Assessing Sale Price on a Multi Family Apartment Complex

[Elaine Lau]

I am a new real estate agent selling a Multi Family Apartment Complex for my first client. I am working with a broker as mentor, and trying to get some opinions.

The seller, my client, thinks it is worth about $300k more than my mentor/broker thinks it is worth.

My client is making his calculation based on previous year's Expenses. This makes the selling price $300k higher than the numbers you would get from calculating the price based on a potential buyer's expenses. Mainly because you are calculating using a Property Tax based on the last price.

My client argues that it is reasonable to use current expenses to calculate the price, because you are supposed to create a selling price that is the most attractive for the seller (higher price). Broker/my mentor is suggesting to be realistic, and present a price that reflects what the new buyers' expenses would be.

Is it more of a standard practice to calculate the price based on current owner's expenses, or future owner's expenses? Will the potential buyer ask to see the numbers and ask for verification (thus making it difficult to prove the numbers for a future owner)? That's one of the concerns of my client.

This is tough situation because this is my first deal. I don't want the listing to go stale if the price is what my client wants it to be, and is too high. At the same time, I somewhat agree with my client that their price is not too high based on current market conditions.

Thank you so much in advance.

[John-David Herlihy]

How many units is it?

I think it is acceptable to use actual expenses to calculate NOI. However, your client should expect an experienced investor to make their own calculations in order to present their offer. Also, a good rule of thumb for expenses is 50% of rental income. Any lower can be suspect, much higher indicates opportunity to improve NOI via value add.