Income Property Review

[TMcR]

I received a copy of a report I’m currently appraising. Income property 4plex. The original appraiser compared subject 4 units to 2 unit duplexes. They adjusted both for for GLA and additional units. Typically I see this as double dipping. I don’t typically see unit adjustments as well. Advise helpful.

 

[Tom D]

it would be gba, not GLA, and bath room adjustments only.

 

[TMcR]

it would be gba, not GLA, and bath room adjustments only.

Correct. I don’t typically adjustments for both gba and unit count.

 

[TMcR]

Correct. I don’t typically see adjustments for both gba and unit count.

 

[TerryRohrer]

Given a choice, duplexes should not be compared to fourplexes. If you have enough data to credibly establish both a unit adjustment and a GBA adjustment, you likely have enough data to avoid it. But, in my market, price per unit is generally inversely related to the number of units. If, at the same time, price and GBA are inversely related, both are appropriate adjustments. Depends on the data, not the rule of thumb.

 

[George Hatch]

The real problem is using 2un comps in the first place. Never would I ever.

Of all the appraisal forms that exist I hate the 1025 the most, particularly that SFR-style adjustment grid. It only really works when all the comps are real similar to each other in unit count and unit mix.

If you have a 4un subject then better to stick with 4un comps even if you have to back in time or outward in proximity. You can scrape by with a 3un comparable but that isn't optimal.

The adjustment factors for room count are usually going to be a lot different for income units than for SFRs. If the properties are selling at a 150x GRM then the adjustment factor for the contributory of a bedroom might be some fraction of that 150x. A 1bd that rents for $1200 might be generating $800 less than the 2bd unit located next door. $800 x even a 50GRM = $40k, not whatever a bedroom is worth to an SFR in that same neighborhood.

The SC grids in the 71a/71b apartment appraisal forms are not adjustment grids. You don't apply line item adjustments to the prices.

The most consistent unit of comparison for multi-family is price/room. That's because a 1bd unit (3rms) generates less income than a 2bd unit (4rms) or a 3-bd unit (5rms).

I'm appraising a 9un building in Long Beach today. It's got a mix of 1bd and 2bd units totaling (32rms). If I have a 9un comparable to one side with all-1bd that comp will only have 27 rooms. If I have a 9un to the other side with all-2bd that will amount to 36 rooms. All three properties will have different income which means they will have different values. Even though they all have the same number of units.

(There are lots of comps in town so I am not forced to include any all-1bd or all-2bd in my SC. I will be able to find properties with a mix so that's what will be more similar overall).

3 and 4 unit properties (usually) work about the same except at higher prices/rm due to the much more favorable financing terms. All RE is local and YMMV but from an income perspective you would EXPECT that a property which generates 10% more rent would sell at a higher price than one that generates less income.

 

[TMcR]

Tu

 

[TMcR]

Given a choice, duplexes should not be compared to fourplexes. If you have enough data to credibly establish both a unit adjustment and a GBA adjustment, you likely have enough data to avoid it. But, in my market, price per unit is generally inversely related to the number of units. If, at the same time, price and GBA are inversely related, both are appropriate adjustments. Depends on the data, not the rule of thumb.

Tu

 

[TMcR]

Given a choice, duplexes should not be compared to fourplexes. If you have enough data to credibly establish both a unit adjustment and a GBA adjustment, you likely have enough data to avoid it. But, in my market, price per unit is generally inversely related to the number of units. If, at the same time, price and GBA are inversely related, both are appropriate adjustments. Depends on the data, not the rule of thumb.

The real problem is using 2un comps in the first place. Never would I ever.

Of all the appraisal forms that exist I hate the 1025 the most, particularly that SFR-GBAstyle adjustment grid. It only really works when all the comps are real similar to each other in unit count and unit mix.

If you have a 4un subject then better to stick with 4un comps even if you have to back in time or outward in proximity. You can scrape by with a 3un comparable but that isn't optimal.

The adjustment factors for room count are usually going to be a lot different for income units than for SFRs. If the properties are selling at a 150x GRM then the adjustment factor for the contributory of a bedroom might be some fraction of that 150x. A 1bd that rents for $1200 might be generating $800 less than the 2bd unit located next door. $800 x even a 50GRM = $40k, not whatever a bedroom is worth to an SFR in that same neighborhood.

The SC grids in the 71a/71b apartment appraisal forms are not adjustment grids. You don't apply line item adjustments to the prices.

I received a copy of a report I’m currently appraising. Income property 4plex. The original appraiser compared subject 4 units to 2 unit duplexes. They adjusted both for for GLA and additional units. Typically I see this as double dipping. I don’t typically see unit adjustments as well. Advise helpful.

 

[J Grant]

I received a copy of a report I’m currently appraising. Income property 4plex. The original appraiser compared subject 4 units to 2 unit duplexes. They adjusted both for for GLA and additional units. Typically I see this as double dipping. I don’t typically see unit adjustments as well. Advise helpful.

Why do you care about their report - and how did you come to "receive it?"

I normally would not compare a 4-unit property to a 2-unit property unless desperate due to lack of comps.