Apartment Appraisals
Apartment appraisals can involve anything from a duplex to up to a large complex with an on-site management office and full-time maintenance staff. Because of the income generating potential of apartments, the Income Approach to value is typically developed and given consideration in an appraisal. A rent roll detailing the rent for each unit as well as expenses such as insurance, utilities and maintenance is provided by the owner. Historic expenses of the property are compared with published expense data in order to estimate the forecasted income. This data is used by the appraiser to estimate the value of the property.
Another method used to estimate the value of apartments is the Sales Comparison Approach. Comparable sales from the neighborhood, or other competing areas, are selected on the basis of having similar physical and locational characteristics. Units of comparison typically used are: price per apartment unit, price per square foot of building area, price per room and the gross rent multiplier. Using these indicators, and usually giving heavier weight to the price per apartment unit and gross rent multiplier, an estimate from the Sales Comparison Approach is derived.
Two to four unit apartments are typically appraised using the Small Residential Income Property Appraisal Report (1025). This form uses sales and rental comparables and is lengthier than a single-family residential report. Five units and larger apartment buildings are often appraised with the Residential Income Property Report (71A or 71B). When analyzing larger buildings, the net income of the property is estimated. This requires good expense data and analysis. A capitalization rate is obtained from the comparable sales and from published reports and is applied to the subject’s net income to obtain a value estimate. Self-contained narrative reports are usually done when appraising large apartment complexes where the lender needs a detailed description of the geographic area, the market, the subject property and the comparables.
