Can I compare a 4 family with 5 fam or 6 units.

[jaguar]

I am appraising a 4 family residential property. There is only 1 comparable sale of a 4 unit in the town within 1 year, can I use 6 family dwellings as comparables and what type of adjustment should I apply.

 

[Diego Lopez]

<4 units and > 4 units are 2 different animals, you are probably better off expanding your search for comparables to nearby communities.

 

[Michigan CG]

I am appraising a 4 family residential property. There is only 1 comparable sale of a 4 unit in the town within 1 year, can I use 6 family dwellings as comparables and what type of adjustment should I apply.

Sure you can, it is all in the income. Break down the comparables and the subject to per unit numbers, the cap rate and the applicable multipliers. I would rather use 6 family properties in comparison to 4 family properties than using duplexes.

It takes more $$$ to buy 4 unit or 6 unit properties than it does duplexes. People buying larger properties tend to be more knowledgeable, but then again, some just went to the get rich seminar and have too much money.

 

[Tim The Enchanter]

I wouldn't unless I was desperate for comps.

2-4 has different financing options, and is a different animal than the 5 or more.

 

[The Dog]

Over 4 units, you enter the realm of commercial financing. Different animals, different buyers, different intents.

Short answer NO unless you have ABSOLUTELY NOTHING ELSE. 5+ units are usually bought by a much more sophisticated buyer pool with a different set of requirement for return on and off the investments, different expense and management, generally an entire different animal.

 

[Don Clark]

Over 4 units, you enter the realm of commercial financing. Different animals, different buyers, different intents.

Short answer NO unless you have ABSOLUTELY NOTHING ELSE. 5+ units are usually bought by a much more sophisticated buyer pool with a different set of requirement for return on and off the investments, different expense and management, generally an entire different animal.

Mixing residential(1-4 units) with commercial(5 or more units) is not generally acceptable appraisal practice.

 

[Mike Garrett RAA]

I have used a 5 unit when appraising a 4 unit before but it really isn't the best. Just remember, you can't make chicken soup out of chicken poop...if you don't have sales you don't have sales. We are fortunate to have lots of fourplexes here and we can always use some older sales. Going to a different community will also give your underwriter heartburn.

 

[Ray Christ]

FWIW ... THINK ABOUT IT AS A PER UNIT SITUATION. AND CONSIDER THE INCOME APPROACH AS A LEADING FACTOR. AT THE BOTTOM OF THE 1025 THERE ARE ALSO THE CONSIDERATIONS OF PER ROOM, GBA, etc.

I DON'T THINK THERE IS A SIGNIFICANT DIFFERENT INVESTOR OF A 5/6 UNIT THAN A 4 UNIT.

 

[c w d]

If we're only qualified to appraise a 2-4 unit multifamily how are we qualified to render an opinion on a 5 unit multifamily sale and call it a comparable?

I would stay away from it unless there were absolutely no other comparables anywhere.

 

[George Hatch]

Every market is different. In my market the effects of the more favorable financing are so profound that some 5-unit owners have reconfigured for 4 larger units because the property is worth more that way. The rent multipliers are a lot higher for 4-unit properties here than for 5 and 6 unit properties.

The other thing that happens with 5-6 unit properties is that they often utlize their lots more efficiently, meaning the cost/unit is comprised of the improvements of 1/5 of the lot instead of 1/4 of the lot. As an example, if a vacant multi-family lot here is selling for $350,000, a 4-unit project ends up with lot values of $87,500/unit, whereas a 5-unit ends up with $70,000/unit. That $17,500/unit may not seem like a lot until you multiply it 5 times.

Your market might be different, especially if you don't have many of either types of properties or if land values aren't that high. This is a case where a few phone calls to these brokers may prove to be very enlightening for you.

If you are going to use 5 and 6 unit properties you might consider doing a comprehensive analysis of 3-4 unit datasets vs. 5-6 unit datasets. Go back 5 years or so and analyze both datasets on a price/room basis as well as a GRM basis. If it turns out the two datasets are showing reasonably similar trends then you could probably make the case that the 5-6 unit properties are sufficiently comparable.

No matter what, I think that you'll probably find that you will have to make (at least) an adjustment to the sale prices of the 5-6 unit properties to account for the commercial financing terms.