APPRAISING SINGLE FAMILY RESIDENCES AND SMALL MULTI-FAMILY DWELLINGS

APPRAISING SINGLE FAMILY RESIDENCES AND SMALL MULTI-FAMILY DWELLINGS

This section outlines basic premises which must be considered in making an appraisal of a single family
residence and emphasizes some important factors to be weighed. It points out the differences that will be
encountered between appraising new and used homes, and shows appraisal differences between a small multi-
family dwelling and a single family home.

Single Family Residence

Neighborhood analysis.

A. Factors which make up the neighborhood must be determined and analyzed.

1. Type of occupants.

a. Income level.

b. Representative age groups and family sizes.

c. Owner occupancy vs. non-owner occupancy levels

2. Type of improvement.

a. Is there a mixture of uses (e.g., single family, apartments, etc.)?

b. What is the age bracket of the improvements?

c. What is the price range of typical houses in the area?

d. Conformity of the neighborhood

3. Neighborhood trend.

a. Are there detrimental factors present which might tend to depress the market?

b. Is the trend away from single family houses to multi-family, commercial or industrial uses?

c. Is the neighborhood in a transitional stage from owner occupied homes to tenant occupancy?

d. Are there advantageous factors which indicate an increasing market demand or price level?

e. What stage is the neighborhood in the neighborhood life cycle?

4. Changes in land use.

a. Zoning and restrictions.

b. Street and highway pattern.

c. Transportation.

d. Any encroachments?

e. Is utility increased? Decreased?

5. Community services.

a. Commercial.

b. Recreational.

c. Educational.

d. Cultural.

e. Governmental.

Inspection of property.

A. Relationship of the improvements to site.

1. The house, including outbuildings, should have a harmonious appearance on the site.

a. Is the house too large for the site?

b. Is the house properly oriented on the lot to take advantage of climatic conditions?

c. Overbuilt? Underbuilt?

B. Exterior of house.

1. Determine the quality of construction. Inspect:

a. Foundation.

b. Walls.

c. Roof.

2. Determine the resistance to wear and tear and the action of the elements.

a. Are there adequate gutters and drainspouts to take the water away from buildings?

b. Are there satisfactory roof overhangs to protect the windows and walls?

3. Measure the exterior dimensions of the buildings in order to obtain their areas.

4. Examine and describe yard improvements for purposes of estimating their value.

C. Interior of house.

1. Determine the quality of the building.

a. Durability of building.

b. Arrangement of floor plan and layout of space.

c. Attractiveness of design.

d. Grade and quality of materials used.

e. Adequacy of heating, cooking, electrical, and plumbing equipment.

2. Measure or take note of room sizes and placement of windows for adequate light and ventilation.

3. Determine if the traffic pattern is functionally proper.

4. Does the home have all the modern conveniences necessary for a new house in its price class?

Verification through public records.

A. Public records should be checked to verify the following about the property being appraised:

1. Proper legal description.

2. Correct street address.

3. Size/dimensions of the lot.

4. Location of the lot with respect to the nearest cross street.

5. Any easements, restrictions or other reservations or interests affecting the property.

6. The Assessor Parcel Number, assessed value and taxes of the property.

7. Any changes in zoning or street pattern.

B. Transfer of title of similar properties.

1. Sales of single family vacant lots should be obtained and verified.

2. Sales of improved single family residences within the same neighborhood should be recorded.

Inspection of comparable sales.

A. Vacant lots or improved similar properties should be inspected from at least the street.

B. Similar or dissimilar features as compared to the subject property are recorded and the selling price, terms
and reasons for sale or purchase must be verified by the seller or buyer.

Application of approaches to value.

A. Cost approach to value.

1. From the information gathered in the inspection and the size, quality and cost classification, an
estimate of cost is made of all improvements on the land.

2. The land value is estimated from information gathered in the record search of vacant parcels.

3. In the majority of instances, if the improvements are new and the highest and best use of the land, the
estimate of value by means of the cost approach is equal to land value plus the new improvement costs.

B. Sales Comparison or market approach to value.

1. The sales of similar type houses are compared to the subject as to time, location and physical
characteristics.

2. Necessary adjustment must be made between the sales and the subject.

3. A preliminary estimate of value by means of the comparative approach is obtained.

C. Income approach to value, if applicable (if there are rentals in this neighborhood).

1. The market rent of the subject is estimated by means of experience and comparison.

2. Gross monthly multipliers of similar type properties are gathered and analyzed in order to arrive at one
multiplier to apply to the subject.

3. A preliminary estimate of value by means of the income approach is obtained.

D. Reconciliation of the approaches.

1. Each approach is weighed and compared.

2. With a new property it will generally be found that the cost approach will be more applicable than for
an older property due to the difficulty in estimating accrued depreciation.

3. If the new subject property were located within a tract of similar type houses, market comparison
would be given the most weight in the reconciliation.

4. After weighing all of the factors involved, one final value reconciliation for the property is set forth.

Definition of small multi-family dwelling.

A. In most instances, a small multi-family dwelling refers to a property which contains two to four living
units. These units may be one of the following:

1. Double bungalow or duplex.

2. Triple bungalow or triplex.

3. Small courts or numerous houses on a lot.

4. Four unit or fourplex.

Reasons for purchasing residential properties.

There are three categories of residential properties: (1) Single family homes; (2) Small multiple family
dwellings; and (3) Income producing multiple family dwellings. They can be described as follows:.

A. Owner occupied single family homes.

1. Primary concern is given to amenities of home ownership.

2. Cost of ownership is of secondary importance.

3. Pride of location and architectural appeal is given consideration before purchasing.

B. Small multi-family dwellings and rented signle family residences are purchased for a combination of
property ownership and income.

1. Location, architectural attractiveness, and the amenities of ownership are given strong consideration by
a purchaser.

2. Income and tax benefits are strongly considered.

3. Sometimes, a buyer will live in one unit in a small multi-family dwelling with the intention of
reducing the cost of living by obtaining some rental income.

4. The income received may offset real estate taxes, insurance, and maintenance costs.

5. Rental income may also cover mortgage payments on the property.

6. Many times, the owner of a small multi-family dwelling will manage the property.

C. Income producing multi-family dwelling.

1. Large multi-family dwellings (above 10 to 15 units) are purchased primarily for the income stream to
be produced.

2. The net income or spendable income is the most important item considered by the buyer.

3. Amenities of ownership have little influence in the buying decision.

4. Buyers look for a hedge against inflation.

5. Chance for appreciation in value due to increasing demand in the area..

6. Tax benefits

Appraisal procedure for small residential income properties and single family residences.

A. Small multi-family units are appraised approximately the same as single family homes that have sufficient
rental data to perform an Income Approach to value..

B. Cost factors, depreciation and estimates of land value are calculated in the same manner as with single
family homes.

C. Small units normally are appraised using monthly gross multipliers. Income Capitalization methods are
not normally employed.

D. The Sales Comparison Approach differs for small multi-family dwellings from the Sales Comparison
Approach applied to single family homes.

1. Less emphasis is placed on attempting to measure pride of ownership and amenities in a small multi-
family dwelling.

2. The units of comparison can be refined to a greater degree.

a. Comparisons may be made on a per unit basis.

b. Comparison can be made on a per room basis.

3. The appeal of the units from a renter’s standpoint must be considered.

Amenities of multi-family dwellings.

A. Factors and amenities considered important by tenants of multi-family dwellings.

1. Distance from employment centers.

2. Public transportation.

3. Distance to good shopping.

4. Distance to parks and recreation.

5. Distance from nuisances.

6. Rent levels.

7. Pride of ownership.

8. Adequacy of off-street parking.

B. Factors considered important by the owner.

1. Police and fire protection, rubbish collection.

2. Vacancy rates in the area.

3. Amount of taxes.

4. Possible rent control ordinances.