Hi All, looking at multi family properties, duplex, triplex, quadplex, how do you price out properties?
Hey @Will Dean -
We price them out the same way the appraisers will - we use the sales comp and income approaches to generate two values and then we use our best judgement as to which number is most accurate. (In reality, the appraiser will also generate a replacement cost value, but it's so rarely factored into the final decision that we don't go through the exercise.)
For example, if we're pricing out a duplex, we select 3 to 6 recent sales of other, similar sized duplexes in the area. Take their sales prices and make adjustments based on how they compare directly to the property you are pricing out - adjust for different numbers of bedrooms, bathrooms, livable square footage, lot size, condition, etc. These adjusted values will lead you to your "sales comp" number. This process is no different from using sales comps to price out a SFH or condo/townhouse. Just keep in mind that different markets will place different values for extra beds, baths, square footage, etc - you need to know your market when making these adjustments if you hope to be accurate.
Now, with each of those comps, take their sales price and divide it by their total monthly rent - this will give you their respective GRMs. Based on the range of these GRMs, choose a number that seems most appropriate (some appraisers will simply average them all together - others will just choose a number) ... take the GRM value you've decided to use and multiply it by the monthly rent you expect for the duplex you are pricing out - this will give you your "income approach" value.
Now, you look at the two values you've just generated and use your best judgement as to which is most accurate - or it might be a blend of both.
To give you a real-world example of this, some clients of mine just closed on a duplex in Raleigh ... the appraisal came back with $468k for the sales comp approach - $594k for the income approach - and $480,200 for the replacement cost approach ... the appraiser selected $468k as the market value.
Hope I made this clear enough for people to follow and understand...
Residential multifamilies will be comped out. Find other like properties to get a good idea what the price would be. Commercial multifamilies will be priced based on the income it produces. Simply put.