Appraise as SFR or MF?

[Sadie]

If, as the OP states, that the value as a rooming house is "way more" than that of an O-O SFR, why is it unreasonable to consider that the HBU, hence a lot of buyers, are looking at it and others in the area as income properties? With the shortage of living space in many areas of the country, these may be more popular and the way of the future for some economic cohorts.

If the owner is the one obtaining the mortgage, it is not a leased fee situation, just like any other landlord tenant scenario. The difference is the renting out the rooms individually, with their own lock etc. Typically a rental is one amount for a whole dwelling unit with however many roommates is necessary. Some jurisdictions do not allow more than a certain number of unrelated people to occupy one dwelling.

 

[J Grant]

If whomever occupies a property at time of inspection determines what a property is, then should a vacant property be called a storage unit? ( sarcasm)

 

[Zoe]

The thing about a 6 month signed lease with good tenants, is like the income approach won't help much when all they are renting is a bedroom and shared living, kitchen, and bath. If the lender gets it back, they will boot the tenants by the time they get possession of the subject.

Especially if loan is in house. The lender just wants to know the subject is making a profit. They would definitely want you using SFR on sales comps.


If income tax return showed a loss to IRS, it would be a problem for the client.

 

[Tom4value]

I didn’t read all responses so I apologize if this was already addressed.

It is a single family home. A multifamily property has multiple dwelling units; units with their own entrance, kitchen, bath, bedrooms and living areas. They cannot be accessed by the others. You have separate tenants with locks on the bedrooms but they all share the kitchen, bath(s) and living quarters.

Assuming that that is all legal, appraise it as a single family property and develop the income approach as it is applicable.

 

[Webbed Feet]

This thread reminds me of all the appraisal industries tricks and lies that have been followed by appraisers for decades now. Whenever possible, residential appraisers all immediately declare all single family properties to be market immune to the income approach (and most often the cost approach), declaring the comparison approach to be the only valid approach to value. Which most knock out with little research and a bunch of made up adjustments, give me my money please. But have a client / lender say they need an income approach and POOF! Look at that! There ARE rental houses all over the place around the subject.. who knew???? Golly! Look at that! Hey, the income approach results are higher than the comparison approach! Who knew! Wow, look at that! Ok. now it's time for the next house in the very same area. You got it, yep. Back to the boiler plate! "As a single family property the income approach is not applicable" Right back to more of the tricks and lies.

 

[Sadie]

This thread reminds me of all the appraisal industries tricks and lies that have been followed by appraisers for decades now. Whenever possible, residential appraisers all immediately declare all single family properties to be market immune to the income approach (and most often the cost approach), declaring the comparison approach to be the only valid approach to value. Which most knock out with little research and a bunch of made up adjustments, give me my money please. But have a client / lender say they need an income approach and POOF! Look at that! There ARE rental houses all over the place around the subject.. who knew???? Golly! Look at that! Hey, the income approach results are higher than the comparison approach! Who knew! Wow, look at that! Ok. now it's time for the next house in the very same area. You got it, yep. Back to the boiler plate! "As a single family property the income approach is not applicable" Right back to more of the tricks and lies.

Having rental houses all around the subject is not incredibly helpful unless they also sell, thereby providing data for a credible GRM from which to calculate value. Additionally, areas with rent control will have that GRM skewed. Remember that most clients of residential appraisers want to know the collateral value is in case the loan goes south. As in what can it be sold for. And if you are using one of the GSE forms, part of your SOW is the primary approach to value is the SC.

 

[jay trotta]

IMO-sounds like a pre-existing condition via local zoning (rooming house) from what the OP describes. City inspections, etc

Anyone here ever do an SFR with requested Rental data in the Client Letter of Engagement?

 

[Terrel L. Shields]

People rent out rooms in their homes all the time and it does not make it an MFU or a hotel. Just like a STR if you want to use the income to value it it would need to be based on market rents for the home, not the rooms for 6 month minimum. What does the City say as to the zoning and legal use?

what about homes built or modified for single room rentals? Or, like a few I have done over the years, a foster family built a house designed for numerous children. One was a 3 story with boys on the top floor with male counselors, girls on the middle floor with female counselors, and the lower floor was the manager, kitchen and dining rooms. Another had 6 rooms and was managed by a couple. They had a commercial kitchen and a large dining room, built the house specifically for this purpose. Another actually had cafe booths for dining, a separate library for home-schooling, and housed about 6 foster kids at a time.

 

[sputnam]

The Highest and Best Use of a property is determined independently of how the owner is actually using the property. If your assignment is market value then, you must do a HABU analysis. Do it properly and then appraise the property at it's Highest and Best Use.

 

[Webbed Feet]

Having rental houses all around the subject is not incredibly helpful unless they also sell, thereby providing data for a credible GRM from which to calculate value. Additionally, areas with rent control will have that GRM skewed. Remember that most clients of residential appraisers want to know the collateral value is in case the loan goes south. As in what can it be sold for. And if you are using one of the GSE forms, part of your SOW is the primary approach to value is the SC.

GRM: Whoever trained you left you directionless in thinking you need rental houses to sell to get a credible GRM. THAT is just another of the industry lies to excuse not performing an income approach regarding residential properties. Allow me. Perform a rent survey, as we should be doing anyway, using rental properties/data with physical structures similar to the subject property and located in the subject's general market area. Use the data to establish an estimate, known as your opinion, of market rent(s) for said otherwise competitive properties. Next, use those results to estimate the market rents for competitive properties THAT HAVE SOLD regardless of if they are, or were, rented or not. Voila! You now have a credible market established monthly rental amount for a property with a recent sale price, now you have a valid GRM estimate for that sale.

RENT CONTROL: If the area is 100% rent controlled, and the subject would be also if rented, then it is a like for like comparison. What's your problem? If the area is partially rent controlled, but much of the area is not, IF your subject would NOT be rent controlled, one simply does NOT use rent controlled properties in the analysis. What's your problem?

GSE/SOW: Secondary market preprinted scope of work from their URAR form, calling a comparison approach primary or not, does NOT relieve you from the USPAP requirement the appraiser perform all approaches necessary for credible results. The USPAP requires appraisers explain and support the exclusion of any approach within the appraisal report. USPAP does not require the exclusion of any approaches believed not applicable. It is the appraiser’s job to include the reporting required.

So, if in the face of hundreds, if not thousands, of SFR type structures rented all around your market place, you ever end up in front of the state board in Salem trying to explain how regardless the Income Approach clearly would have produced credible results, BUT you deemed the approach not necessary because some GSE form said the comparison approach was "primary" .... let me know when the hearing is going to be... I'll bring popcorn. It would be far better if, after the last several decades of lies, tricks, stupid boiler plate usage, and everyone looking the other way, if the ASB would just change the USPAP to say for SFR properties the only required approach is the Sales Comparison Approach, the other two are optional. Change USPAP, end the lies.