Sales Comparison or Income Approach?

[J Grant]

You sound like a more competent and concerned agent than most !Best of luck.

 

[AllAboutAppraising]

Which approach?

In this case, if the buyer is seeking a fannie mae loan, the appraiser would need to develop both approaches, but reconcile to the 'market value' found in the sales comparison approach. Yes, while the current owner enjoys a contract rent greater than market rent, that could change. Fannie Mae and all other players in the secondary market are interested in the marketability of a property should a borrower default, and Fannie Mae is trying to reduce risk by ascertaining what the holding period (marketing time) will be, and how much they can expect to sell the property for in the event they repossess. Even if you have an investor willing to purchase above market value, lenders will usually only loan based on the market value, and not the value based on capitalization of the income. In this case, even when both approaches to value are developed, the sales comparison approach will be the best indicator for value for a purchase in a federally related transaction. If it is a hard money loan, or portfolio loan, the lender may accept the capitalized value or GRM, but the risk is higher so certainly the loan terms would be less affordable to the borrower. Hope this helps.