George Hatch
Elite Member
- Joined
- Jan 15, 2002
- Professional Status
- Certified General Appraiser
- State
- California
Let's not lose sight of the point that it's the expectations of the market participants that drive the value of the property in the market.
And in California one of those expectations in this market segment is these landlords are legally prohibited from increasing rents on an existing tenant past a maximum of 10% per year, or to evict them in order to replace them with new occupancy at market rents. So if an existing rent is 30% below market it might take a minimum of 3 years to bring that rent up unless the tenant leaves on their own. In fact, one of the caveats on the state limitations of a maximum cap of 10% a year is that they are are superceded by any local rent control which is stricter and has lower limits.
For instance, the city of Santa Monica has had rent control in place for many years and their limitations are stricter than the state's, so that's what prevails for those units. It's not unheard of for landlords to pay $50k and $100k to a tenant in order to get them to leave so the landlord can equalize those rents to the market rate.
If I'm reviewing a (California) 1025 and an appraiser is using non-contract rents for units with existing occupancy I'm kicking it back to them to correct their error. That isn't a realistic forecast for how an adequately informed buyer - acting in compliance with existing state laws - can expect to act.
And in California one of those expectations in this market segment is these landlords are legally prohibited from increasing rents on an existing tenant past a maximum of 10% per year, or to evict them in order to replace them with new occupancy at market rents. So if an existing rent is 30% below market it might take a minimum of 3 years to bring that rent up unless the tenant leaves on their own. In fact, one of the caveats on the state limitations of a maximum cap of 10% a year is that they are are superceded by any local rent control which is stricter and has lower limits.
For instance, the city of Santa Monica has had rent control in place for many years and their limitations are stricter than the state's, so that's what prevails for those units. It's not unheard of for landlords to pay $50k and $100k to a tenant in order to get them to leave so the landlord can equalize those rents to the market rate.
If I'm reviewing a (California) 1025 and an appraiser is using non-contract rents for units with existing occupancy I'm kicking it back to them to correct their error. That isn't a realistic forecast for how an adequately informed buyer - acting in compliance with existing state laws - can expect to act.
