Jade M. Hopkins said:
I am working on a Triplex appraisal on a 1025 and I have found comps for the sales section, is it acceptable to use the same comps in the sales and rental sections of the report? Sales are limited due to this being a triplex and the sales comps are really the best rental data available, if I dont use these I will have to go back furher in time or out farther to find rental comps. Thanks.
Mr. Hopkins,
So far, my experience in doing and reviewing income property reports has consistantly proven that the popular appraisal views of how to obtain rental data for the income approach are shortsighted, erroneous, go fast and to hell with the results methods. Answer to your question, yes you can use your sale comparable also as rental comps. But NOT without proper research and proper data. .. Does running back to your office expecting everything about rental data to come reliably off a MLS service ONLY result in a credible appraisal ?? My answer to that? "NO, Normally not!" .. For me this is the primary reason too many appraisers discount every approach to value other than the market approach... They are using bad data for the other approaches and don't care to bother to uncover it.. They just want to claim "Best available and reliable data was used.", in their addendum and collect their paycheck. It is why in 2-4 family appraisals they can never figure out why their indicated GRM's never make any sense when they use them multiplied by their estimate of market rents.
R.E. Brokers and landlords figured out a long time ago that listing a property showing as high of rents as possible made everyone think the property was worth more. So many MLS listing "Rents" are not actual rents. They end up being the R.E. Broker's estimates of market rents instead, or the property owner "increased rents" 20 seconds before listing. Especially when long term tenants are involved. Which is many residential appraisers very first mistake, never finding out length of tenancies in the rental data they are using and not considering a 7 year tenant may not be at market rent.
I too struggled with my income approaches arriving at a conclusion that was so far away from my market approach it made my entire report look stupid and / or caused me to think the income approach just was not valid. Leading to a temptation to pull a GRM out of my hind end to make it match up. The solution was obvious, not all that hard, and will make your approach better than you've ever seen it before.
If you are working in a urban area, so your subject is surrounded by rental units throughout the neighborhood, your answers and all your rental data are sitting there for the taking. It just needs a person willing to work to get it. I made up a tenant interview form and I go door knocking. I drive the area just to spot similar rentals to my subject, I get out and interview tenants. You do not need the same number of units per building, just similar units in any building. Even one tenant only in a fourplex, giving a successful interview that can be used for rental data, for a subject that may be a duplex is gold! Yes, it can take a couple of hours. But I have also been done in half an hour. I have found it's rather fun myself and I am generally very well received by tenants. Once I have even four successful interviews from comparable unit properties (I often try to get 8 or so) I can now use this with, and compare against, MLS reported data.
My personal tenant interviews have allowed me to directly confront a R.E. Broker about reported MLS "rents" and quickly led to confessions of the reported rents not being actual rents, but the R.E. Broker's opinion only of what he or she thought they "Should" be. I will even type in a fourplex with only one tenant interview of one unit as a rental comp and state the rents for the other four are unknown. (A lucky strike of a snoopy long term tenant and you'll find they know everyones rents in the building. Also, you'll be surprised how many times a "tenant" turns out to be the building owner and they will give you all the real rents and length of tenancies.)
Give it a try. You may loose field time, but in the office your time doing your income approach will not only be reduced, but you'll have the best 2-4 family income approach you've ever done in your entire career. Because you will have the very best data on market rents and you can even use it to estimate what the market rents for your sale comparable SHOULD have been if misreported or long term tenants. If that sale comparable you have has 15 year tenants, the R.E. Broker really did report actual rents (which were all below market) then those actual rents against the market sale price are skewing the indicated GRM horribly. Watch those GRM's suddenly fall into place for you and you'll find you will have the best, clear, reasons to state why you picked the GRM that you selected.
It's called good data, and ALL the data.. It makes all the difference in the world and can turn a form filler into an actual appraiser.
If that helps anyone, your welcome. If not, sorry I wasted your time.
Barry Dayton
