Multi Family Appraisal

[Ryan Swan]

Looking for people's experience with appraisers on small multi family properties (2-4 units). Will they tend to use the sales comparison approach or the income approach for valuation on residential multis? The reason I ask is I'm trying to determine if you can drive up the value of 2-4 unit multis simply by raising the rent vs making capital improvements. 

[David Whartnaby]

I am am currently training to be an appraiser, so I'll answer this the best I can.

Most clients (more often than not banks) will require the appraiser to do the assignment on the Fannie Mae 1025 form (https://www.fanniemae.com/content/guide_form/1025.pdf).

The form requires the appraiser to input comparable sales and also active rent comps. If you "jack" the rent up (even if you find a tenant willing to pay it), typically the appraiser will not give credit for additional value above and beyond what market rents would determine.

The appraiser might also deem the cost approach applicable, usually if the building is 5 years old or less.

The appraiser will reconcile all applicable approaches to value used: sales comparison, income and/or cost in order to determine a final valuation of the property. This process of reconciliation can be weighted anyway the appraiser subjectively determines is most accurate. 50/50 20/30/50 80/20 whatever...

Hope this helps.