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Investment Properties

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bororke

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Joined
Jun 14, 2013
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State
Florida
When competing the 216 should the income be based on actual or market rents. Purchase transaction with current tenants.
 

Michigan CG

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Nov 1, 2006
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Certified General Appraiser
State
Michigan
Market rents.
 

Terrel L. Shields

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May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
If econ rents are below market rents then all the income approach tells you is the property isn't managed for maximum profit.
 

hastalavista

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Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
but eh form reads "Income should be based on the current rents, but should not exceed market rents."

Here is the passage:
upload_2016-12-29_9-45-8.png

I teach a residential income class (will be teaching one in Petaluma, CA, in February). Many appraisers are under the impression that market rents are to be used which is incorrect. There is a reason for this misunderstanding (according to me):

When we appraise the rentals, we are typically appraising the fee simple rights. Fee simple means market rents in almost all cases. In our valuation (the appraisal), we are analyzing (or should be, in most cases) market rents for the property.
The Operating Income Form (Fannie #216/ Freddie #988) is not part of the valuation analysis for residential mortgage assignment (as opposed to a typical commercial appraisal where income and expenses are formally analyzed). The only reason for the Operating Income Form in a residential mortgage assignment is to assist the UW in analyzing the forecasted cash flow from the property. That is why actual rents are necessary, but are capped at market if they exceed market rents.

BTW, Boroke, since you are an UW, I have a question for you: In the form above, the lender is supposed to obtain and provide income and expenses from the borrower and provide that data to the appraiser.

upload_2016-12-29_10-18-10.png

in my 24+ years of appraising, I've only received that information twice from a lender client. Most appraisers I've spoken to never receive it.
Does the lender you work for provide borrower-supplied income and expense data to the appraiser? I'm not an UW, but I would think that the borrower has completed a form with that information for the loan package if the property to be lent on is a rental, no?

(I'm not trying to put you on the spot; as I said, getting the information from a lender is as rare as seeing Big Foot. If you do supply it, you would be rare. But did you know that such information is supposed to be supplied?)
 
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