Quadplex being developed to be rented solely as short-term rental units. Residential or Commercial?

[Terrel L. Shields]

The valuation of a hospitality property is a whole different ball of wax

First for it to work as a BnB, then obviously it needs furniture and appliances. Or do they expect the renters to treat it like a "dry cabin" in the forest? - No electricity, no water, no bedding or appliances.

So you would have to allocate some portion of the income to the personal property. This would be more like a motel valuation than a 4 plex "residential" property.

 

[lls4910]

The owner wants you to do a "value in use" appraisal. The lender is looking for market value.

If he put slot machines in it, would you appraise it as a casino?

 

[Charles West]

How does the developer get to opine about downstream ownership rights? Is it written in the CCRs?

 

[George Hatch]

How would the property be marketed and who is the typical buyer?

I have done a bunch of these over the years and - to date - the client always asks for the MV of the realty (only). 'Cause IRL that's all they're going to be able to claw back if the borrower doesn't perform.

 

[J Grant]

A) Our office just got handed an assignment to perform a residential appraisal on a new development quadplex. So far so good. We do plenty of those, and know the market for long-term tenant rentals well in the subject's market area.

B) The problem is, the developer is adamant that the units are going to be rented on a per-day/week/month basis, ala AirBnB, and as a result, any appraisal performed must approach appraising said property based on per-day/week/month rental prices, market cap rates, etc. rather than as long-term rentals.

Your office chief appraiser should know if appraised as B) it no longer qualifies as a residential loan, it was appraised as a small motel, despite calling it air BnB . The developer/borrower wants it both ways - (and likely did it before )- this borrower wants the low rates of a res loan, but the high income rental of a motel type use to max out the value. .

Whether it is a cert Res or a Cert Gen, they have to do a HBU analysis. If the developer is instructing the HBU of appraisal, it is an unacceptable assignment condition. I would pass on this assignment because something is off at your "office" wrt to letting a client dictate how to appraise , - yes if appraised as a commercial type rental basis a cert gen should do it. . I doubt office wants to pay the higher cert gen fee and borrower does not want a higher interest commercial loan.

 

[CGinMN]

A Certified Residential appraiser isn’t licensed to perform a HBU analysis if it requires an analysis of potential commercial uses. So there’s that…

So even if the HBU ends up being residential, if an allowed use is commercial and requires the analysis of commercial data to determine the HBU, then a CG technically has to do that analysis, at least that is the case in MN.

 

[Mark K]

If he put slot machines in it, would you appraise it as a casino?

Valid question.

Not saying the OP would but sadly there are some on this forum that believe that if you put a barber chair in a bedroom then you have a commercial property.

 

[J Grant]

A Certified Residential appraiser isn’t licensed to perform a HBU analysis if it requires an analysis of potential commercial uses. So there’s that…

So even if the HBU ends up being residential, if an allowed use is commercial and requires the analysis of commercial data to determine the HBU, then a CG technically has to do that analysis, at least that is the case in MN.

But that is part of training for res license - a cert res is qualified when tasked with HBU of a property to determine there is a strong possibility commercial is the HBU, but at that point give the assignment back -
Air bnb is tricky because Fannie, in their infinite greed to make more loans, say they accept the INCOME from air bnb to qualify a borrower. But that is on the borrower income ledger side, along with any other jobs or income sources - it is NOT about income attributed to the property! ( which some appraisers confuse we've seen the posts )

Some appraisers will twist themselves into a knot to accommodate a client and these are the appraisals . or loans that often get flagged later on review - a recurring theme for res lending, where a borrower wants the low rate of a res loan but the high income from commercial or income use to get a max value - so they pretend a rented property is owner occupied, or an investment property is bought to live in as primary residence, or that a property run like a motel is for a res income loan etc.

A Toyota Corolla is used by owner for UBER driving and driver gets income from it. Is that Corolla then when put up for sale worth more than any other similar Corolla ? No. It has no Taxi medallion and it is not a limo designed for paid passenger use. This is a similar situation. Is the subject property a Corolla, or a limo ? the ledger side to borrower of income does not change the car or property type.

 

[CGinMN]

But that is part of training for res license - a cert res is qualified when tasked with HBU of a property to determine there is a strong possibility commercial is the HBU, but at that point give the assignment back -

All I know is the guidance from my own state. The city of Minneapolis recently “upzoned” all SFR/duplex (R1/R2) parcels to allow for triplex. Higher density parcels (R3-R6) now allow for commercial MF uses. I spoke to an investigator at the Dept of Commerce and here was the response:

I had just this scenario brought to my attention by a CG whose firm was doing a duplex in a commercial zone. It had a legal non-conforming use, but his question was, did he have to do the highest and best use analysis and not the CR or licensed appraisers in his firm. We decided that the answer was yes. If the highest and best use analysis includes a commercial property or a rental unit with greater than four units a CG has do complete the highest and best use analysis. Depending upon his determination the report than could be completed by the CR or licensed appraiser, if the highest use was its current duplex use, but if he determined that a commercial use was highest and best then a CG needed to complete the appraisal.

I feel in the matter you stated regarding the R3 – R6 zones that yes, a CG needs to complete the highest and best use analysis and depending upon the outcome of that analysis would determine what appraiser licensing level could complete the appraisal.

 

[Dublin ohio]

I feel in the matter you stated regarding the R3 – R6 zones that yes, a CG needs to complete the highest and best use analysis and depending upon the outcome of that analysis would determine what appraiser licensing level could complete the appraisal.

Does anybody else see the stupidity of the above