Rent Schedule

[Em Tee]

Can you do a rent schedule on a property that's currently uninhabitable? Client wants a rent schedule for an SFR that's just starting renovation. Right now it's almost completely gutted. I know appraisals can be done "subject to" completion, but a rent schedule???

Do you make adjustments for the condition? How exactly would I do this?

 

[Larry Lyke]

Yes.

I can't think of a reason not to.

A rent schedule is not mutually exclusive to an appraisal.

L- in MN

 

[Farm Gal]

Mary:

IF the order is predicated on an 'as is' condition, I think to develop a rent schedule would be misleading under the circumstance you describe. <_< Uninhabitable homes generally don't get rental income.

If the order for the work was 'subject to', and they provide you with a comprehensive list of scheduled repairs and materials, you would PROMINANTLY DISCLOSE on the rent schedule that the rents developed were prediacated on the repairs as per the attached (blah blah) and that repairs in less than professional quality or lesser materials could adversely effect the results indicated (cover yoru rear on THAT aspect) B) .

Sure you can do rent schedules 'subject to' just make sure it is clear to the reader what you are doing and why!

 

[hal380]

Hi Mary;

I would prepare a rent schedule based upon my research of the local market.

A rent schedule merely indicates what rents are for units, (SFR, 2 Fams, 3 Fams, Condos, etc) in the subject's market area.

A rent schedule is a part of an appraisal. If/Since the appraisal is done "Subject To" then it would be obvious what condition the house was in, and therefore how relevant the schedule is. If the appraisal is done "AS IS" it would also be apparent what the condition is. In either case the Rent Schedule would only be valid when the house came up to the standards of the market from which the rents were derived. A well documented report would leave no doubt about the condition of the house and the relevance of the rent schedule.

I would make a note in the body of the rent schedule that it was predicated upon the subject being in condition which mirrors the rental market from which the survey was made. (I would do this so my schedule could stand alone, if it became separated from the body of my report.


Regards to all


Hal

 

[Phil Rice]

Lee Ann says:

to develop a rent schedule would be misleading under the circumstance

I disagree, sort of. To me, the rent schedule is not directly related to the (market) value of the subject. It is to assist the lender in evaluating the credit score of the borrower. How much help are they going to get in making the monthly payment, as opposed to how much could we sell the house for.

More to the point:

you would PROMINANTLY DISCLOSE

this is a common theme on the forum, the idea that you are going to "prominantly" disclose something. I disagree with the concept. As a practical matter, I am pretty sure that my report does not get read cover to cover every time. I have given this some careful thought. My conclusion, I do not try to "hide" anything in my report. I try to make the report as "readable" as possible, and I put things in a logical order. I do not accept any responsibility for something that is in the report and "missed" by the reader.

I assume that the reader will read the report. If they miss something, even if it is important, that is not my problem.

My advice: disclose the condition of the property, with words and pictures. Discuss the rent schedule with the client before you do any more work, they may decide that they don't want it. If the client still wants the rent schedule, include it. If the rent schedule is based on what the market would bring in the current condition (ie zero), say so in the report. If the rent schedule is based on what the market would bring after the fix up, say so. Don't hide it, but do not feel the need to make it prominant. You cannot make them read the report, and if they don't, it is not your problem.

 

[Mike Garrett RAA]

Phil.....

But it is your problem. What is the purpose of including an income and expense analysis and comparable rent schedule? It is part and parcel of the appraisal report and is prepared for the user of the appraisal to determine if the subject property will have sufficient income to support the loan as a non-owner occupied property.

Thou shall not mislead.

Simply indicate that the income and expense analysis is a based on the assumption the property will be typical of other rental properties once it has been renovated. At the present time it is NOT rent-able and to indicate otherwise is misleading....but then you know that already.

 

[Phil Rice]

I say:

I assume that the reader will read the report. If they miss something, even if it is important, that is not my problem.

and in response, Mike says:

But it is your problem.

and

Thou shall not mislead.

Mike I think you are off base on this one. Are you buying into the "prominent" argument? If you put it in bold type at the top that is OK, but regular type in the middle of the report is "misleading"?

Are you saying that if someone fails to read something that is in my report it is my fault?

More to the point, you seem to be saying that USPAP applies to anything that is included in the appraisal report, even if it only indirectly applies to the market value. USPAP applies to anything that the lender may use in making a lending decision? I have mixed thoughts about this one, I need to think this over for awhile. Maybe. Can you quote something in USPAP to support this line of thinking? I would like to read it carefully and think on it.

 

[Mike Garrett RAA]

Yes I can; however, there are many others who are far more versed in USPAP than I... so I will let them do it. My contention again is that the income and expense analysis and comparable rent schedule IS part of the appraisal and therefore may not be mis-leading.

I am not commenting about where you put it but rather that it not be construed to indicate a rent which could not be obtained for the property in it's "as - is " condition.

 

[Farm Gal]

Originally posted by Phil Rice@Feb 7 2004, 09:42 AM
To me, the rent schedule is not directly related to the (market) value of the subject. It is to assist the lender in evaluating the credit score of the borrower. How much help are they going to get in making the monthly payment, as opposed to how much could we sell the house for.

Phil:

Ay-yup: however it is therental comparable sheet development which may require disclosure and explanation: as to where the subject rental income fits within the larger market and WHY. The lender has a need to know that the Census Beauru reports may not be the whole tale.

I know in some areas that the rent for most income property within a certain district is consistent. Some markets (like mine) the rents within a 1 mile radius can vary say from say $200 a month to in excess of $800 a month for the same size unit. Admittedly this is based nominally on location, but the primary factor is the physical condition of the proferred premises!

Hence my concern that a property be adequately described and compared even for development of a rental comparable form.

An uninhabitable property cannot achive any rental income and if performed 'as is' this needs to be disclosed!

soooo. Condition/quality matters, at least around here!

 

[Phil Rice]

I did a 5 minute research project. I looked at a comparable rent schedule, and I looked thru my USPAP book.

Let me start by saying, I was never advocating that it is OK for the rent schedule or anything else to be misleading.

Someone has had problems with the (North Carolina?) board, and the board has found the appriaser guilty of producing a report that "might be misleading to a third party". My comment: This is an impossible standard, because it could be true of any appraisal report. I do not know the specifics of this particular case. I use it as an example that not everyone agrees with my take on "misleading".

USPAP says that an appraiser must not communicate assignment results in a misleading manner. Comment: this is much different than saying nothing in the report can be misleading.

Assignment results is defined in the USPAP book. It clearly includes the appraised value, it may include more. The book says it includes "opinions or conclusions developed in the appraisal assignement". Comment: this is grey, could be interpreted to mean everything in the report, my take is that opinion of value is most important, everything else is less important.

Appraisal is defined as an opinion of value. It follows that the appraisal assignment is the body of work in developing an opinion of value. USPAP defiines assignment as a valuation service.

To the extent that the comparable rent schedule is related to the "opinion of value", it is part of the appraisal, and covered by USPAP. To the extent that the comparable rent schedule is related to the borrowers credit score (ie, not part of the opinion of value), it is not part of the appraisal, therefore not part of the assignement results, therefore USPAP does not apply.