Multi Family Appraisal

[Jesse Michaels]

I recently completed a 4 page multi family appraisal and used the average of comparable sales, income and cost approaches to estimate value.

The lender has requested only the comparable sales approach amount to be the appraised value.

Comments?

 

[airphoto]

Presuming that average to fall within the span of values indicated by your sales comparison approach, just remove any verbiage about averages and report the exact same value (unchanged) but with the words "the reported value is a composite of those indicated" without going any deeper ..

 

[Jesse Michaels]

Thanks for the input Bill.

 

[Joe Moore]

An averaging technique is not acceptable per Fannie Mae Guidelines. See below...


Joe Moore





Fannie Mae Selling Guide

Section 409 – Valuation Analysis and Final Reconciliation


The valuation sections of our appraisal report forms enable an appraiser to develop and report in concise format an adequately supported opinion of market value-based on the cost, sales comparison, and income approaches to value (as applicable), and, in the case of small residential income properties, on comparable rental data. If the appraiser believes that additional information needs to be provided because of the uniqueness of the property or some other condition, he or she should provide additional supporting data in an addendum to the appraisal report form.

The reconciliation process that leads to the appraiser's opinion of market value is an on-going process throughout the appraiser's analysis. In the final reconciliation, the appraiser must reconcile the reasonableness and reliability of each applicable approach to value and the reasonableness and. validity of the indicated values and the available data, and then must select and report the approach or approaches that were given the most weight. The final reconciliation must never be an averaging technique.
If the appraiser has provided a comprehensive and logical analysis of the neighborhood and the property, the lender's underwriter should be able to reach a sound conclusion on the adequacy of the property as security for the mortgage.

 

[Jesse Michaels]

Thanks Joe.

 

[Stephen J. Vertin MAI]

Jesse:

First, what approach does the market most rely on to measure values of these properties? Typically, if you have more than 6 units in Chicago, the income capitalization approach has some applicability. The use of the application increases with the number of units. Smaller buildings are usually owner occupied. Income is not so much at issue. This may not be the same in your market but maybe you should be talking to brokers or buyers and sellers rather than people on this forum. I do not mean that in a negative way, but the question you ask is market specific rather than a general rule.

Steve Vertin

 

[airphoto]

Jesse,

With all due respect to Joe Moore, NEVER confuse appraisal techniques with underwriting guidelines ..

 

[Stephen J. Vertin MAI]

Jesse:

I just re-read your post. I do not know your experience level. But there are a lot of people not familiar with three approaches. So let me add something. First, the loan officers does not dictate what is going on in the market. The market tells you what is going on in the market and your final reconciliation is based on the most applicable approach to value and most important the quality of your data. You should gauge your final value on the most applicable approach. If that is sales comparison, so be it. If that is the income approach, so be it, etc. If it is a mixture of sales and income then value is most likely somewhere between. So, if the income approach is most applicable and the loan officer is telling you to use the sales comparison approach do not do it. You will get into problems. However, if indeed the sales comparison approach is most applicable, then by all means say that in the report and thank him for his help.

Steve Vertin

 

[Pamela Crowley (Florida)]

Jesse,

In following Steve Vertin's excellent and informative posts, I have noted that some 2-4 (and larger) family properties in this market are being sold from one investor to another and too often lately the new investor/buyer is unsophisticated and unknowledgable about this type of property. It's very possible that the new investor is being lead down a rosy path with the seller/investor just taking his money and laughing all the way to the bank.

This leaves YOU, the appraiser, responsible for making this deal a legal flip or an illegal flip. Illegal being it's sale amount (value) is inflated. Some inflated 2-4 family sales in this market being a fact, I would very carefully verify the comparable sales used. Then very carefully work up the Income Approach and rely on it by at least 50%.

Be VERY careful here. The underwriter DOES NOT dictate your reconciliation. You, the appraiser, do that and YOU are the one responsible for it.