Duplex - Rental Comparables

[BlueDog007]

Hey gang-

When appraising a duplex or any other multi-family, I have always supplied the TOTAL rent for a duplex rental comparable. Example: The subject unit A is rented for $475, B at $500 = Total of $975. I am reviewing an appraisal where the appraiser supplied 3 rental comparables, however, noted "One side of duplex" and list the BR/BA/GLA for that particular side of the duplex. And, list each comparable as being rented for $450, $500, and $550 without supplying rental information for the other side ("B") of each property. Is this valid?

Also, in the sales comparision approach, comp 1 does not have a GRM because the rent rate could not be determined (listed as "0"). The GRM for comp 2 is 79. Comp 3 is 87. In the income approach, the appraiser notes a GRM of 95. He states that the GRM was obtained from the subject appraised value divided by its actual rent. Producing a GRM of 95.

I do not appraise many multi-family properties, however, I have ALWAYS provided rental comparables indicating a TOTAL monthly income for each property. And, I ALWAYS provide a range of GRM's, and utilize a number from within that range. Any suggestions are appreciated.

 

[airphoto]

Did I read you correctly? I always thought the GRM was determined from the comparables, then multiplied times the 'market' rent for the subject to obtain the indicated value by income approach. What you described doesn't fit that ..

 

[BlueDog007]

Exactly...........that's my point. How can you compute a GRM if you only have the rent schedule for one side of a duplex. The appraiser basically multiplied the actual rent for the one side by 2, then divided it by the appraised value of the SUBJECT due to a lack of information. I know that isn't correct. However, what do you do if you do not have duplex rental information indicating the TOTAL rental income for BOTH sides of the unit?!?!?!

 

[airphoto]

Well, mathematically:

If you consistently use just one side, you're still correct .. or you can presume both side rent equally .. and it's still correct, as long as what you do is consistant ..

But still .. dividing the appraised value by the monthly rent (whether at half the amount, or the full amount) to arrive at subject's GRM is wrong, no matter what figure you're using. The calculation goes the other way: arrive at market rent for the subject (verify that subject's actual monthly rental is what the market will bear) and multiply that times the market GRM (derived from the comparable sales/rentals) to see the "indicated value by income approach." What you appear to have is the reverse: an attempt to derive a GRM for the subject based on it's appraised value/actual rent and (I believe) compare that with the GRM developed from the sales.

 

[Steve Owen]

I do not appraise many multi-family properties....

You hit the nail on the head. Like RELOs, most appraisers don't do many of these and that makes it a more difficult assignment, which is the main reason I charge a lot more for them.

I have always used both sides of the property, but maybe your appraiser couldn't find comps that had both sides rented. I would probably tend to agree that that would be okay as long as the appraiser is consistent, however it does not produce a technically correct GRM, still mathematically it should lead to the same result.

FYI: The software may be giving this appraiser a GRM for the subject based on the appraised value. Software writers are kind of expected to be ignorant, but the same cannot be said of appraisers. If this guy really believes that the GRM comes from the appraised value instead of the other way around, it's a sad day for the industry.