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Questions regarding the income approach for a duplex

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NHunsicker

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My old supervisor is unavailable to ask questions right now, so I'll put on my flame suit and wave my :new_newbie: flag, and ask for advice here. I want to do this the right way.

I'm currently appraising a duplex in a town that has only 1 multi family home sell recently. I've never really encountered a situation like this before where I've had so much trouble developing a GRM.

I've already figured that I need to look outside the area for additional comps to develop a GRM, but what is the correct method for equating that to the subject area?

Would it be appropriate to look at what rents in the subject area have been versus in the area I have found the comps in historically to determine what a current rent adjustment for using rental comps from another area?

Am I opening a can of worms by trying to adjust rents to reflect what they would be in the subject area? Should I just stick with the rents as they are from this other area, despite the fact that homes in the area typically sell for about 16% less?

Finally, when developing a GRM, is it necessary to use sales that the units are actually currently rented, or can units that have projected rents (say from MLS listings of what units have rented for in the past) be used to help develop GRM?

I really don't mind doing a bit of extra work to figure this stuff out, I'm just not sure which approach to deriving a GRM when I have such little data to work with is most appropriate and accurate.
 

Kevin Mc

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State
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Would it be appropriate to look at what rents in the subject area have been versus in the area I have found the comps in historically to determine what a current rent adjustment for using rental comps from another area?

I say no but I don't know your market.

Am I opening a can of worms by trying to adjust rents to reflect what they would be in the subject area? Should I just stick with the rents as they are from this other area, despite the fact that homes in the area typically sell for about 16% less?

Yes you are opening a can of worms. Compare apples to apples even if you have to go dated. Talk to area realtors or actually ring some door bells if you can.

Finally, when developing a GRM, is it necessary to use sales that the units are actually currently rented, or can units that have projected rents (say from MLS listings of what units have rented for in the past) be used to help develop GRM?

You can use all of the above just make sure your source is noted and each one is explained. good luck.
 

NHunsicker

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Aug 7, 2008
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Licensed Appraiser
State
California
I say no but I don't know your market.



Yes you are opening a can of worms. Compare apples to apples even if you have to go dated. Talk to area realtors or actually ring some door bells if you can.



You can use all of the above just make sure your source is noted and each one is explained. good luck.

This is actually for the like 1 realtor office located in the town heh. So it would in this scenario be appropriate to use dated (180+ days old) sales to develop a GRM? That's the problem I'm having really I guess. Is it more appropriate to use something recent from a different area or something old from the same area?
 

Kevin Mc

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Professional Status
Certified Residential Appraiser
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New York
Location,Location,Location.......The other area isn't comparable by your own words correct? Getting into location adjustments can get very sticky, I'd be moer adapt to use older sales and make time adjustments.
 

NHunsicker

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Joined
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Licensed Appraiser
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California
Location,Location,Location.......The other area isn't comparable by your own words correct? Getting into location adjustments can get very sticky, I'd be moer adapt to use older sales and make time adjustments.


If I were to do that for the income approach I understand how to make the necessary adjustments to the sale price... but I'm not sure how I'd go about figuring out what adjustments I should make to the rents since even when the market was booming there wasn't a whole lot of movement in the subject area.
 

Kevin Mc

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Jun 7, 2004
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Certified Residential Appraiser
State
New York
So you are planning to develop a GRM based on rentals from a non-comparable neighborhood? Are you sure you want to do that?
 

NHunsicker

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California
So you are planning to develop a GRM based on rentals from a non-comparable neighborhood? Are you sure you want to do that?


No, I'm fairly certain I don't want to do that. I'm just looking for guidance for how I should figure out what I should do to the rents, as I'm sure they've changed in the 1+ year since another multi family home in the community that was or was recently rented. Any suggestions?
 

Kevin Mc

Elite Member
Joined
Jun 7, 2004
Professional Status
Certified Residential Appraiser
State
New York
Given your limited data I would just lean to which ever end of the range the current rental market is best reflected and just state as such. It certainly doesn't sound like you have a whole lot of definitve information so to play with numbers would be the last thing I would do. just lay it all out, use the GRM number within your range that best helps you relfect the current market and explain it all away. Good luck.
 

NHunsicker

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Joined
Aug 7, 2008
Professional Status
Licensed Appraiser
State
California
Thanks. I guess that's what I'll do then. Either way the income approach seems to be way out of line with the cost and sales comparison approaches.
 

Kevin Mc

Elite Member
Joined
Jun 7, 2004
Professional Status
Certified Residential Appraiser
State
New York
Unfortunately sometimes that is all you can do. enjoy your weekend.
 
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