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GRM: Bedroom Count adjustment VS Squarefoot adjustment.

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Frederick R. Ruffell

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Jan 21, 2002
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California
Recently, I have started trying to narrow my indicated Gross Rent Multiplyer range. Currently in my market (San Diego) projected rents must be used 95% of the time. I used to try to and reconsile the projected rent amounts using square foot figures but what I have noticed is that, for example, 2 bedroom 1 baths are going to rent for the same amount regardless of their size (within 25% GLA). When I project Rents based solely on room count my GRM range is a lot tighter. As long as my rental comp selection is good ( i.e. not using ocean front rentals to compare to non ocean front subject etc.) this seems to help my income approach analysis. Anybody else notice this in their markets or is everyone saying "DUH Frederick" to themselvs?
 

Restrain

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Jan 22, 2002
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Florida
What you are seeing is the bedroom differential in the market. Yes, 2 bedroom homes have a functional differential as compared to a 3 bedroom home. 4 bedroom homes are harder to prove as size gets larger and the bedroom differential is offset by the size. This is much more apparent from rentals if you have good rental data.

Roger
 

jtrotta

Senior Member
Joined
Jan 16, 2002
if your speaking of single family rents (which it sounds like to me) we have a very limited amount in my area. they would also be limited by the "seasonal use" aspect and that will change on a year to year basis. if we were to attempt to do this today, outside factors now play a major roll in our vacation rentals, as the increase of city dwellers has tripled or better since last year; mainly by New Yorkers; New Jersey people. The purchase of properties around the shoreline by "out of staters" has increased ten fold since 9/11; housing prices have shot up 20% + since then and no forseeable slowdown has been noted to date.

bottom line, it would be difficult to determine if the bedroom count or location would be the real factor at this time.

8)
 

mikegoff

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Jan 28, 2002
Professional Status
Certified General Appraiser
State
Florida
Recently, I have started trying to narrow my indicated Gross Rent Multiplyer range. Currently in my market (San Diego) projected rents must be used 95% of the time. I used to try to and reconsile the projected rent amounts using square foot figures but what I have noticed is that, for example, 2 bedroom 1 baths are going to rent for the same amount regardless of their size (within 25% GLA). When I project Rents based solely on room count my GRM range is a lot tighter. As long as my rental comp selection is good ( i.e. not using ocean front rentals to compare to non ocean front subject etc.) this seems to help my income approach analysis. Anybody else notice this in their markets or is everyone saying "DUH Frederick" to themselvs?

DUH Frederick,
You're on to something. I have found the same (Located in SW Fla) conclusions when analyzing residential rentals. I believe its because of the way rentals are marketed. Pick up any want/classified adds, do they typically market (advertise) the property by square footage or bed/bath count? My range is a lot tighter with fewer outliers, when analysis uses room count instead square footage. I still do both analyses, but rely on the room count analysis more and more. Local market has strong rental demand, limited supply. Rents have been climbing throughout the last decade.
 

Charlotte Dixon

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Jan 16, 2002
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Certified Residential Appraiser
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Delaware
My range is a lot tighter with fewer outliers, when analysis uses room count instead square footage. I still do both analyses, but rely on the room count analysis more and more. Local market has strong rental demand, limited supply. Rents have been climbing throughout the last decade.

I concur.....I too, lean on the room/bath count for rental analyses, and this method is even more reliable in beach areas.
 

Frederick R. Ruffell

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Jan 21, 2002
Professional Status
Certified General Appraiser
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California
Jtrotta,
Sorry, I thought I had mentioned something about 2-4 units. I do alot of 2-4 unit properties here in San Diego. I have tried to carve a niche (sp?) for myself appraising these properties.
 
Joined
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Professional Status
General Public
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North Carolina
Frederick

No question that in Greensboro, North Carolina, bedroom/bath is almost always a better measure of income potential than GLA or any other unit of measure for small apartment units and SFR.

I have never really figured out why on some of the forms they want S/F adjustments for the whole property in the sales approach, but I do understand that size of the bedrooms sometimes makes rent adjustments appropriate.

Regards

Tom Hildebrandt GAA
 

Mike Garrett RAA

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Jan 14, 2002
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Certified Residential Appraiser
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Colorado
I concur with your concurance! The key to gross rent multipliers can be pinned directly to the bedroom count rather than square footage...in most cases.

The order in my market appears to be:

1. Bedroom count
2. Garage
3. Baths
4. Size
5. Fireplace
6. Washer & Dryer (in unit)

Over riding everything is, of course....LOCATION LOCATION LOCATION.
A two bedroom, one bath 1,000 square foot unit in a fourplex can rent for as much as $200 more in the north end of Colorado Springs vs the south end.
 

George Hatch

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Jan 15, 2002
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California
In all of SoCal, apartment units rent by room count, with size being a minor factor. It looks like this is pretty common across the nation, as well. They also sell based on the price/room basis, especially as the projects get larger than 2-4's. The only thing I'd like to calrify is that the analysis should take into consideration all of the rooms in the unit, even though the number of bedrooms is the main influence. The reason I say this is that a 2-bedroom unit will not rent for twice as much as a 1-bedroom unit. The tenants are not just renting bedrooms; they also rent the kitchen/bath/living room core areas of the unit as well as any extra amenities. This is why the difference between a 2bd and 1bd is more like 20%-25%, depending on the area. Thus, it's easier if you use the entire room count in your analysis; i.e., a 2-bd unit has 4 rooms and a 1bd unit has 3 rooms. That way, your range of value indicators will come in even more tightly, especially on income-driven projects of more than 4 units.

The thing to remember is that, particularly in SoCal, 2-4's are commonly owner-occupied, with income often being contributory in nature rather than the primary determinant. So I'd temper the income oriented value indicators with some judgment as to how that market segment is actually reacting to these differences. Will an extra bedroom in a $300,000 2/lot property with 8 rooms actually generate enough extra rent to justify a $37,500 adjustment? (Answer, No; because the $37,500 indicator is divided between land costs for the property that are fixed and improvement costs that are contributory.) I'd use the gross GRMs as a starting point for your adjustments, along with some judgment.

George Hatch
 
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