HBU for Rental Analysis

[ZZGAMAZZ]

Value In Use Appraisal, Addressed | Elliott & Company Appraisers

Value in use appraisal differs from a market value appraisal in that it does not consider highest and best use, and follows the dynamic of Overholtzer case law.

www.elliottco.com

Type in a value in use vs market value appraisals in the search engine (or a version of that phrase ) and information about it comes up. A good one is the above article link.

What type of appraisal assignment would VU be used for? The little research I conducted last night appeared to be based on factors that I associate with an income approach.

 

[J Grant]

What type of appraisal assignment would VU be used for? The little research I conducted last night appeared to be based on factors that I associate with an income approach.

Imo, an investor might order it but I think in reality it is rarely ordered as an appraisal. Most investors do their own valuation for themselves when they look to purchase - they are not idiots and can run the numbers and are up on RE trends - an investor might look to monetize a residential property for Air bnb , which is a value-in-use, and thus pay more than, or compete with, owner occupant buyers for the same property.

Value in use is an important concept for appraisers to know about because it can impact prices or buyer appeal, and it can also lead to a sleazy or not educated client asking for a value-in-use appraisal but they call it market value - and some appraisers fall into that trap themselves -I can't; believe that some here keep post advice to value a residential Air bnb condo or house as if it is a hotel or commercial enterprise... or should they value it on the subject short term rental rate instead of annual market leases?????? / DOH

 

[ZZGAMAZZ]

Imo, an investor might order it but I think in reality it is rarely ordered as an appraisal. Most investors do their own valuation for themselves when they look to purchase - they are not idiots and can run the numbers and are up on RE trends - an investor might look to monetize a residential property for Air bnb , which is a value-in-use, and thus pay more than, or compete with, owner occupant buyers for the same property.

Value in use is an important concept for appraisers to know about because it can impact prices or buyer appeal, and it can also lead to a sleazy or not educated client asking for a value-in-use appraisal but they call it market value - and some appraisers fall into that trap themselves -I can't; believe that some here keep post advice to value a residential Air bnb condo or house as if it is a hotel or commercial enterprise... or should they value it on the subject short term rental rate instead of annual market leases?????? / DOH

Thanks for taking so much to educate me. I'm wondering if a real property appraisal would ever include two different defintions, if for example, results of the sales comparison approach wasn't conclusive, a supplemental approach based upon Value In Use would be conducted as well (or am being too curious?)

 

[J Grant]

Thanks for taking so much to educate me. I'm wondering if a real property appraisal would ever include two different defintions, if for example, results of the sales comparison approach wasn't conclusive, a supplemental approach based upon Value In Use would be conducted as well (or am being too curious?)

If a client wants a second value in use opinion, sure it could be provided. I would not volunteer it though.

On a MV assignment, do not need to make a value opinion but can add a comment such as value in use ( air bnb, renting out part of a SF property etc ) has inflated prices or led to higher prices for area properties, when investors compete with owner-occupant buyers

Of course, some UW or lenders might get confused by that comment but it can describe what is happening in a market area. It is exactly what does lead to price increases in some cases. It was built as a residential SFR property, zoned SFR residential, but half the people in the neighborhoods are renting a converted garage or such out, driving around and look at the number of cars in a driveway and read the MLS comments etc - I used to appraise in Miami Dade County ( long ago), -Hialeah and Little Havana - from the front of the house looks normal, go out back and they are running an atuo shop and raising livestock and chickens and whole generations of people are renting garages and rooms and etc etc. Those properties would lose value if code enforcement or the mayor of an area suddenly became strict and shut it all down.

 

[George Hatch]

Just because lenders are required to use MV doesn't preclude an appraiser from *adding* a 2nd value conclusion based on a different type of value. Insurable Value is an example of that - it's common for MV appraisals of non-res properties to also include an opinion of Insurable Value.

When it doubt, giving the user both and letting them make their own decisions is never the wrong call.

 

[J Grant]

Just because lenders are required to use MV doesn't preclude an appraiser from *adding* a 2nd value conclusion based on a different type of value. Insurable Value is an example of that - it's common for MV appraisals of non-res properties to also include an opinion of Insurable Value.

When it doubt, giving the user both and letting them make their own decisions is never the wrong call.

I personally would never do that on a lender appraisal where the purpose is market value. They have to use market value, they do not typically have the option to use a different value, but even if that were the case, then pay me for a second value opinion - I do not want to provide a free second appraisal of a value in use which can be complex and hard to measure and land me in court for my effort.
Also, lender appraisals are pretty rigid, and adding a second, different type of value opinion might confuse UW or go against their guidelines and they would ask to take it out.

I might comment in my MV purpose appraisal that value in use is impacting marketability and sale prices - and give a brief explanation of why that is so.

 

[ZZGAMAZZ]

You did not note any dates regarding the conversion from garage to "Rec. Rm" or to Occupancy, so how can one support either??
I do truly enjoy your thoughts on the Planning Dept non question, "because one can't occupy a Recreation Room" ????

I suppose you could just gather Market Driven, illegal use rentals and thru them in and let the Lender decide. Why not........

Published market data of any kind that pertains to non-permitted or non-permissible (either) status might reflect 0.000001 percent of online data. I rarely if ever find any pertinent data, for example, about non-permitted conversions; and if so, it inevitably pertains to a main unit that differs from the subject main unit by like 400% or more.