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Appraising In An Airbnb World

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Read the links. It is your choice but again, if you get hammered don't say you were not warned. And if you don't mention the insurance issue, the rental income, (and the likelihood you need to do an income approach), the legal ramifications from local ordinance....isn't the report misleading?

What started out as an idea to earn rent money turned into one of the most popular peer-to-peer rental sites used today. Airbnb cofounders Joe Gebbia and Brian Chesky started out as two cash-strapped roommates in San Francisco in 2007. In order to make their rent, the two loaned out rooms in their apartment to visiting designers from the International Design Conference after hotels in the area were booked up.

The two called their new endeavor “Air Bed and Breakfast,” a reference to the air mattresses the guests were staying on. While the sleeping accommodations sounded less than appealing, guests loved the breakfast and city tours the pair provided.​
 
It is all about the risk to the loan, which in part is made based on DTI ratios.

Should the municipality, do like they did here, and declare all short term rental properties now had to pay hotel taxes, meet fire and safety codes, well, those things really screw up the DTI ratio and could make the repayment of the loan in jeopardy.

That's just one reason why the focus is on USE.

And don't let one of those rental tenants decide they are not leaving, in a domicile state. There are already horror stories of people who have moved into other people's homes and it took months and court hearings to get them removed.

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I don't know about other areas, but this type of use would not be allowed under normal circumstances in a residential zone. This type of use, involving transient lodging with parties unrelated to the owner, would require all sorts of permits, compliance with health department codes, periodic inspections, insurance, etc. If they don't have all of the proper permits, then it is an illegal use.
 
David Wimpelberg said:
I don't know about other areas, but this type of use would not be allowed under normal circumstances in a residential zone. This type of use, involving transient lodging with parties unrelated to the owner, would require all sorts of permits, compliance with health department codes, periodic inspections, insurance, etc. If they don't have all of the proper permits, then it is an illegal use.
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Air bnb has attorneys and spent $ ( as has UBER) fighting off this kind of legal challenge. While some cities or regions enforce against Airbnb in residential zones, others allow it, others its a gray area. Insurance etc is up to homeowner, not appraiser.

Appraise the darn property, stop worrying about what a homeowner does with it. For all we know, a number of us have appraised residences the owners rent out for airbnb, how would we know unless they tell us? Disclose what you know of course regarding if owner uses it for airbnb on the appraisal, beyond obligation to disclosed, why is it our business? ( unless the property has been physically modified then it is a property appraisal issue )

There are lenders who want appraisers to stop /call if they see illegal drug or criminal activity at a property, but this is not that.
 
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We're appraising the property under its highest and best use, not the way the owner uses it. In a market value assignment, the value of the property is based on the utility of a property. If the property is can be utilized for transient housing (Airbnb, B&B, etc.), and that use adds value to the property over and above single occupancy, then that use does matter.

In the case of lending assignments, lenders will want to know this information as it pertains to conformity to certain loan programs, as well as liability issues.
 
David Wimpelberg said:
We're appraising the property under its highest and best use, not the way the owner uses it. In a market value assignment, the value of the property is based on the utility of a property. If the property is can be utilized for transient housing (Airbnb, B&B, etc.), and that use adds value to the property over and above single occupancy, then that use does matter.

In the case of lending assignments, lenders will want to know this information as it pertains to conformity to certain loan programs, as well as liability issues.
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Put BnB off the table, these are not bed and breakfast quasi hotels, they are residential properties where an owner decides to rent via the airbnb website. If the owner stopped doing airbnb tomorrow, it would have zero impact on the market value because we are not valuing it as an income property. If the property is located in a hot area for Airbnb that would be baked into the prices of area properties.

yes I agree, if we know an owner uses a property for air bnb, then disclose it in the appraisal. .But this- If the property is can be utilized for transient housing (Airbnb, .), the point is, any property can be utilized for airbnb as long as it is not banned in an area. So...if could buy the identical house to subject a block away and the next day use the airbnb program to rent it, why would I pay more for the subject, simply because subject's owner is already doing it?
 
David Wimpelberg said:
We're appraising the property under its highest and best use, not the way the owner uses it. In a market value assignment, the value of the property is based on the utility of a property. If the property is can be utilized for transient housing (Airbnb, B&B, etc.), and that use adds value to the property over and above single occupancy, then that use does matter.
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Any property can be used for transient housing. I think I am safe in assuming that most of us are not considering this when doing our HBU analysis. Houses in the southwest can rent their roofs out to solar panel firms. Whether or not someone chooses to is not an appraiser's concern.

If someone uses their sunroom to grow some medicinal plant for profit, should that go into our analysis?

Again I ask, how does familial relationship or lack thereof of people sleeping in different bedrooms affect the market value of a home?

Should a thorough income approach for any and all potential uses of a home be required in every res. appraisal to cover our bases?
 
Overimprovement said:
Should a thorough income approach for any and all potential uses of a home be required in every res. appraisal to cover our bases?
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No, but to CYA you should inform the client of potential legal issues. There is a reason they license day care, hotels, etc. Same with Uber. How many drivers have robbed or injured their passengers? Grow house, same problem. "Legal" is it? They just busted a pot grower running a day care in his house in my town. And we passed legalized marijuana but not fo 10# of it. Do you think he isn't going to jail? The banker has more concern than mere value. It is worth what it is worth. But the banker loses a lot when someone trashes your BnB, or the house burns and your insurance company refuses to pay because the occupant was not you when the fire started. It is no different than all those liar loans where the loan papers required you to occupy the house but they were leaving it vacant and flipping for a profit....only to lose it before it sold.

I appraise a lot of things commercial where the driver of value isn't rental income. A business in a building isn't creating value totally from RE, rather it is the management and business that is making money. So the question is do I ignore it at the risk of imperiling my clients collateral or do I make sure they know the actual use of the property? And does the intended users really want to finance a BnB at below commercial rates? I bet Fannie et al don't.
 
developing highest and best use will answer the question whether this is a rental or owner-occupied market

report the findings and let the client decide how they want to proceed.
 
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