A lot depends on the neighborhood in my opinion. If it is an owner occupied neighborhood, then intangibles related to sense of community, commitment to the neighborhood, friendships etc. might push the sales comparison approach above the income approach. One of the perks of home ownership has been appreciation over time. If that is gone, such as in a declining market, then the underlying value of the property may indeed more accurately relate to the rental income that the property can generate.
On further thought the income approach, cost approach, and sales comparison should all yield the same result if adequate data is available and proper analysis takes place. The neighborhood that is owner occupied might be expected to sell at a greater GRM than one in a rental neighborhood.
jsp
John S. Porter
Certified Appraiser, LLC
10850 E Traverse Hwy, Ste 2290
Traverse City, MI 49684
231.883.8833
jporter@certifiedappraiser.net
www.certifiedappraiser.net
Certified Appraiser, LLC
10850 E Traverse Hwy, Ste 2290
Traverse City, MI 49684
231.883.8833
jporter@certifiedap
www.certifiedapprai
Find Appraisers fast with www.usappraisal.info
----- Original Message -----From: Michael BoydenSent: Thursday, November 19, 2009 4:14 PMSubject: Re: [MobileAppraiserGroup] GRMs Matt,
Thanks. Your (the) "HBU theory" statement will be a great comment to why the income approach doesn't reflect the market value.
Thank you,
Michael Boyden
On Thu, Nov 19, 2009 at 3:49 PM, Matt Cook <res00vjl@verizon.net > wrote:
Good point, but it is important to remember that you are dealing with two rental properties in your example. The situation would be different if House A were a rental and identical House B were owner-occupied, and you knew House A's rent and House B's sales price. They would not be bought with the same motivations and would House B would therefore not be a good proxy for House A.Appraisal theory tells us that if the HBU of the subject is as an owner-occupied SFR, the income approach will reflect this by giving us a lower indicated market value than the sales comparison approach. So mixing data from the sales comparison approach and the income approach would not give us an accurate value indication.
Matt Cook
Torrance, CAMichael Boyden wrote:
If you have two identical properties next to each other, both are rented, and you know the rents on one, and the sale price on the other, then you are in a perfect positions for a proxy GRM. If those two properties are next to your identical subject property, the result is going to be better than pulling a "true" GRM from across town. I believe this tool is very useful and should be used when appropriate,just like any other tool. Mike Boyden
On Thu, Nov 19, 2009 at 1:50 PM, Sarah Vetault <sarah@complinegroup.com > wrote:Brian, I generally agree with Kat. Unless the units are purchased by an investor specifically for a rental you don't really know the GRM for investor purchases. You've backed into a number of some sort, but it's based on sales with a different class of buyers. Income oriented investors may be looking for a higher return on investment and may not be willing to pay as much for a unit as a buyer planning to occupy the property. Then again, they might. You just don't know, unless you do have some sales that were purchased specifically for income-producing investments and can compare that with sales purchased by buyers planning to occupy the units. You're right, though, it's a way of cobbling together a number if you don't have any other way of doing it. I got really skeptical of the income approach in mid 2006 when I saw "For Rent" signs in front of every single potential comparable I looked at in one community here. There wasn't a single "investor" purchase with a positive or even a neutral cash flow. Usually the projected income would only cover about 1/3 of the monthly expenses. They all did 100% financing and their monthly expenses were enormous. GRM's went out of sight. It was pretty clear that the "investors" of 2006 weren't really looking for income producing property. They were speculators planning to flip at a profit and most of them bought too late in the cycle. Foreclosure signs are a common lawn ornament in that community now. No big surprise. A classic "Income Approach" to value didn't make a whole lot of sense at that time. Those "investors" weren't purchasing for rental income. Applying a GRM derived from purchases by investors truly looking for income production would have produced numbers about 1/3 of the value based on market analysis. Problem was, there weren't any investors looking for income production at that time because the cash flows didn't make sense. Using GRMs derived from then-current market-based transactions regardless of buyer type produced apparent GRM's about 3 times "normal." The real income-oriented investors are the ones buying now, when product is cheap and cash flows make sense. The GRM's have come down to more "normal" levels. Go figure. I will concede that doing the income approach made those market discrepancies really clear. :-) Sarah Vetault
Tucson, AZ
www.ComplineGroup.com When making your choices in life, do not forget to live. -Samuel JohnsonSent: Thursday, November 19, 2009 8:37 AMSubject: RE: [MobileAppraiserGroup] GRMs Kat –
The key to the GRM process is to develop your multiplier based on a number of transactions (ie not just one or two) and then apply that to multiplier to a "market" rent.
This is where the skill and knowledge of the appraiser comes into play. We all know that there are some owners that will rent "below market" for a variety of reasons. AND great caution must be taken to apply the process to highly similar properties as the approach does not use "adjustments".
Think of it this way . . . . Say you had a number of condo units that had sold in 2009, and an number of others that were rented at market rates in the same complex/building. Wouldn't it be logical to apply the market rent of unit A to the market sale price of unit B to develop a GRM? Apply that process over 10 other pairings from that and other complexes and one should see a pattern and could reconcile to a market multiplier. Armed with that multiplier (and IRV) one can apply it to properties that you're trying to find the value or income.
IMHO, appraisers don't like to do the Income Approach because (let's face it) it's more work. It's easier to write it off to "my peers don't do it" or "there aren't any rentals". The fact is that when folks go to write a "demonstration report" for a professional designation . . .mysteriously rentals appear! (wink). Then, typically, after that process, people must stop renting homes because appraisers go right back to ignoring the Income Approach?!
Brian J. Davis
Bloomington, IL 61704
309 662-4070
From: MobileAppraiserGroup@yahoogroups. [mailto:MobileAppraiserGroucom p@yahoogroups. ] On Behalf Of Kathleen brycecom
Sent: Thursday, November 19, 2009 8:28 AM
To: MobileAppraiserGroup@yahoogroups. com
Subject: Re: [MobileAppraiserGroup] GRMs I've also seen others refer to Brian's method and I've used it also. But every time I do I ask myself, is this REALLY the income approach? Is it really a reliable indicator of value, or just window dressing? Will I get misleading results? After all, if you are using sales comparisons to create a GRM are you really developing a value based on an investors point of view?. Are investors really willing to pay XX to receive YYY in rent? Or are investors just renting for YYY because they couldn't flip the property?Not being contrary, and Brian's method is widely accepted, but it doesn't seem to be an approach to value that be helpful in most cases. Similar to me with the cost approach when there is no active vacant land market.And if your client requires the income approach for EVERY assignment, what are you going to do when you are assigned a large luxury estate or special purpose property?Remember USPAP is specific we can not allow assignment conditions to affect the credibility of the report.Just some rambling pre-coffee thoughts...Kathleen Bryce
Lee County Appraisals
St.Cert.Res REA RD4424
http://www.leecountyappraisals. com
appraiserkat@earthlink. net
239-940-2225
fax 239-275-4130----- Original Message -----From: Brian DavisSent: Thursday, November 19, 2009 7:08 AMSubject: RE: [MobileAppraiserGroup] GRMs Steve –
Of course, but part of the process is determining what "Market Rent" is and locating non-owner occupied homes. That's what I was responding to.
That said . . . if there ARE no sales of rental properties one can abstract a GRM by using the sale of a "Model Match" (or highly similar home) to develop one.
For example, Home A is rented for $1000. Home B (highly similar) sold for $100,000 during the same period. GRM: 100.
Brian J. Davis
Bloomington, IL 61704
309 662-4070
Just having rent data does not give you a GRM. To get a GRM you have to have sales of rent property and know the rent of the property that sold.From: MobileAppraiserGroup@yahoogroups. [mailto:MobileAppraiserGroucom p@yahoogroups. ] On Behalf Of Steve Vineyardcom
Sent: Wednesday, November 18, 2009 4:11 PM
To: MobileAppraiserGroup@yahoogroups. com
Subject: Re: [MobileAppraiserGroup] GRMs Steve Vineyard
Vineyard Appraisal ServiceBrian Davis wrote:
Mike –There are "Cost Multipliers" in the M&S cost manuals but not "Rent Multipliers".I forget where you live . . . but even here in Bloomington/Normal IL we have an active rental market for single-family homes. One only has to look in the classifieds on Sunday to see the number of ads for S/F Rentals. I would estimate that overall we may have 10% of our homes as non-owner occupied. Some areas of course will have none and some will be 50%. ·Today, there are also online rental sites, Craigslist, and other places to start ones research.· In our community we have a number of rental management companies (primarily apartments) that can help with a list of Gross Income.·Maybe your Assessor can even help with a list of non-owner occupied homes . . .for an idea of the percentage of rental homes in a given market.·Start watching the ads and For Rent signs. Call the contact number and do a Rent Survey. You can offer to provide your results to those that respond.·Often Realtors are active in the rental business. I've found that you can usually find a couple of the "Big Players" and they can be a wealth of information.As a side-note . . . there's no way that I would start doing all the necessary research and rent surveys on "single-family" homes without being compensated. I've got an assignment right now where they want a Comparable Rent Schedule on a s/f home and I charge an extra $100 bucks.
Brian J. Davis
Bloomington, IL 61704
309 662-4070
Are there any published regional GRMs? I thought someone had once told me GRMs were in the M&S but I can't find it.From: MobileAppraiserGroup@yahoogroups. [mailto:MobileAppraiserGroup@yahoogroucom ps.com ] On Behalf Of Michael Boyden
Sent: Wednesday, November 18, 2009 1:01 PM
To: MobileAppraiserGroup@yahoogroups. com
Subject: [MobileAppraiserGroup] GRMs I have a good client who believes that they need the income approach completed on every residential appraisal. I can't tell them to go away, I can't charge more, I won't make up numbers. My area is typically single family owner occupied.
ThanksMikeOn Wed, Nov 18, 2009 at 1:29 PM, Jeff Cissna <jeff@cissnaappraisal.com > wrote:Yes I have it and I am one of the beta testers for it. I LOVE IT. I can say it is the 2nd best thing I use in the field besides my Disto. I love having just my disto in one hand and my iPhone in the other instead of the Disto and a tablet pc and a camera. It is soooo nice and works great on the syncing.
Jeff W. CissnaCissna Appraisal Inc.
6450 Highway C
Palmyra, MO 63461
Office Number: 573-769-2377Office Fax: 866-861-1960www.cissnaappraisal.com From: MobileAppraiserGroup@yahoogroups. [mailto:MobileAppraiserGroucom p@yahoogroups. ] On Behalf Of Elizabeth Angelocom
Sent: Wednesday, November 18, 2009 12:26 PM
To: MobileAppraiserGroup@yahoogroups. com
Subject: [MobileAppraiserGroup] does anyone use da vinci on i phone looking into using da vinci on the i phoneElizabeth Angelo
Certified Residential Appraiser405 340-1556
405 340-7388 faxVersion: 8.5.425 / Virus Database: 270.14.71/2510 - Release Date: 11/18/09 07:50:00No virus found in this incoming message.
Checked by AVG - www.avg.com
Version: 8.5.425 / Virus Database: 270.14.72/2511 - Release Date: 11/18/09 07:50:00No virus found in this incoming message.
Checked by AVG - www.avg.com
Version: 8.5.425 / Virus Database: 270.14.72/2511 - Release Date: 11/18/09 07:50:00No virus found in this incoming message.
Checked by AVG - www.avg.com
Version: 8.5.425 / Virus Database: 270.14.73/2512 - Release Date: 11/18/09 19:41:00No virus found in this outgoing message.
Checked by AVG - www.avg.com
Version: 8.5.425 / Virus Database: 270.14.73/2513 - Release Date: 11/19/09 07:51:00
__._,_.___
The Mobile Technology Group for Real Estate Professionals.
"Hardware and Software for The Mobile Professional - www.NewWorldMobileTech.com"
"Hardware and Software for The Mobile Professional - www.NewWorldMobileTech.com"
MARKETPLACE
.
__,_._,___
