lower rental rate.

Are the operating expenses (for maintaining the system... not the usage) more expensive for a single-system than for 3-systems?

 

[Walter Kirk]

You said that the county did an appraisal, I believe that your county probably did an assessment. There is a big difference between an appraisal and an assessment.

an assessment is a mass valuation excercise while an appraisal is a study of the market value of one specific property. There is no general percentage value for property condition, that would have to be developed by an appraiser from sales data from your specific area.

If you believe that the assessment done for the county over values your property you should have an appraisal done to prove your contention.

 

[Terrel L. Shields]

There are no set "percentage" deductions for anything. The property way to value a duplex is set by market conditions. The assessor uses mass appraisal techniques. They also often use rental information in income property. They would estmate the rents and apply a gross income multiplier. Say your units lease for $1000 a month. Your own unit is assumed to equal the other. So the gross income is $3000. If the multiplier - Gross Income Multipler (GIM - annual) or Gross Rent Multiplier (GRM - monthly) is say 80 GRM (which is the same as 6.67 GIM) then 3000 x 80 = $240,000

They don't take into account differentials in utilities nor would they actually know your rents, they only estimate your rents from area rents. It would be up to you to make a case for lower valuation before some sort of equalization board, commissioners etc. whatever method for contesting taxes as are available to you in the county.

I would call the county and ask to speak to one of the appraisers and ask how they arrived at the value. Can you compare the other triplexes around for comparision?

 

[AnonApprsr]

What was the purpose of the valuation and the definition of market value appraised?

The amount of affect on value is market specific. I assume the fact that utilities are included is apparent in the rent you charge, and that may mitigate any potential negative affect on value. As for your final question on needed updating the appraiser probably noticed this, depending on the scope of the inspection.

 

[juner]

Thanks everybody for your input. You are a very knowledgeable bunch.

Here's the rundown. The county assessor was not doing a good job a assessing real estate/homes as per the state. The state thought our property values should be higher, which would bring in more taxes for them. So the county assessor decided to hire a company to appraise all homes and commercial property. When people got the "proposed appraisals" from the company they were about to lynch somebody:new_2gunsfiring_v1:. Values went through the roof. I'm talking double, tripled, and quadrupled. The assessed vales are 60% of those appraised values. People are in the process of contesting those appraisals now.

I do charge a larger amount for rent to cover my utilities. But when I've approached investors about buying my place, they don't want anything to do with it because they don't want irresponsible tenants running up the utility bills. This is why I figured its value takes a hit. As far as my appraisal, they never collected any info regarding rent. The representative also made clear that there were no really good comparables for my city and that I was lumped in with the neighboring city which has higher valuations. Doesn't seem fair, but the guy is looking to see what he can do. He should be able to lower it some, and if I'm still not happy I can take it in front of the board.

 

[Pittsburgh Pete]

For what it's worth, properties with separate utilities sell for higher price per unit than properties with utilities included--at least in my market. Typically what we see with GRMs is that the higher the expense ratio, the lower the GRM; conversely, the lower the expense ratio the higher the GRM.

 

[Michigan CG]

.............So the county assessor decided to hire a company to appraise all homes and commercial property......

This is a type of mass valuation and not all properties are looked at singularly otherwise it would take years and a lot of $$$$$$.

You might be wise to hire an appraiser to appraise your specific property to present to the board. When hiring the appraiser you need to make sure that the appraiser has a broad understanding of income producing properties. Just because the license says they can does not mean that they are familiar with these properties.

www.appaisalinstitute.com

For what it's worth, properties with separate utilities sell for higher price per unit than properties with utilities included--at least in my market. Typically what we see with GRMs is that the higher the expense ratio, the lower the GRM; conversely, the lower the expense ratio the higher the GRM.

That is also my experience, in three states.

 

[Smokey Bear]

As for 'utilities included', it's better to split the utility bill between the units than to just include it in the rent. Do it by number of tenants or square footage, or a combo of the two. Or foot the bill to add meters.

Otherwise, there are folks out there that specialize in appealing tax assessments, maybe CANative will pipe in.

 

[George Hatch]

It sounds like this appraisal didn't include an income approach. In and of itself that isn't necessarily a problem as far as valuing your property because the dominant approach to value for 3-unit properties may be Sales Comparison anyway.

The difficulty in comparing multi-family properties to each other is that - in many areas - the unit mix (how many 1bd, how many 2bd, how many 3bd) varies greatly among such properties. It can get tricky trying to figure out exactly how much contributory value there is in an extra bedroom or an extra unit, particularly when there aren't a lot of sales data to work with in the first place.

If the appraisal company hasn't already figured this out, one way to account for the difference in location between your property vs the sales in town may be to compare rents (AFTER consideration of your inclusion of all utilities in your rents). In other words, the first step would be in figuring out how much those owner-paid utilities are actually costing and extracting them out of the rent to render that rental basis similar to how other units are being rented in the market.

After the utilities adjustment, a straight up comparison should demonstrate whether the rental basis in your area is higher, lower, or similar to the rents elsewhere. If it's the same then there may not be an adjustment to make for location. If your rents are lower then that could support a downward adjustment to your unit values based on the location.

For the sake of simplicity, let's assume you have (3) 2bd units, each of which would rent for $800/month if the tenants were paying their own utilities. Everything else being equal, if the units in town were renting for $880/month (10% more), then that could support adjusting their sale prices down by 10% to "make" them equal to your units. Presumably that 10% premium would be attributed to the location.

Another way to compare for location influences (albeit more indirect) is to compare the sale prices of otherwise similar homes in the two areas. If a home in town costs 10% more than the same home in your area that difference could also be argued to apply to the comparison of 3-unit properties, too. Maybe.

Working with small sets of data can sometimes get tricky. But that's no excuse for not making an effort to at least consider the effect on value of the location when compared to sales data from outside the area. That's a fundamental. Regardless if the appraiser agreed with you or not they should already have had an answer at the tip of their tongue for your question of whether or not they considered the difference in location in their analysis. An appraiser cannot can't get to a value conclusion without fully understanding how they got there.