Appraising Single-family Rental Portfolios

[Michael P Jacobs MAI]

I thought the appraiser and client were supposed to set the scope of an assignment ...

Well, if you skip an important step in development that results in an omission is the State going to go after the client? The appraiser is responsible for the scope. But I'm not sure of your point, what is it?

 

[PL1957]

Well, if you skip an important step in development that results in an omission is the State going to go after the client? The appraiser is responsible for the scope. But I'm not sure of your point, what is it?

My point was that a state board has no role in determining the appropriate scope of an appraisal - that's up to the appraiser and the client. Different uses of an appraisal can call for dramatically different scopes. In this case, some uses could require some type of bulk or sell out analysis, others wouldn't ... the wishes of the state board wouldn't have anything to do with it. I would really hate to be in a profession where my methodology is determined by a bunch of political appointees ...

 

[BRCJR]

Wouldn't this depend on how the lender wants to evaluate its risk and structure the loan?
The retail value of the individual properties are going to have to be determined no matter what.
But a bulk value (as a lender) may be what I'm going to use to structure the deal.

Yes, it would depend upon the way the lender wants to evaluate the collateral.
My statement was standalone, it is NOT required like a development of more than 4 units would be.

 

[Michael P Jacobs MAI]

I would really hate to be in a profession where my methodology is determined by a bunch of political appointees ...

Well, you and I are in "that" profession but that's not the point either. My point is that in this specific case (this thread refers to "the FED" and "the lender" where the certification cites appropriate regulations) if bulk-sale is omitted it is faulty methodology. When the omission is reported, the appraiser will find themselves "before the State." That isn't arguable, is it? I just implied that he can't ignore the bulk-sale analysis (no matter how shallow he decides to pursue it) or he's exposed. Under the circumstances when the Fed and a lender are involved and requirements the appraiser certified to are not followed, then the State is going to look to the appraiser. Geez, why are we wasting time on this?

 

[Michigan CG]

A lot of questions to ask and a lot of it is location specific. Selling off 50 homes in the Chicagoland ares is different than selling off 50 homes in a town of 100,000. Highest and Best Use comes to mind just considering location and population.

We had a sale here in a town of 25,000 where the overall community is 75,000. The homes were all located in a specific part of town on the "wrong side of the tracks" where the vast majority of the homes are rentals in the area in a 30-block area. They were priced by the realtor in a way that would indicate "retail". They eventually sold off-market to an investor for a 20% discount.

 

[DREA Dean]

This is really a scope of work issue. If your client wants you to appraise the properties as an ad hoc rental portfolio, then that defines how you look at it. Just make sure to state that in the scope of work. If the client doesn't want you to limit the scope in that way, you need to do a sale vs. rent highest and best use analysis.

I appraised several new condos that were owned as an ad hoc small apartment project. This was back about 7 years ago when the home sale market was soft. They were worth more to own and operate as rentals, so I appraised them as if they were a small apartment complex. If I reappraised them now, I would have to look at them both ways to determine which results in a higher market value/present value - continue operating as rentals or sell off the condos individually. I would have to determine retail sales prices, sale absorption, marketing costs, etc. and then discount the cash flow to compare to the value as rentals.

 

[Terrel L. Shields]

For lending purposes the discounting applies &state board would be involved if you failed to do it. USPAP is explicit that you are required to do this and be familiar with regulations involving your client even if they are ignorant of the law. Saw it many times, lender not wanting to pay. One redo was a CR using one sample report x 42 properties. Examiners caught it and I redid the whole remaining project

 

[gregb]

https://www.FDIC.gov/regulations/resources/director/technical/appraisals/appraisal-4.pdf

 

[NachoPerito]

I did a portfolio of 50 homes annually beginning in 2012. It was interesting to see how the highest and best use was as a multifamily property in 2012, but that quickly changed by 2013 or 2014 where bank-owned homes died off and owner/users began purchasing homes again. Now the owner/user will pay 40% more than the mulifamily investor for these homes.

 

[PL1957]

In several of my markets, we've seen a "de-conversion" trend where an investor comes in an buys ALL of the units in an existing condo development in order to "de-convert" and use the building as a traditional apartment. I'm curious if people think a bulk sale analysis or a discounted sell out analysis would be necessary to keep the state off my back?