Appraisers' Free Forum

**Hopland** · Posted: Sun Aug 19, 2007 12:40 pm Post subject: 5 unit income proeprty

Two questions:

1. How is the income approach dealt with in an "as is" value opinion when the units are under renovation and not producing income on the effective date? There is plenty of sales data to develop a credible opinion of MV for this property in it's current condition using only the sales comparison approach. Can the IA be excluded from the scope of work?

2. Client is a cheapskate and I don't feel like writing a narrative unless I have to. Is there a generic form in Bradford that can be use for reporting this appraisal? (Large lot, Mixed Use Resdiential zoning will allow for more units/higher density, improvements include five 1 bed/1bath cottages and a swimming pool in the courtyard.)

Renee · Posted: Sun Aug 19, 2007 1:01 pm Post subject:

Do you develop an income approach or even a GRM when the place is not rented for any other reason? Why not answer for its use, not its status and just say so?

hi, hop
man you res guys can appraise anything out there
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**Hopland** · Posted: Sun Aug 19, 2007 1:38 pm Post subject:

The client is a private, hard money lender so this is not a FRT. But in any case, the appraisal assignment was accepted by a friend of mine who holds a general license. He went to Tahoe for the weekend and has an all day appointment for something else on Tuesday. He asked if I could help him out and get things started. I'll take a small fee split and log some non-residential hours.

**Edd Gillespie** · Certified General Joined: 13 Aug 2007 Posts: 2282

Would potential gross income, market vacancy and pro forma operating costs be misleading? If so, why for subject to repairs value?
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Edd “In the real estate economy, there are no guarantees that reason will prevail in a market where emotions run high and the amount of misinformation runs deep.” Jonathan Miller in The Matrix. So what’s an appraiser to do?

Renee · Posted: Sun Aug 19, 2007 1:51 pm Post subject:

I am sure your conscience is clear my friend. Smile

I just wondered if you were not tangling up HB/U and the current status of the subject as under renovation. Beyond that, since it's a 5-unit income property, how would IA not apply in your MV opinion? Why else would a buyer buy it?

Sorry but I guess your Sunday is going to suck and involve some writing, mister. heh
from ms 1-4
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**Pina Colada** · Certified General Joined: 13 Aug 2007 Posts: 552

**Hopland** · Posted: Sun Aug 19, 2007 5:29 pm Post subject:

By comparing them to similar properties in similar condition?

The subject is in Lake County, CA. Lots of old fomer resorts like this one around the lake.

**Edd Gillespie** · Certified General Joined: 13 Aug 2007 Posts: 2282

**Mentor** · Certified General Joined: 11 Aug 2007 Posts: 276

Look over the 71A & 71 B forms. Forget the part on the pre-printed form where it says limited to $750,000 value. Just explain that it isn't a Fannie Freddie deal & that ceiling is ancient history. It will need all sorts of minor USPAP additions (easily added, with 2006 USPAP in one hand.

If you had a narrative template that was close, it would probably be quicker to write. It sounds like the predominate use is residential in nature.
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Renee · Posted: Sun Aug 19, 2007 6:44 pm Post subject:

Sounds like someone hasn't thought through his HBU, or we wouldn't hafta guess it.
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**Edd Gillespie** · Certified General Joined: 13 Aug 2007 Posts: 2282

I think Greg has figured out that there is a "hold for development" H&BU for his subject. But he won't say it.
_________________
Edd “In the real estate economy, there are no guarantees that reason will prevail in a market where emotions run high and the amount of misinformation runs deep.” Jonathan Miller in The Matrix. So what’s an appraiser to do?

**Hopland** · Posted: Sun Aug 19, 2007 7:49 pm Post subject:

You're right. I haven't thoroughly thought through the HBU yet. My friend just called yesterday and asked if I could help. He described the property, said that he had already inspected and we talked for a few minutes about different methodologies. He sent me some pictures and the address of the property. I've been working on two residential reports at the same time since yesterday and haven't really had time to think it through yet.

Of the five units, 2 have been rehabbed and 3 are in the final stages. None are occupied right now because the owner has been working on them. My friend did not tell me anything else. I spent about 3 minutes figuring out the income approach while he yakked at me. I figured rent on 20 x 20 1 bedrooms is $500 per month. $36,000 per year. 60% ratio, cap at 6. $360,000. He said from the comps so far he had figured $350k to $380k. There's one very similar on the market but with rehab completed at $400k.

HBU is to add some more units later. The zoning is residential but "visitor oriented." I don't think an aparement building would fly.

The 71B is designed for up to 4 units. The 71A has enough slots for a 5 unit but the preprinted definition of MV still refers to "the highest price...which a property will bring..."

JMichael · Posted: Mon Aug 20, 2007 9:48 am Post subject:

If the units are that close to being complete .. I would think that the income approach is certainly a viable approach particularly given that this is an investment property and its primary purchaser will be an investor looking to enjoy its income production.
You can, in my opinion, use the income approach and deduct the cost of completion as of your effective date.
The fact that two units are complete and two are very close would suggest that management has elected not to rent as of the current time purely for the ease of continuing the rehab.
There would definately be a market for this type of property because the rehab is so far along and an investor would be attracted to it.
Perhaps you dont have any exact comparables ... but if you have rehabbed units that have sold recently ... it provides support that the market for rehabbed properties is good and your property would soon qualify in this vein.
I think the income approach is applicable and should be completed and explained.
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**Pina Colada** · Certified General Joined: 13 Aug 2007 Posts: 552

**Steve Owen** · Posted: Mon Aug 20, 2007 1:31 pm Post subject: