form 1007- Comparable rent schedule

[Shahab Malik]

In Fannie Mae Form 1007 (Comparable rent schedule), in the Comments section, it reads:
"Comments on market data, including the range of rents for single family properties, an estimate of vacancy for single family rental properties, the general trend of rents and vacancy, and support for the above adjustments. (Rent concessions should be adjusted to the market, not to the subject property.)"
Now what does "Rent concessions should be adjusted to the market, not subject.." mean? Isn't everything adjusted to the subject? If the landlord pays for the gas, say $50/ month, then shouldn't the comps then show a +50? How is something adjusted to the market?

 

[Steve Wyrick]

An example: Apt. for rent, with 12 month lease 1 month Free.


Apt. for Rent, all utlities included. ( In area where the more typical is for tenant to pay their own utilities.

 

[Shahab Malik]

yes, those are concessions, But how would you show that adjusted to the "market"? I would adjust it to the subject?

 

[Steve Wyrick]

Lets make it easy.

Apt. for Rent $500/mo. get the 12th month free with 12 month lease.

$500 x 12 mo. = $6,000
Less Concession, 12th mo., - 500
Annual Market rent $5,500
Market rent/mo. $5,500/12 = $ 458/mo

Effective or actual market rent $458, that is the market rent comparable to the subject.

You have to figure out what the concession is valued at, subtract it from the stated rent to arrive at the comps market rent which you now can adjust for physical differences between the comp and the subject, such as room count, pool/no pool, etc.

 

[Lobo Fan]

They want to arrive at a market rent as opposed to the number fed to you by the borrower. I ran into one recently where the borrower told me he was getting $550/month plus utilities. That sounded a little high to me considering the type of unit and that the tenant was Section 8. I asked the tenant what she was paying and she told me $400/month and the landlord paid the utilities. That sounded more realistic.

As I looked at rents for similar units I found that they were going from $350-$450 so $400 was right on.

The point is that FNMA wants you to make the adjustments on the $400 market rent versus the $550 stated rent.

 

[jay trotta]

don't get anything like that here and there is No way of knowing who is doing what with the Rents or anything else; the only data we get to work with is whats on the MLS -normally, they don't put anything in about concessions, the Agents make it part of the "negotiation" and it never makes it to the MLS. It' more like a science spoof here - data is all over the place, wqill run a history search and see whats typical on the monthly and go from there.

Sounds interesting, wish we could get all that info., would probably make it much easier, but if it were easy, everybody would be doing it right??

 

[Steve Owen]

Shahab, if Steve and Chuck's answers (which are correct, by the way) don't do it for you, then try thinking of it like this. If you were doing an SFR sales comparison approach, and one of the comps had a seller concession, you would adjust that concession above the grid (before adjusting the comps for physical differences from the subject) so as to make the comp sale price cash equivalent to a typical market sale. So, if the comp sold for $100k but the seller paid $5k in unusual concessions or costs, then typically, you would put that negative $5k adjustment in at the top, before you start adjusting for differences between the comp and the subject.

This is no different. Try thinking of the rent as the sale price for the lessee's estate in the property. If an unusual concession is made by the lessor, then the sale price (or rent price, in this case) is actually lower for all practical purposes.

 

[Sher at AP]

I have a different scenario. The owner of the subject property for a 2 unit multi family in Detroit, gave me current rents as $900 total. Upper $500 heat included, lower $400 no heat included.

When I pulled rental comparables for similar properties, they are all coming in at 1100-1200 and 2 properties are lower in sq ft.
Usually the owners seem to state higher then what the market rents, so my question is now........on the last line of the 1007 it states:
"I estimate the monthly market rent of the subject as of (date) to be ($$)."

Should I be putting in $1100 as the amount or the actual $900 like the owner specified?

They want to arrive at a market rent as opposed to the number fed to you by the borrower. I ran into one recently where the borrower told me he was getting $550/month plus utilities. That sounded a little high to me considering the type of unit and that the tenant was Section 8. I asked the tenant what she was paying and she told me $400/month and the landlord paid the utilities. That sounded more realistic.

As I looked at rents for similar units I found that they were going from $350-$450 so $400 was right on.

The point is that FNMA wants you to make the adjustments on the $400 market rent versus the $550 stated rent.

 

[Mike Kennedy]

Sher - "Market Rent" is what the MARKET indicates......it may be lesser or greater than ACTUAL. Suggest reviewing the DEFINITION of Market Rent.:icon_idea:

 

[Sher at AP]

Thanks Mike,
I couldn't find it in my 2006 USPAP definitions, but found it in the definitions in the back of an old 2000 USPAP book. I appreciate you not only answering the question with the definition, but letting me know how to find the answer myself. I don't do too many rental properties!

Sher - "Market Rent" is what the MARKET indicates......it may be lesser or greater than ACTUAL. Suggest reviewing the DEFINITION of Market Rent.:icon_idea: