FHA Appraisals on Multi-Family Residential Properties

[Torhi Joseph]

Hello all, 

I know 2020 is making it tough, but I truly hope that you all are in great health and spirits!

This is the situation:

I am a Real Estate Agent here in Tampa, FL, and I am working for a fellow BP member in order to help him find a multi-family residential property that he can house hack. We have found many great options so far, but found that our options for MFR have been limited because sellers with properties that would pass FHA requirements are not receptive to FHA offers. I spoke to a listing agent on one of those properties, and it was explained to me that they do not accept FHA offers because appraisers will not use all of the property's potential income (due to it being owner-occupied), and thus an FHA Appraisal will fall short of the sales price.

These are my question:

1) Will an FHA Appraiser always use an Income Approach as opposed to a Sales Comparison Approach to evaluate a multi-family residential property?

2) Provided that the answer to question 1 is yes, will an FHA Appraiser really only use one unit to generate a valuation?

Thank you in advance!

Torhi Joseph

[Greg Scott]

Fascinating question.  

To clarify, I'm assuming you are looking at 4-units or below. Typically those are valued based on comps, not income approach. I'm not familiar with FHA appraisals in this space, but if they include an income-component, they are more akin to a commercial loan on an apartment (5+ units). These owners appear as if they are shooting themselves in the foot if they KNOW that FHA requires an income approach analysis and are not maximizing income.

Assuming this is a 4-unit or below and income is part of the appraisal equation, I have an idea.  There is no reason an owner-occupant cannot pay rent to himself (or the entity they own that controls the property).  If they are paying rent to themselves, it would be included in the rental income approach, and conceivable increase valuation.  Some owners may be willing to wait 2 or 3 months for that income to be included in their valuation.

It would be interesting to hear if there are people with direct experience in this space.