Reconciling to Income Approach

[V. Nightshade]

What conditions would need to be present to weight the income approach highest in the apraisal of a 1-4 unit property (and in particular a 2-unit) property. I've done about 25 multi-unit properties so far in my appraisal "career" and always reconciled to sales comparison approach, with reasoning which I probably inherited from whoever "trained" me. It always came out to favor the sales comparison approach. I'm appraising a 3,000+ sf 2-unit property in a community where values have melted down. Everything is distressed. The property is a completely renovated structure (originally Victorian) (Let's assume this is all true; I haven't seen it yet.) If the quality and quantity of my rental comps are superior to the sales comps, is there anything wrong with favoring the income approach? Even if 1 unit is owner-occupied? (By the way, this is hypothetical, since all I've done so far is research.)

 

[Michigan CG]

When appraising income properties I place the most weight on the income approach assuming the data is good.

 

[Randolph Kinney]

What conditions would need to be present to weight the income approach highest in the apraisal of a 1-4 unit property (and in particular a 2-unit) property. I've done about 25 multi-unit properties so far in my appraisal "career" and always reconciled to sales comparison approach, with reasoning which I probably inherited from whoever "trained" me. It always came out to favor the sales comparison approach. I'm appraising a 3,000+ sf 2-unit property in a community where values have melted down. Everything is distressed. The property is a completely renovated structure (originally Victorian) (Let's assume this is all true; I haven't seen it yet.) If the quality and quantity of my rental comps are superior to the sales comps, is there anything wrong with favoring the income approach? Even if 1 unit is owner-occupied? (By the way, this is hypothetical, since all I've done so far is research.)

Assuming that you are doing this for a mortgage finance transaction and Fannie guidelines would apply, concluding a value weighted on anything other than the sales comparison approach will not pass underwriting.

B4-1.4-20, Appraisal Report Review: Income Approach to Value (04/01/2009)

Fannie Mae does not accept appraisals that rely solely on the income approach to value as an indicator of market value.

Valuation Analysis and Final Reconciliation
In the final reconciliation, appraisers must
• reconcile the reasonableness and reliability of each applicable approach to value
• reconcile the reasonableness and validity of the indicated values
• reconcile the reasonableness of available data, and
• select and report the approach or approaches that were given the most weight.

2-unit properties are not typically bought for income, especially if one unit is owner occupied.

 

[Jerry Bone Jr]

Generally, an opinion of Market Value will require the DSC approach.