Valuing Multi-Family Properties

[David Moore]

I'm kind of baffled at valuations in general.  They seem so random.  A building two blocks from my four plex in Crystal, has a newly painted exterior, decent looking apartments the same size, but with worse looking vinyl windows, no garage, and rents at least $100.00 per unit below mine.  It goes on the market for $405K, and  gets an offer of $395K, settles lightning fast.  My building has all rehabbed units, new carpet, bathrooms, gutters...a lot of improvements.  

Two four plexes come on the market in Champlin.  They are similar to mine, and I check the rents for differences between here and Champlin.  The advertised price is $325K a building.  Rents are $150.00 below mine, and both get bought in one day...don't yet know the price.  One day!  And rents in Champlin, in that area, are lower than in Crystal.  

Now, I get a refi on my four plex.  I see the building that sells for $395K in the report, and yet, my appraisal comes in at $318K, right at the loan needed level.  

I thought value in commercial properties and valuations by banks or buyers was based on the numbers...what the property generates in revenue, as opposed to the usual criteria for SFDU's by banks.  Why are investors, appraisers, and banks not using simple math to value the building, like the books insist they do?

[Michael Seeker]

@David Moore - The appraisal report should have a very detailed breakout of the buildup to the valuation.  Since you are referring to 4-plexes, this would be a residential appraisal (not commercial) and the valuation will generally be based off of comparable sales approach (not income approach).  

The appraiser should be comparing square footage, unit count, unit mix etc, but the valuation based on income will only be used to validate the comparable sales approach (or not at all).

Did you read the entire report to determine how the appraiser came to $318K?  It would be helpful to know what the comp/income valuations are and how they differ.  It sounds like you want it valued with income approach, but that just isn't how 1-4 unit buildings are appraised.